Karachi Chamber proposes tax on agriculture sector

KARACHI: The Karachi Chamber of Commerce and Industry (KCCI) in its 2016 budget proposal, issued Tuesday, suggested levying income tax on the agriculture sector and curtailing the tax officials’ discretionary powers.
For the proposal, the KCCI consulted with a broad cross-section of tax-payers, including manufacturers, wholesalers, trading houses, retailers, tax consultants, and tax bar associations. This was to ensure that a broad spectrum of sectors and industries were represented, said a KCCI spokesman.
The KCCI proposals state that over the years, the Federal Board of Revenue (FBR) failed to broaden the tax base and relied heavily on indirect and withholding taxes. “It has failed to bring major tax evaders into the net,” said the 68-page budget proposal document. “Instead the officers of IR have mainly focused their efforts on squeezing the small number of tax payers who have honestly complied and paid their taxes.”
This short sightedness has resulted in unbridled discretionary powers, corruption and failure to promote tax compliance in Pakistan where registered tax-payers were less than 1.0 percent of the population, the document said.
The proposal suggests separating policy making process / tax legislation from enforcement and administration, curtailing discretionary powers, and minimising personal contact between the tax payer and IR officers. The document also includes guidelines to simplify laws, procedures, discharge of tax liability, and facilitation of the tax-payer in compliance.
The document further states that the laws, rules, procedures, valuation rulings, SRO’s and general orders, etc, were in itself a whole set of jurisprudence, which was beyond the understanding of an ordinary tax payer as well as a mediocre consultant.
The current tax regimen discourages new tax payers to register, as there are ample opportunities to earn a decent profit from investing in the undocumented economy, the document reads.
Despite the high rate of GST at 17 percent and additional three percent on commercial imports, the net collection of GST after refunds and adjustments is hardly 3.75 to 4.25 percent. This, in itself is indicative of failure on both counts; policy formulation and tax administration and enforcement.
“Therefore an unconventional approach and some difficult decisions must be taken to ensure that burden of taxes is evenly distributed and does not entirely burden the middle and lower income sections of society. At the same time it should enhance the revenues and broaden the tax base,” it suggested.
Despite efforts, the FBR has failed to evolve the right strategy, regulatory framework, adequate capacity and competence level of field formations to broaden the base for direct taxation. The document reiterates the sparing of the agricultural sector from the tax net, which has been left at the discretion of provincial governments. “Even a small piece of agricultural land is enough to evade income tax,” alleged the document.
It said there was higher ratio of non-compliance in tax regions other than Karachi. “The size of industry in cities and towns other than Karachi are four times greater, but the tax collection is less than one third of the total collection,” it said. “Tax collection and compliance is limited mostly to urban centres, while rural economy hardly contributes anything, despite having at least 26 percent share in GDP.”
Under corporate taxation, the proposals suggested that maximum rate of income tax on companies should be brought to 25 percent from the current 35 percent, which was highest in the region.
The document said that discretionary powers of taxation officers had negative impact over the tax payers. The KCCI suggested officers of FBR should not have the unchecked authority to call for information on bank accounts.
Such access may only be granted by competent courts of law in exceptional circumstances and cases of substantial evasion where adequate evidence is available. “It will help restore confidence of investors and create a business-friendly environment to promote growth,” the KCCI document suggested.
The KCCI said concessions and exemptions under various SRO’s and Free Trade Agreements / Preferential Trade Agreements with various regional countries had resulted in substantial loss of revenue and misuse of facility.
Such concession and exemptions have created distortion in the taxation system. Imports have been diverted to FTA / PTA regimes while local manufacturers of the products have been sidelined.