CVT on foreign assets leading to brain drain, loss of investment in Pakistan: PBC

KARACHI: The one percent capital value tax (CVT) on foreign assets, imposed in 2022, is driving professionals and entrepreneurs away from the country, leading to a brain drain and loss of investment, the Pakistan Business Council (PBC) said on Friday.

"Tax on foreign income can remain, but CVT or wealth tax on foreign assets should be removed since this is a tax doing more long-term harm to the country than gain," the PBC said in a statement.

The CVT, which requires a 1 percent annual payment to the Federal Board of Revenue (FBR) on assets outside Pakistan, is in addition to income tax on income earned on these assets.The PBC said the CVT is preventing Pakistani professionals abroad from taking up jobs in Pakistan, as they would have to pay 1 percent on their accumulated assets every year.

"Why will they move to Pakistan to take up jobs in Pakistan, when on the assets and properties they have accumulated while working outside they have to pay 1 percent on this wealth every year."

Due to this tax, Pakistan loses its ability to attract back persons who have developed expertise, such as doctors, bankers, consultants, and other experts.The PBC also said that the CVT is incentivizing current professionals who moved to Pakistan before 2022 to move out again, leading to a brain drain.

Furthermore, the CVT is preventing Pakistanis abroad from moving back to Pakistan to be with their aging parents, which is "really heartbreaking but then some people would prefer to send the money saved in the CVT to their parents rather than moving themselves."

The council also noted that the CVT is preventing Pakistanis abroad from moving to Pakistan after retiring from their professional life, unless they are handicapped or not fit.On the other hand, the imposition of this capital value tax is incentivizing many entrepreneurs to move themselves or get their family members to move out of Pakistan.

"Meaning entrepreneurs spend more time outside Pakistan so automatically get more ideas and time to expand business out of Pakistan and less in Pakistan," the PBC said.If the government penalizes these individuals by amending residency rules or imposing further penalties, "they will spend more time outside and not invest at all further in Pakistan. They may give up Pakistan nationality, setting a bad example for local and foreign investors for invest in Pakistan," the PBC warned.

"So 1 percent CVT on foreign assets is leading to brain drain loss for Pakistan of foreign trained professionals and of some entrepreneurs. As well as loss of money to Pakistan which otherwise they and their children will invest and spend in Pakistan as well as pay income tax to Pakistan on the earnings of these foreign assets."