Traders, industries urge govt to withdraw tax proposals

KARACHI: The representatives of the trade and industrial sectors on Saturday criticized the government’s proposal to bring the export sector to the normal tax regime.

Speaking at a press conference at the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), they said that “the export sector is struggling hard in the current scenario and burdening the sector with an higher tax would lead to disaster.”

Senior Vice President of the FPCCI Saqib Fayyaz Magoon; Chairperson of the All Pakistan Textile Mills Association Mazhar Puri; Chairperson of the Fisheries Exporters Association Zafar Kundi; former president of the Rice Exporters Association Rafiq Salman; and Chairperson of the FPCCI Policy Advisory Board Zahid Hussain said that the “export sector is already worried about the rising cost of production due to rising tariffs on utilities, and the normal tax regime would further compound its problems.”

The FPCCI has also released its statement on the budget. It says: “the government has allocated Rs79 billion for the enhancement of the IT sector along with the development of Karachi IT Park and Technology Park Islamabad, which are good measures to realize the potential of the IT sector.”

“The new alternate dispute resolution (ADR) System will help in the resolution of tax disputes and reduce the number of pending court cases. The introduction of incentives for the manufacturing of solar panels and allied equipment is a right step,” the statement said.

On the negative aspects of the budget, the FPCCI said that “the Federal Board of Revenue (FBR) has set a revenue target of Rs12,970 billion for FY2024-25. A significant 38 per cent increase in the tax target compared to last year which is very ambitious target.

“A huge amount of Rs9,775 billion is dedicated to servicing interest payments, which is 75 per cent of the total tax target. The federal government should devolve provincial subjects and reduce its expenditures to ease the fiscal space,” the FPCCI added.

According to the FPCCI’s statement, “exporters will now pay normal income tax instead of the previous practice of the withholding tax of 1.0 per cent as full and final liability. This change will create hassle and discourage exporters -- adversely affect exports in the SME and IT sectors.

The budget proposes the withdrawal of numerous exemptions and reduced/fixed rates that have previously applied to specific goods and services. This measure will increase the cost of doing business and will contribute to the increase of inflation, the FPCCI said.

“In the budget speech, it was announced to resolve delays in sales tax refunds but no concrete measures to resolve this issue is provided,” the FPCCI said adding that as “per Section 38 of the Sales Tax Act, anyone involved in fraudulent activities is punishable with 10 years bailable imprisonment. In the budget, the new Section 25AB is inserted – involved in fraudulent activities is punishable with 10 years not bailable imprisonment. It will be grossly misused and will be a source of corruption, and harassment of the business community, discouraging investment. Moreover, the provision relating to investigative audit should be withdrawn.”

The FPCCI’s statement added that “currently, advance tax is levied on sales to dealers, distributors, wholesalers, and retailers within specific sectors. However, a proposed expansion aims to extend this tax collection mechanism to encompass all sectors of the economy. This is another measure which has discouraged the documentation of the economy. This provision should not be included in the upcoming Finance Act.”

On the imposition of 5.0 per cent federal excise duty, the FPCCI said that such a tax on commercial properties and the first sale of residential properties “will significantly increase the cost of housing and the commercial sector.”

As per budget document, the default surcharge rate is to be aligned with the State Bank of Pakistan’s (SBP) policy rate, set at Kibor plus 3.0 per cent from fixed rate of 12 per cent. This change will increase the default surcharge to 23.5 per cent on the taxpayer’s tax obligations. This proposal should be reconsidered, the FPCCI demanded.