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Friday July 19, 2024

Should we expect tax concessions?

By Mansoor Ahmad
June 23, 2024
A representational image showing people buying pulses and grains at a wholesale market. — AFP/File
A representational image showing people buying pulses and grains at a wholesale market. — AFP/File 

LAHORE: As the budget debate starts in the National Assembly, expectations for relief are high among different stakeholders. Although some segments do deserve relief, those that enjoyed tax exemptions do not. In reality, the budget is likely to be passed as presented.

Higher taxation on the salaried class is unjustified. And it seems that the government has realized it.

However, it is not ready to offer major concession –there may be some minor adjustments here and there but the additional tax burden on salaried individuals will largely remain the same.

Exporters who had to pay only 1.0 per cent withholding tax on their turnover as their total tax liability will now have to bear with additional taxes. It is worth noting that the salaried class paid Rs5 billion more tax in FY24 than exporters.

This is not justified as almost 90 per cent of exporters live lavishly -- they go on foreign trips with their families; live in mansions; possess more than one luxury car; and send their children to world renowned teaching institutions.

These people are members of elite clubs and frequently dine in five-star hotels. They earn money from exports but used to pay nominal taxes as they enjoyed exemption from the normal tax regime.

One fails to understand why exporters were exempted from the normal tax regime. Now that the exemption has been withdrawn, they are strongly protesting, arguing that this measure will impact their competitiveness. This belies logic.

They are being asked to file tax returns on the basis of their actual income and pay taxes like all other non-exempted persons do. What has it got to do with competitiveness?

Interestingly some exporters suggested that turnover tax may be doubled to 2.0 per cent.

It means they are prepared to pay double the amount they were paying in 2023-24. It means that they were hugely benefitting from exemptions and now do not want to lose that unjustified benefit.

On top of this, the export sector enjoys numerous other concessions and subsidies from the government on the pretext of improving their competitiveness.

Exporters have also met the PM who has reportedly expressed his inability to accommodate them and referred them to the finance minister from whom they expect no relief.

Only recently the PM has granted all industries a concession of over Rs10 per unit on the power tariff. The good thing is that this concession is granted to the entire industrial sector, instead of limiting it to exporters. This will benefit the entire manufacturing sector.

The only advantage the exporters should continue to enjoy over industries catering to domestic suppliers is that their inputs are zero-rated.

Through this facility, all the taxes they pay on producing export goods are refunded through computerized software transparently to them.

There might be some problems with timely refunds. They should agitate and protest on this count. The government will be constrained to resolve this issue through technology.

Already there is some improvement in refunds that is evident from billions of refunds that the FBR makes every month that are much higher than refunds made during corresponding periods last year.

With time, the teething problems will be resolved. But the exporters must regularly press for more transparency and suggest ways to improve the system.