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Incentive-laced proposals for budget 2018-19

Representative bodies and bodies promoting trade and investment in the country presented the following proposals for the Budget 2018-19:

Demands of OICCI

Overseas Investors Chamber of Commerce and Industry (OICCI) demanded that the government put an end to the Super Tax in upcoming budget 2018-19. OICCI Super Tax should be deleted from Finance Bill. The government had imposed 4 percent super tax in the Finance Act 2015-16 for the period of one year but was later extended for another year.

The effective corporate income tax rate should be 25 percent from the fiscal year 2018-19. The number of rates currently applicable on goods and services for withholding tax purposes, numbering 55, is very complex and cumbersome. This needs to be rationalized.

The OICCI recommended the incentive for investment be made attractive. In respect of group taxation the law which existed prior to the Finance Act 2016-17 may be restored and coordination between federal and provincial legislation should be streamlined, including synchronization and harmonization of sales tax rates and policies across all jurisdiction and sectors and should be closely aligned with the regional benchmark of 12 percent sales tax rate.

The Federal WWF and WPPF law should be updated based on the recent provincial enactments and current minimum wage levels. The OICCI asked that pending tax refund be cleared within next six months in an orderly and prearranged manner.

The OICCI demanded that the Federal Tax Ombudsman should be entrusted to settle all the disputed claims of taxpayers. The proposals aim to boost FDI and rapid economic growth by making tax compliance easy.

FPCCI liberal investment policies

Federation of Pakistan Chambers of Commerce and Industry (FPCCI) calls for liberal investment policies in upcoming budget. The annual budget 2018-19 should bring liberal investment policies for infrastructure development, broadening tax base and creating jobs.

The government should develop trust of taxpayers as tax collection revenues ensure country’s prosperity, health, education and other basic facilities. For this purpose, it is suggested that awareness of seminars and workshops should be priority, besides tax submission process should be simplified and business-friendly.

Trade deficit needed to be controlled which was associated with export promotions. The rupee devaluation was affecting all businesses and FPCCI calls for its remedial measures on immediate basis.

There should be a consistent policy for budgeting that should support programs/schemes in the long run and different agricultural zones should be introduced. This would enhanced agro-based industry from respective regions and could lead to increase in foreign reserves.

Efforts should be made for trade promotion, industrialization, balancing trade, increasing exports, and increasing the number of research centers and laboratories as well as ensuring strong linkage between industry and academia.

Research should be focused on industrial growth and skill development while developing any education policy.

KCCI for relief of common man

Karachi Chamber of Commerce and Industry (KCCI) urged Federal Board of Revenue (FBR) to reduce taxes and duties on import of motorcycle spare parts to discourage smuggling and provide relief to common man.

KCCI expressed deep concerns over the unnecessary and exorbitant taxes and duties imposed on the imports of motorcycle spare parts.

Motorcycles are commonly used by the lower and poor segment of society only because of the affordability factor but the masses are being burdened due to high taxes and duties on motorcycle spare parts which affect the cost of motorcycle spare parts by almost 85 percent.

Motorcycle spare parts are subjected to 35 percent custom duty, 11 percent additional duty, 17 percent sales tax, 6 percent income tax and 3 percent additional sales tax, which terribly raise the cost of these spare parts and make them unaffordable for the poor public.

It is pointed out that the legal importers of motorcycle spare parts have limited their activities nowadays due to high taxes and duties, making these imported motorcycles spare parts uncompetitive in the local markets, particularly in a situation when these spare parts are widely being smuggled into the country.

KCCI was of the opinion that the government will have to take stringent measures to effectively deal with widespread smuggling of motor cycle spare parts which would not only encourage legal imports but also the national exchequer from the grave losses because of widespread smuggling.

FBR authorities should review the situation on priority basis and ensure some relief to this sector in the forthcoming budget which would be widely welcomed by relevant stakeholders and the public at large.

KCCI has demanded the government of reducing duties and taxes on dry milk in order to encourage legal imports and encounter smuggling. Smuggling of dry milk powder was rampant through Chaman and Torkham borders. Due to high rate of duties and taxes, huge quantities of dry milk are landing in the Pakistani markets through the misuse of Afghan Transit Trade, which not only causes heavy revenue loss but also discourages the legal imports of this import product.

Duty and taxes on this essential item had increased to almost 55 percent. The import of dry milk powder is subjected to 20 percent duty, 25 regulatory duties, 1 percent additional custom duty, 6 percent income tax and other expenditures which must be brought down.

