TRADE & INDUSTRY PINNING HOPES FOR TAXATION REFORMS
May 11 - 17, 2009
The taxation system particularly the General Sales Tax (GST) is likely to witness radical reforms in the Federal Budget 2009-10 with the introduction of a broad based value added tax (VAT) recommended by the International Monetary Fund basically to streamline flow of revenues.
The focus of the budget 2009-10 under IMF guidelines may also bring certain untapped areas under tax regime, it however yet to be seen whether the present government succeeds to tax the income of agriculture especially in the face of the strong clout of feudal cum politicians in the national assembly.
In fact, higher revenues will be critically focused in the forthcoming budget 2009-10 under IMF directives essentially required to create fiscal space for development and social spending.
Though the IMF seems against a drastic cut in interest rate and desires to maintain the current exchange rate with a plea to allow competitiveness to the export regime of country yet, the Federal Budget 2009-10 due in the middle of June 2009 is bound to recommend at least 400 basis point reduction in interest rate primarily due to visible decline in the inflation rate which has come down from 27 percent to 17 percent and may even be in the single digit region by the time the federal budget is announced.
The International donor agency has emphasized in particular the need to replace the general sales tax with a broad-based value added tax in the next budget as the authors of the budget for next year have planned establishment of a medium-term budget framework.
In this respect, the focus on social protection will be on top of the agenda of the authorities primarily to win the popular support of the masses currently heavily stressed due to price inflation and diminishing opportunities on the back of economic slowdown in the country.
The trade and industry has expressed its concern over what they called the inoperative office of the Federal Tax Ombudsman for the last five months. They feel that this institution not only facilitates speedy redressal of industry concerns but also ensures expeditious implementations of decisions.
The textile industry has pinned hopes with the present Government, which they believe, is in the process of removing impediments and difficulties for the business community that Federal Tax Ombudsman be appointed without further delay.
TAX REFORMS IMPERATIVE FOR REVIVAL OF INDUSTRY
Seeking intervention of the government in tax regime to ensure revival of industry, All Pakistan Textile Mills Association (APTMA) has stressed upon a stable environment with more market access to deal with competitiveness issues amid global economic meltdown.
The APTMA has moved proposals to the government, which is currently engaged in budget making process for reforms in the taxation system to revive industry in order to generate exportable surplus and create employment through much-needed changes in existing tax regime.
The textile spinning and weaving industry is facing unprecedented crises since July 2006. Consequently, sizeable textile capacity has been severely impaired. Textile exports in quantity and value terms have declined all across the value chain by 30 - 40% comparing with the maximum export year in 2006-07.
One major factor behind the declining trend is the erosion of Pakistan textile industry's competitiveness particularly against the huge facilities being provided by the competing countries like China, India, and Bangladesh etc. to the industry and exports.
APTMA has therefore sought favorable actions from the government on existing tax structure particularly that of Income tax, Customs duty, and Sales tax.
On the income tax side, APTMA has urged the Federal Board of Revenue that all textile machinery, raw materials, spare parts, and chemicals should be exempted from the 1% withholding tax at import stage like the levy of minimum tax was abolished in Federal Budget 2008-09. ATPMA has sought continuation of the status in the Federal budget 2009-10 as well. APTMA has further urged the government to reduce maximum corporate tax to 25% in the upcoming budget to attract foreign investment in the sector.
In the context of prevailing shortage of Polyester Staple Fibre (PSF) and not being comparatively cost effective vis-‡-vis international competitors, APTMA has proposed that the customs duty of 4.5% on Polyester Staple Fibre on the import stage should be reduced for local consumers. Furthermore, duty levied on other manmade Fibres like Viscose, Acrylic Fibres etc. should also be withdrawn in next budget. Similarly, the DTRE policy for imported PSF to export manufactured goods should be continued and it is further proposed that a provision should immediately be made as temporary contingency measure for import of 10,000 tones PSF per months free from import and anti dumping duties.
ZERO RATING OF SALES TAX
APTMA has proposed that zero rating of sales tax for textiles should be continued as over 85% cotton and MMF consumed in the textile value chain are exported in one form or the other.
Regarding pending sales tax refunds, APTMA has proposed an immediate sanction of outstanding sales tax refunds to the extent of 1% of the turnover value be introduced to liquidate pending refunds. The Collectorates may conduct post sanction verification of sales & purchase invoices.
APTMA has also urged the government to withdraw 10% duty on import and local sale of Viscose besides abolition of 1% Special Excise Duty on machinery, spare parts and packaging materials. As far as duty drawback to zero rate multiplier effects of the incidence of taxes, levies is concerned, APTMA has urged the government to allow duty drawback on yarn at 3 - 5% and Greige Fabric @ 4.5% of the turnover value and to the downstream sector on cascading basis.