KARACHI - A significant percentage of the economy remains undocumented and operates outside the tax net. Not only does this act as an impediment towards broadening the tax net, it discourages honest tax payers. Mandatory documentation of all segments of the economy is therefore essential if the government intends to broaden the tax base and reduce burden on already taxed. These came as part of the recommendations made by the Overseas Investors Chamber of Commerce and Industry (OICCI) for the Budget 2011-12 released Monday. According to OICCI proposals, agriculturists be encouraged to declare their income and file income tax returns, even when their income is exempt from tax. Alternatively, one of the areas also to be considered is withholding tax or Federal Excise Duty on agricultural produce collected at the time of procurement. Moreover, the government should offer incentives to registered entities to deal with tax compliant units only. Corporate tax rate be reduced to at least 30 per cent to make Pakistan internationally competitive, OICCI recommended. The application mechanism of the Final Tax Regime (FTR) and Minimum Tax Regimes (MTR) should be adjusted to ensure that the effective rate of tax does not exceed 35 per cent. OICCI seems the flood surcharge is discriminatory as it taxes the already taxed, recommending that it should be abolished by June 30, 2011 as earlier announced by the government. Regarding sales tax, the chamber said billion of rupees of Sales Tax refunds are deferred due to discrepancies pointed out by the STARR System. There is a need to streamline the entire refund verification and sanctioning process. The chamber proposes removing the following section whereby: a registered person shall not be entitled to reclaim or deduct input tax on the goods in respect of which Sales Tax has not been deposited by the respective supplier into the Government Treasury. About the issues related to zero rated procurement and Afghan Transit Trade (ATT), the chamber suggested Oil Marketing Companies (OMCs) should be allowed to procure zero rated products from local refineries for exports and supplies to foreign vessels and foreign flights proceeding abroad. To curb the misuse of ATT, the negative list needs to reviewed in order to make it more logical and realistic; a quantitative ceiling for imports is required by Afghanistan; imports under ATT should be subjected to custom duty which can be refundable subject to confirmation of goods actually reaching Afghanistan or as an alternative, duties and sales tax should be lowered for category of goods affected by the misuse of ATT. In view of high inflation, the threshold for salary taxation should be increased to Rs.500,000; the existing upper limit for Tax Credit for Investment should also be increased to Rs.500,000 and life insurance should be allowed as a part of investment allowance, it proposed. Workers Profit Participation Fund (WPPF) of 5 per cent and WWF of 2 per cent should be replaced by a consolidated levy. Also, FED on royalty payments should be withdrawn, it said. Moreover, the chamber also recommends adopting progressive fiscal and tax policy measures that encourage foreign direct investment, particularly in the manufacturing industry and remove impediments in the implementation of investor friendly tax policies/laws.