PAKISTAN could come under additional US economic sanctions if the Clinton administration makes a formal finding that the government was overthrown in a military coup.
US law bars any US financial assistance to a country “whose duly elected head of government is deposed by a military coup.” However, a source at the US Export-Import Bank said the finding would be of academic interest only since Pakistan is already closed for credit reasons and remains under sanctions for testing a nuclear device. The source said the administration does not appear eager to acknowledge that a military coup occurred and further burden Pakistan. On October 27, President
Clinton renewed a limited waiver of the nuclear-testing sanctions, but only for purposes of financial assistance by the US Department of Agriculture “to support the purchase of food” and for the “making of any loan or the providing of any credit to the Government of Pakistan by any US bank.”
TURKEY imposed an additional 5% corporate tax on 1998 earnings to help pay for earthquake damage in a measure that cleared parliament on November 26. Companies in the quake region are exempted. The country is expected to take other steps soon to support its economic program for the period 2000 to 2002, including increasing indirect tax rates by one percentage point and raising value added taxes.
POLAND cut the corporate income tax rate from 34% to 22% by 2004. The new rates are 30% in 2000, 28% in 2001 and 2002, 24% in 2003 and 22% in 2004.
SAUDI ARABIA is considering allowing foreigners to own up to 75% of joint ventures and offering tax holidays and soft loans to attract more foreign investment, the Saudi industry and electricity minister said at a conference in early November. Current law limits foreign ownership of joint ventures to 49%. There is a 10-year income tax holiday, after which the income tax rate is 45%.
CHINA has extended a preferential 15% income tax rate to energy and transportation projects in the interior provinces. The reduced tax rate had been available previously to such projects in coastal cities and special economic zones.
INDONESIA said foreigners selling shares in Indonesian companies must pay income taxes of 5% of the gross sales proceeds.
Indonesia subjects persons selling shares in Indonesian companies to a 20% withholding tax on the profit — in theory. However, in practice, the tax applies to a “deemed” profit regardless of actual profit. The finance minister announced that 25% of gross proceeds from the sale of shares will be considered profit. A tax of 20% times 25% is equivalent to a tax of 5% of gross sales proceeds. Indonesian companies cannot register a change in shareholders without proof that the tax has been paid.
The tax can be avoided by owning shares through an offshore company and selling shares in the offshore company.
INDIA continued its assault on foreigners who invest in India via treaty countries. The Authority for Advance Rulings denied benefits under the tax treaty with Oman on grounds that Omani residents are not subject to income taxes in Oman. A person must be a “tax resident” of a treaty country in order to qualify for benefits.
In a separate action, the Indian government said it is reducing withholding taxes on dividends paid to Dutch residents from 15% to 10%. The change is retroactive to April 1, 1997. India was required to make the change because of a “most-favored-nation clause” in the Dutch tax treaty.