OICCI calls for easing cost of doing business in Punjab

By Our Correspondent
May 21, 2019

KARACHI: The Overseas Investors Chamber of Commerce and Industry (OICCI) through its budget proposals for year 2019-2020, has expressed concern over the increased cost of doing business in Punjab, compared to other provinces.

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Representing the largest bloc of foreign investors in Pakistan, the OICCI recommended a series of steps for rectifying the issue in its proposals on Monday.

The cost of doing business in Punjab was higher than Sindh on account of the fact that the sales tax rate on services in Punjab was 16 percent, which was 13 percent in Sindh. The OICCI proposed harmonising the tax rates in Punjab with other provinces to ensure level playing field for investors.

The chamber called for bringing all revenue collections under one ministry/body to ensure ease of doing business in the province. Terming integration of all revenue collections indispensable in this regard, OICCI noted that currently revenue collections of Punjab fell under three different ministries/bodies including Punjab Revenue Authority (PRA), Excise and Taxation, and Board of Revenue (Punjab).

“The provincial government can devise an in house mechanism to share the revenue of these three bodies through intra-government fund transfer,” it proposed.

Despite the fact that 45 percent employment of Punjab’s population was dependent upon agriculture, while the sector accounts for 21 percent of the overall national production, the collection of agricultural income tax was estimated to be even less than one percent of total collection of federal and provincial taxes.

Such disparities in tax levies between different income segments needed to be addressed. It was recommended that Punjab government and revenue authorities take all possible measures to increase revenue collection from the agriculture sector.

“The original rationale of keeping agriculture out of tax net to facilitate small agriculturists is not applicable, due to non-implementation of land reforms, and the benefit of the tax exemption is being availed, as per common perception, by big landowners earning huge incomes,” the OICCI said.

Talking about key recommendations related to agriculture income OICCI stressed the need to impose agriculture tax on income. At present, the tax was payable on ‘land holding’ or ‘net income’ whichever was higher.

However, the manner of determination of net income was complicated and, in almost 100 percent of the case, tax was received on land holding basis. This discouraged taxation on net income basis.

Therefore, taxability of income on land holding should be abolished and taxes should be collected on net income basis, it said.

Furthermore, advance tax should be introduced on sale of agricultural produce such as sugarcane, wheat, cotton and others. There were only around 10 to 15 agencies and enterprises which acquired such crops.

Advance tax should be adjustable against income tax payable on net income basis. Rates of withholding and the threshold for the same should be aligned with other products – for example any payment exceeding Rs25,000 should be subject to advance tax at the rate of 1 to 3 percent as the case may be.

Federal taxation system should be used for such collection on behalf of the provincial government in the same manner as was being done in other cases by the provincial governments.

“All persons holding land should be required to obtain a National Tax Number (NTN), like the one maintained by the FBR, and may be modified by adding one or two digits so as to identify that source of income is agriculture,” the OICCI proposed.

Definition of agricultural income should be amended to include all agricultural activities, including non-corporate dairy farming and poultry.

Referring to Sales Tax on Machinery Rental under PRA, OICCI also emphasised to exclude machinery for agriculture purposes from Serial No 50 of Schedule II to Punjab Sales Tax on Service Act, 2012.

OICCI commended PRA for a number of steps introduced over the last few of years to streamline the sales tax on services structure, which has given a positive message to investors in Punjab.

However, the sales tax rate continues to be very high, even in comparison to the sales tax rate on services in the other provinces.

As a first step, the PRA sales tax rates on services should be aligned with the Sindh sales tax rate on services which was 13 percent and gradually reduced to 10 percent over the next three years, whilst the current rate should be maintained for unregistered entities.

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