KCCI disapproves of change in tax regime

By Our Correspondent
June 16, 2024
The Karachi Chamber of Commerce & Industry (KCCI) building. — Facebook/Kcciofficial/File

KARACHI: The Karachi Chamber of Commerce & Industry (KCCI) has said that the recently presented budget has disappointed both the business community and the working class.


While identifying several anomalies in the budget, the KCCI, in a statement released on Saturday, says that the budget appears to have been prepared on the standard template of the IMF. It notes, that the limited fiscal space and debt obligations left little room for the finance ministry and the FBR to come up with significant relief for trade and industry in particular and people in general.

The KCCI expresses regret that a major part of its budget proposals was not included in the Finance Bill 2024 presented by Finance Minister Muhammad Aurangzeb in parliament.

Per the KCCI, the proposed shift from the 1.0 per cent turnover-based final tax regime (FTR) to the standard taxation of 29 per cent of taxable profit is likely to be disastrous for exports. Against this argument, the KCCI asks the government to drop this proposal to prevent the further deterioration of the trade deficit and the resulting pressure on foreign exchange reserves.

The KCCI says that the government’s proposal to eliminate zero-rating on local supplies under the export facilitation scheme (EFS) will have significant adverse effects. Such a removal will compel exporters to claim refunds of sales tax from the FBR, which is not only a lengthy process but also contrary to the spirit of the EFS.

According to the KCCI, “Historically, the FTR provided a transparent mechanism for taxing export proceeds by levying 1.0 per cent fixed withholding tax (WHT). Its removal may result in exporters being subjected to super tax, which was previously not applicable under the FTR,” adding that this measure has been proposed not with an intention to enhance revenue but to perhaps open “the possibility of harassment and corruption”.

Had there been the intention to enhance revenue, the KCCI adds, the fixed rate of 1.0 WHT could have been increased to 1.25 or 1.5 per cent, instead of creating these complications in compliance.

The KCCI expresses its fears and says, “the definition of fraud has been changed, enabling tax officials to seek records of up to 15 years to prove innocence in case of any allegation of fraud which is difficult to comply.” It explains that under the previous rules, taxpayers are supposed to maintain records for a maximum period of six years so they will not be in a position to produce older records.

The KCCI demands the government to withdraw the new definition of fraud, which was yet another discretionary power, and officers should only be allowed to seek explanation or take any action strictly as per the previous definition.

The KCCI further states that the tax rate for salaried individuals remains capped at 35 per cent, whereas non-salaried individuals, non-corporate sector, SMEs and AOPs will see an increase from 35 per cent to 45 per cent. “This introduces a horizontal inequity, as it places a disproportionate tax burden on non-salaried individuals compared to their salaried counterparts.”

The KCCI, while underscoring the need for the careful removal of such discrepancies before the approval of the Finance Act, adds that the decision to increase the tax rate up to 45 per cent would “encourage a substantial number of individuals and AOPs to exit from the tax net. The current threshold of Rs600,000 has largely affected the non-salaried class such as small shopkeepers, traders and SMEs forcing them to become non-filers.”

The KCCI is of the view that the threshold of taxable income should be raised from Rs600,000 to income exceeding Rs1 million, in view of high inflation and the increasing cost of living.