Govt urged to reduce tax difference on finished goods, raw materials

KARACHI: Businessmen on Thursday urged the government to reduce the differences in taxes and duties on import of finished goods and inputs to manufacture their substitutes in the country.  

Finished goods imported under various free trade agreements benefit from multiple tax concessions, while local manufacturers of the alternative products have to bear up with high taxes. This practice is discouraging local value-added industry. 

“The anomalies should be removed… in order to generate jobs and allow business to gain scale and become competitive in exports,” said Ehsan Malik, chief executive of the Pakistan Business Council in its proposals for the budget 2017/18.

The country needs to create at least two million job opportunities a year. Malik urged the government to refrain from signing any more free trade agreements with any country until it renegotiates the terms and conditions of the existing ones. 

The government officials are about to start negotiation on the second phase of Pakistan-China free trade agreement as its first phase ended this year. 

Welcoming the China-Pakistan Economic Corridor (CPEC) projects, the businessman brought the attention to the tax concessions awarded to imports related to and special economic zones under the CPEC.

The government was asked to ensure that CPEC tax incentives would not hamper the growth of local industry or cause decline in exports from the country’s value-added sector.      Tax authorities stepped up efforts to bring undocumented sectors into the tax net and for that a slew of measures have been introduced.   While the non-filers should be encouraged to file taxes and comply with the tax laws through withdrawal of the final tax regime, the Federal Board of Revenue (FBR) should also motivate formal sector to help the board in expanding the tax base through dealing with the registered suppliers and vendors. Compliant taxpayers should be awarded incentives.

Trade and industry frequently criticise the way they are approached by both the federal and provincial tax departments for collection of taxes.

The government should address an irksome issue of multiplicity of taxes and levies. Ironically, the provincial governments demand sales tax on services, while the federal government also collects federal excise duty. Federal and provincial taxation system should be harmonised.

The government was also urged to check the misuse of power by tax officials. The industry official said the random and repeated audits, seeking of taxes in advance of due dates and freezing of bank accounts are tantamount to harassment of taxpayers, which militate against the drive of broadening-of-tax-base.   

The government was urged not to treat corporate sector equal to individuals and association of persons when it comes to an imposition of income tax on profitability. Some companies currently earn up to Rs20 million in profits and pay higher tax compared to the graduated tax scale for individuals and association of persons.

Businessman also requested the government to withdraw super tax levied on corporate sector in the next fiscal year. The government imposed a one-time super tax for the fiscal year of 2015/16, but the tax continued in the current fiscal year. It would be the third year if the government extends the levy to the next fiscal year. 

The government also planned tax on issuance of bonus shares. Since the issuance doesn’t increase the valuation of a business, it doesn’t make sense why the government is insistent on the tax. 

While this taxation issue is under litigation nowadays, yet the government would show a sense of friendliness towards the listed companies by removing the levy. 

There is also a minimum tax of eight percent on companies in the services sector. Interestingly, this is not a case with manufacturers. The government should give a level-playing field to companies in services sector whose profitability, investment and incorporation are affected due to the tax. Services sector contribute more than half to the country’s GDP. High taxes on telecommunication services kept the broadband connectivity abysmally below than 20 percent. 

The government was also urged to restore allowance on capital investment in purchase of machinery and properties to encourage private sector. The tax concession on corporate tax to the investor will attract more investment into infrastructure uplift.