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May 6, 2020

Budget proposals: OICCI asks govt for reducing GST rate from 17 to 13 percent

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May 6, 2020

ISLAMABAD: The Overseas International Chamber of Commerce and Industries (OICCI) have asked the government to reducing GST rate from 17 to 13 percent and bringing all incomes including agriculture into tax net in the upcoming budget for 2020-21.

The foreign investors also ask for bringing illicit trade in certain sectors into the tax ambit. On the basis of survey conducted by OICCI amongst its members, losses to the government exchequer due to illicit trade (business in products which are either smuggled, counterfeit,

under-invoiced imports, sold by unregistered manufacturer/seller etc) is estimated at Rs200 billion (tobacco alone estimated at Rs63 billion only).

According to budget proposals sent by OICCI representing multinational companies to the government, it stated that synchronisation of sales tax rates and policies need to be harmonised across all jurisdictions and sectors and should be closely aligned with the regional benchmark of 12% sales tax rate. The OICCI in its recommendations ask for controlling the Afghan Transit Trade Agreement (ATTA). There is a need to revise the ATTA based on current reality protecting the revenue base of Pakistan without hurting the real spirit of such agreements.

They requested the government to engage key stakeholders from OICCI and business community in Pakistan in such re-negotiation and recommended for pending above, harmonise duty and tax rates to remove the incentive for evasion, fix quantitative limits for imports based on genuine Afghan needs and size of population, establish a basis of collecting duty/taxes at the point of entry into Pakistan for the account of the Afghanistan government, fix import value in consultation with the brand owner in Pakistan, containers coming back from Afghanistan should be checked by Customs to ensure they are empty, there should be a negative list of items which are not utilized in Afghanistan; yet are imported and make their way into Pakistan, streamlining of border crossing procedures on financial guarantee by banks and anti-corruption measures.

The OCCI asks for introduction of stringent controls for illicit trade such as introduce tighter penalties (eg criminal liability) for illicit trade across categories across the whole value chain - retailers, distributors and manufacturers and introduce a special division/task force to raid retailers and manufacturers to confiscate and destroy illicit stocks. Customs valuation should be done on modern lines through online search and matching international and regional pricing and taking local legal importers of items on board. The OICCI has urged the government to withdraw Federal Excise Duty (FED) on locally-manufactured cars and reduce withholding tax. The Corporate tax rates for the banking sector should be aligned with other sectors and Super tax relief, as granted to other industries, should be given to banking sector as well. They asked for industry specific exemptions be allowed to fertilizer sector.

The words “in retail packing” to be mentioned with tea (serial no. 14) in order to clarify that sales tax at retail price is only applicable in case of imported finished tea in retail packing. Re-transpose the dairy products to the fifth schedule of the STA 1990 & resume the zero rating facility for the dairy sector, for continuous growth and availability of good quality products to the consumers at an affordable cost through the tax complaint sector.

They recommended for exempting “milk” from withholding tax whether it is purchased directly from the farmer or through commission agent. Regulatory duty should be withdrawn or its rate should be minimised on import of raw material for dairy sector. Alternatively, duties can be minimised by introduction of quota system by placement of these items under Part III, Fifth Schedule of the Customs Act, 1969. Quota can be restricted for registered manufacturers of dairy products only and can be allowed as a proportion of fresh milk purchases of those manufacturers. GST exemptions for water projects; I. Machinery, equipment and spares meant for initial installation, balancing, modernisation, replacement or expansion of a water processing projects/water supply projects/waste to water/desalination projects based on sea water/untreated water or similar source of water, II. Construction machinery, equipment and specialised vehicles, excluding passenger vehicles, imported on temporary basis as required for the construction of project, III This concession shall also be available to primary contractors of the project. All income earners should get themselves registered and obtain proper National Tax Number (NTN). Tax authorities should make better/effective utilisation of Nadra database and other documented sources to ensure that all income earners are NTN holders (NTN is replaced with CNIC so why are we mentioning this here) and “filers”, with submission of annual income tax/wealth returns and wealth reconciliation statements. “Exemption given to agriculture income should be withdrawn and agriculturists should file income tax returns and wealth statements,” the OICCI recommended. All incomes should be taxed and as a general rule exemptions be given only for attracting FDI and for under privileged and poor sections of society or, in exceptional circumstances, as motivation to encourage the registration of individuals and all legal entities.

There is a need to consolidate all federal taxes, including income tax and levies like Workers Welfare Fund, Workers Profit Participation Fund in one lump sum so as to make the system more efficient and business-friendly. Massively improve automation and reduce interaction with the businesses including no more than one audit in a year. The general rate of minimum tax regime (MTR) under Section 113 of ITO 2001 should be reduced to 0.5%. The MTR should be reduced to 0.2% for Oil Marketing/Refineries/ LNG Terminal Operators, large chemical companies, authorised dealers of local vehicle manufacturers and traders, including large trading houses, dealing in sectors with high turnover and low margins.

Minimum tax should be adjustable against future tax liabilities for next six years. Revamping of Withholding Tax Regime (WHT); WHT regime should be reduced to a maximum of five rates. FBR system should be upgraded and all taxes withheld should be auto populated in the portal to the credit of the beneficiary. Final taxation regime should be done away with and all withholding taxes should be available for adjustment and the operations wing of FBR should ensure that all persons whose taxes have been deducted file their tax returns.

Rationalise Sales Tax rates – one rate and one tax return for the country as Sales tax rates (federal and provincial), both on goods and services, should be harmonised throughout the country and be aligned to 13% charged in Sindh. Section 8B in STA 1990 should be abolished for registered taxpayers.

The Section 8B of the sales tax act (STA) 1990 should be abolished for registered taxpayers so that input adjustment to sales tax currently allowed only up to 90% is 100% adjusted not only to reduce cost of doing business but also reducing pressure on cash flow. Most of the industries have long-term import contracts with international suppliers. Due to current Covid-19 pandemic situation, sales of companies have reduced significantly and resultantly, input tax is getting accumulated as full adjustment of input taxes against output tax is not possible. All pending tax refunds be cleared within next six months in a pre-arranged manner. Verification process for refunds should start automatically as soon as an application for refund is filed by the taxpayer and tax refunds be cleared within 45 days. Inter adjustment of income tax and sales tax refunds should be made part of the law.

A timely settlement of the determined refunds should be made, and if there is a liquidity issue then issuing marketable government bonds/securities be considered. Amend current fixed interest rate of 10% to floating interest rate linked with KIBOR. The rate of initial depreciation allowance under Section 23 should be increased from the current 25% to 50% for plant and machinery. Withholding tax on import u/s 148 of ITO 2001; withholding tax on import of raw materials and plant and machinery by industrial undertakings be substantially reduced from 5.5% to 2%.

For subsequent years, the industrial undertaking should be allowed exemption against advance tax u/s 148 on import of raw material, as per actual consumption requirement, instead of 125% quantity of previous year as provided in SRO 717 of 2014. A new provision to be inserted in Section 148 so that tax paid by manufacturers-cum-importers dealing in both manufactured and commercial imports shall be adjustable. Sales tax zero rating on pharmaceutical input; local supply of medicines/drugs be classified under zero-rating, so that the pharma industry, whose selling prices are regulated by the government, may claim input tax credits on taxable inputs. There is a need to grant of industry status to telecom sector for the purpose of ITO, 2001.