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1- BOOSTING FOREIGN INVESTMENT
2- BUDGET 2004-05
3- MONEY EXCHANGE BUSINESS
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ORGANIZATIONAL CHANGE

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BUDGET 2004-05

 

Relief in duty and taxes started showing positive signs

 

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By AMANULLAH BASHAR

June 28 - July 04, 2004
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The fiscal measures initiated in the federal budget 2004-05, especially introduction of flat rate of GST, abolishing or reduction withholding tax and central excise duty, have started showing positive results as the prices of various essential items are coming down gradually.

Reduction in import duty has a visible impact on the prices of groceries and spices, which may help, bring market stability in Pakistan. Most of the items, which were so far smuggled into Pakistan because of higher duty, now have started coming through legal channels as the importers have started opening L/Cs for their imports. Items such as almond and chestnut were never imported legally into Pakistan. The L/Cs record with the banks now indicating their legal import almost for the first time in our recent history.

Meanwhile, the federal minister for finance in his second thought after the budget has announced a abolition of customs duty on parts of computer, composite diagnostic kits for Hepatitis and HIV, withdrawal of two percent withholding tax on import of tractors and reduction of capital value tax on purchase of stock exchange shares from 0.1 percent to 0.01 percent, which are bound to produce positive results in the days to come.

INDUSTRY

The industrial sector of the country appreciates the direction of the federal budget which what they feel aims at economic growth through investment and agriculture development. The Finance Minister has sought, through the budgetary measures to inject vibrancy in the economy of the country. The economic managers have correctly analyzed that, although GDP growth of 6.4% is impressive, it has been mainly due to 17.1% growth recorded by Large Scale Manufacturing (LSM) and Electric Generation Sector. Since there was only "across the board increase in capacity utilization" by the LSM Sector (80 of the 91 LSM performed well), employment opportunities did not emerge. Hence the thrust on providing relief's and incentives to the SMEs is a welcome step in the budget towards generating employment and addressing the Poverty Reduction Program.

In the Sales Tax regime, abolition of 3% further tax, uniform rate of sales tax, reducing carry forward period for refunds to six months, allowing input benefit for diesel oil, abolition of sales tax and cumbersome documentation for import of machinery, etc., are all measures taken in the right direction for growth and investment, he added.

 

 

Similarly in the Income Tax proposals, payment of advance tax on the basis of own estimate, abolition of mandatory payment tax demand for filing of appeal, full depreciation allowed if asset is not used during the whole year, option to retailers having turnover up to 5 million to pay 0.75% of turnover as final tax, abolition of withholding tax on imported machinery, etc., are positive proposals towards a progressive taxation system.

Nisar Sheikhani, Chairman SITE Association of Industry has said that the Central Board of Revenue, however, seems to have an obsession with Section 73. The requirement of payment within specified period (180 days in the budget) is maintained despite the fact that it is interference in mercantile practices. What is more serious is that if the buyer does not make the payment within 180 days, the supplier, who has paid the sales tax amount, will not be allowed to claim input! This is unjust and unfair. This Section was a point of major controversy and its application was held in abeyance during the last financial year. Furthermore, under Section 22, copies of the 'banking instruments' mentioned in 73 are to be preserved. This entails unnecessary burden on taxpayers as the payments can be verified from the bank statements.

He said S.R.O. 508(I)/2004 requires furnishing of details and particulars of purchases and supplies but applicable only on textile sector. It is an acknowledged fact that textile sector is the single largest contributor to the economy of Pakistan not only in terms of foreign exchange earned or its contribution in revenue but also its pivotal role in social sector. Then why is this sector being targeted with such excessive documentation? Under Section 8, tax credit will not be allowed if the conditionality of the SRO is not met. This SRO only opens new avenues of harassment for genuine taxpayers and, therefore, should be done away with.

Finally Section 51 provides a legal cover to the sales tax officers against initiation/action by any government agency without prior approval of the CBR. This section effectively gives unbridled powers with no questions asked. Under Section 51(A) the officers can get assistance from the law enforcement agencies as if the taxpayers are common criminals. The government can certainly not enlarge the tax base in view of such laws! Withdrawal of these Sections is a necessity to ensure justice, equity and rule of law.

The Finance Minister in his budget speech declared a relief of Rs. 0.58 per unit in electric charges but qualified his statement by saying it would be applicable on consumers of WAPDA. He left the quantum of relief for Karachi consumers at the direction of KESC. Why so? KESC has and continues to cause enough misery on the Karachiites. The issue must be addressed immediately.