PBC disapproves restoration of full and final tax regime for importers

KARACHI: The Pakistan Business Council (PBC) on Thursday expressed its serious reservations on the restoration of the Full and Final Tax Regime for commercial importers in the Economic Reforms Package announced by PTI government, saying such steps will only hurt domestic industry.

“The PBC is disappointed at the restoration of the Full and Final Tax Regime for commercial importers,” it said in a statement.

The PBC said upon payment of 6 percent of the declared import value, such traders will not be required to file income tax returns, ‘thus bypassing accountability of profit’.

“It would have been sensible to make the 6 percent tax at the import stage an advance adjustable tax and the need to file tax returns had been retained. That would have ensured tax revenue whilst promoting a basis of accountability.”

PBC said the extent of under invoicing in Pakistan is estimated at $6 billion per annum and the country is negotiating for Electronic Data Interchange (EDI) with its main trading partners to overcome it.

“Admittedly, the FBR currently lacks the capacity to adequately deal with the thousands of returns. As the government has been working to address the FBR’s talent and technology gaps, it is a pity that accountability was not given a reasonable opportunity to be established, contrary to what would be expected in the Naya Pakistan,” the statement said. The PBC hopes that the government will reconsider this change.

PBC said overall, the package announced is positive for local manufacturing and also hoped that measures to facilitate and expedite export rebates signaled by the finance minister will also help boost exports.

“Exporters cash flows will benefit from the promissory notes to be issued in lieu of tax refunds. Business will welcome the reduction in withholding tax returns and local manufacturing will be promoted by lower duty on raw materials.”

It said measure to incentivize bank lending to SMEs and the agriculture and low-cost housing sectors is innovative and should address the acute funding gaps of these critical segments of business.

“The exemption from import duty and GST on plant and machinery and income tax holiday for greenfield projects is also positive for the promotion of investment.”

PBC said it hoped that minimum tax on turnover will not apply during this tax holiday period.

“It would have been desirable for similar concessions to be extended to existing businesses undertaking capacity expansion.” Investment as percentage of GDP in Pakistan is half that of its neighbors.

The council said the withdrawal of Super Tax, removal of tax on retained profits and the exemption ofinter-corporate dividends from cascading taxes have long been a demand of the PBC.

“We are delighted that these capital formation and consolidation measures have been reflected in the package. The confirmation of a 1 percent per annum reduction in corporate tax, until

it reaches 25 percent, will help in planning.”