Corporate sector to pay 40.25pc tax

LAHORE : The corporate sector will have to pay 36.5 per cent tax on average during the remaining period of the fiscal year 2010-11, while the annual payment ratio will be 40.25 per cent, as the FBR has issued complete procedure for the payment of the recently announced flood surcharge of 15 percent following the promulgation of the Presidential Ordinance, it was learnt.As per sources, the Federal Bureau of Revenue (FBR) has finally released the detailed procedure for the imposition of the flood surcharge in Pakistan. According to which the additional tax will be charged on the existing 35 percent tax liability, cumulating in an effective tax rate of 40.25 percent on an annualized basis, they added. They said that the new measure will be effective for the period March 15-June 30, 2011 (3.5 months), resulting in corporates paying an average 36.5 percent tax rate for FY11. Economists expect the new tax to curb FY11E earnings growth by 1.5 percent to 19.5 percent (from 21 percent earlier). On individual companies, this would erode profits on an average by 2 percent in FY11. Further, if the flood surcharge is carried forward to FY12, there will be a major hit on the corporate profitability growth as earnings growth is likely to reduce to 8 percent from base case of 12 percent.Experts are of the view that after the imposition of the additional surcharge on the existing tax Pakistan now would rank amongst the higher corporate tax regimes of the world. They said that Japan tops the list with 39.5 percent tax rate followed by the US (39.2 percent) and France (34.4 percent). Amongst the prominent lowest corporate tax charging countries, Singapore (17 percent), Saudi Arabia (20 percent) and Iran (25 percent) head the list, they added.