The unjust regulatory duty on this product must be completely withdrawn as the fresh milk currently being produced in the country simply cannot cater to the overall demand for milk. Its allied products leave no other choice but to go for importing dry milk from reliable foreign manufacturers.

ICAP wants broaden tax base

The Institute of Chartered Accountants of Pakistan (ICAP) has recommended some specific policy decisions with the objective to broaden the tax base to enhance resources and plug tax leakages.

All sectors of the economy must be brought within the tax-net. Irrespective of the source of earning, anyone who earns beyond a certain threshold of income should be mandatory required to file tax returns.

Moreover, an efficient model for growth requires equitable taxation and credible tax administration.

APTMA seeks textile industry revival

All Pakistan Textile Mills Association (APTMA) submits budgetary proposals for revival of textile industry. Export driven growth is imperative for creating jobs, reducing current account deficit and attracting local and foreign direct investment.

This was stated in budgetary proposals sent to the federal policy-makers for incorporation in the budget 2018-19 by the All Pakistan Textile Mills Association.

The proposals added that the government needs to embark on three-pronged strategy that includes availability of electricity and gas, tariff rationalisation of the textile value-chain and encouragement of new investment to create exportable surplus.

The textile industry stakeholders further said that availability of energy at affordable cost could be a stepping stone for reducing the cost of doing business.

The government may take other measures to provide protection to local manufacturers of raw material rather than taxing raw material, which is contrary to the scheme of Custom tariff.

APTMA considers it necessary to provide incentives to farmers in order to enhance cotton productivity.

Instead of imposing duty on import of cotton, FBR should zero rate inputs of cotton like fertilizer and electricity.

The duty on cotton could only make a case if domestic cotton production was enough to meet local demand for cotton.

The government is aware that the world is rapidly switching over to manmade fiber and to follow the global trend the government would have to create space for reducing the cost of staple fiber through removing the custom duty, which is in excess of 10 percent.

 

FBR has disallowed tax adjustment on purchase of packing material and office equipment.

Nowhere in the world in the VAT regime is anything used in manufacturing that is not entitled to adjustment.

For this purpose, the government needs to delete such exclusions otherwise the buyer may switch over to informal market for buying without payment of tax.

It has also been found that non-payment of refunds and duty drawbacks has aggravated the liquidity crunch of manufacturers.

The FBR needs to put in place an automated procedure for upfront payment of duty drawback as well as refund of sales tax and income tax.

The export led growth package announced by the government in January 2017 still faces bottle-necks and has been unable to see the light of the day.

Government needs to make allocation of funds in the budget for the State Bank of Pakistan to make immediate payment on realization of export proceeds.

Facilities such as refunds and Long Term Financing Facility (LTFF) which is available to exporters should be extended to indirect an exporter which is the standard practice even in developed countries including the European Union.

This will encourage sale within the value-chain for producing Textile goods meant for export.

The set of recommendations was already submitted to the concerned quarters of the government for consideration in new fiscal budget 2018-19.

The Pakistan’s tax-to-GDP ratio was the main impediment in the economic development, which compelled the government to take short-term tax measures.

At present, there is over dependence on the indirect taxes.

Withholding tax in indirect taxes both in federal and provincial level should be withdrawn.

The FBR should focus on increasing the tax base instead of further burdening the existing taxpayers.

The corporate sector, which was the most documented segment of the economy, had been neglected due to extreme abrupt tax collection measures taken by the government in order to meet annual budget targets.

The organized sector is seriously affected by incidence of sales tax (and federal excise duty, where applicable) as against non documented economy or unorganized sector.

The service, wholesale/retail, transport and the agriculture business sectors were still not fully documented and most of them were out of the tax net.

Even more than three million persons having commercial electricity connections are hardly into the tax net.

There is a serious need for the policymakers to simplify the complex system of determining the tax liability.

Immediate remedial measures include abolishing taxes like alternative corporate tax, tax on undistributed profits and super tax.

Service providers, both corporate and non-corporate, should be exempted from levy of minimum tax.

By charging nominal additional tax and creating narrow difference in tax deduction of filers and non-filers, the government failed to attract unregistered persons to get them registered.

About Harmonization of Sales Tax on Services, the uniform service tax law should be agreed upon by all provinces and the federal government for implementation in their respective jurisdictions by respective tax authorities.

A uniform tax return may also be introduced for the taxpayers.

Revenue authorities should decide the basis of levy of indirect tax, which can be origination or termination to establish jurisdiction of taxation of services.

To promote transparency and uniform interpretation, the first schedule should be standardized covering all services along with standard tariff headings and standard definitions.

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