ISLAMABAD: The government is contemplating upon different options to provide relief to the country’s giant multinational companies including slashing down turnover tax from the existing rate of 1.5 per cent to 0.5 per cent in the upcoming budget.
On a unanimous charter of demands presented by three chambers including Overseas International Chambers of Commerce and Industries (OICCI), Pakistan Business Council (PBC) and American Business Council (ABC) during their virtual meeting with Federal Minister for Finance Shaukat Tarin on Monday, they tabled 10 major demands and reduction in the turnover tax at the existing rate of 1.5 per cent was described as a matter of their survival so they demanded reducing it to 0.5 per cent in the upcoming budget. The FBR high-ups were also present in the meeting.
All three chambers were unanimous in their demand that this turnover tax should be imposed on the basis of profits instead of turnover, but the government indicated to give consideration to reduce its rate. There was some specific sector where it was demanded that the rate of the turnover tax should be reduced to 0.25 per cent.
The General Sales Tax (GST) on both goods and services should be harmonized and the standard rate of 17 per cent should be reduced not from the next budget but a roadmap should be given to reduce its rate to 12 per cent over the coming years in a gradual manner. The rate of corporate sector income tax should be reduced from 29 per cent to 25 per cent in a gradual manner.
It was also demanded that the tax incentives withdrawn through income tax exemption should be restored but the government refused to accommodate this demand, keeping in view IMF conditions. The multinational companies also asked for devising mechanism for combating tax evasion in the tobacco sector, Afghan Transit Trade and rampant smuggling of POL products.
Disallowance of expenses on sales to tax unregistered persons Through Finance Act 2020, a new clause inserted in Section 21 of the ordinance, disallowed deductions of expenses in proportion to the sales made to tax unregistered persons. The aforementioned measure taken by the government is onerous, penalizes the tax compliant sector which should be incentivized towards documentation of economy. Recommendations i.e. Section 21(q) introduced by the Finance Act 2020 should be omitted.
Furthermore, to promote documentation and incentivize tax compliant sectors, Section 65A (omitted via Finance Act 2017), which gave tax credit of 3pc, where 90pc of sales were to tax registered persons, should be restored. Sales tax and duties exemption on import of locally manufactured goods 6th Schedule to Sales Tax Act 1990 (Part 1 and Part 3) and 5th Schedule of Customs Act provides sales tax exemption and reduction in custom duties for various projects irrespective of the fact that the same goods are being manufactured locally in Pakistan.
For withholding taxes, they recommended that the withholding tax regime should be revamped by reducing it to a maximum of five rates for all withholding taxes and the differentiation should be on the basis of active and inactive taxpayers only. The number of withholding tax should be reduced drastically in the coming budget.
All taxes withheld should be auto-populated in the portal to the credit of the beneficiary. Final Taxation Regime should be eliminated, and all withholding taxes should be available for adjustment and the operations wing of the FBR should ensure that all persons whose taxes have been deducted file their tax returns.
Withholding agents should be given incentives in the form of 2% tax credit of the amount collected for facilitating the government. In addition to the above-mentioned administrative/streamlining issues, withholding/advance tax rates on below transactions should be reconsidered. Withholding tax rate be reduced to 0.25% for all distributors in line with the withholding taxes applicable on dealers and sub-dealers of fast-moving consumer goods.
Withholding tax rates applicable on services is 8% minimum tax regardless of the actual taxable income of the service provider. The nature of this tax effectively becomes an indirect tax and increases the cost of doing business for service providers, hence, tax on services should be made adjustable. Withholding tax deduction u/s 153 (1)(a) which is currently considered as minimum tax for all the suppliers (except manufacturers and listed companies) should be made adjustable at least for corporations appearing on the active taxpayers’ list.
They were of the view that the Track and Trace software would not solve all problems related to the sector, therefore the government would have to take a politically tough decision to bring Rs 70 billion additional money into the tax net. They suggested imposing Rs 300 per kg adjustable Advance Tax on per kg tobacco leaf at the level of Green Leaf Threshing Process (GLTP) units. This tax could make illicit cigarettes financially unviable.
The Custom valuation be done by latest methods of valuation and taking local legal brand owners on board, checking imports of counterfeit products and making import data public property to ensure transparency, which will also help in taking over of goods under Section 25A of the Custom Act, 1969.
Federal Minister for Finance and Revenue Shaukat Tarin chaired a consultative meeting with senior representatives of Pakistan Business Council, Pak-US Business Council and Overseas Investment Chamber of Commerce and Industry (OICCI) held at the Finance Division. Adviser to PM on Commerce Abdul Razak Dawood, SAPM on Finance and Revenue, the chairman FBR and other senior officers participated in the meeting. The Finance minister welcomed the participants and appreciated the efforts for putting forward proposals for a growth-oriented and business-friendly budget 2021-22.
In his remarks, Tarin stated that the government firmly believes in a pro-people budget by following a consultative process with all stakeholders. The underlying rationale is to achieve an all-inclusive sustainable economic growth by seeking valuable inputs from investors, traders and business community. He underlined that Pakistan has witnessed a V-shape recovery amid the pandemic due to prudent policies of the government. The government has identified 12 sectors, under the banner of Economic Advisory Council (EAC), to formulate short, medium and long-term strategies to achieve an inclusive sustainable economic growth and social development with special focus on agriculture, housing, exports and revenue mobilization.
Commenting on the federal budget, the Finance minister assured that the upcoming budget envisages maximum relief to the common man. The government will come up with innovative alternatives to achieve the revenue targets by providing incentives and facilities besides broadening the tax base rather than new taxes. There will be no regressive taxation and stern action will be taken against tax evaders, he added. He directed constituting a consultative committee comprising representatives of PBC, OICCI and FBR to work out proposals with mutual consultation on a regular basis.
Later, Tarin held a virtual meeting with a delegation of the Pakistan Chamber of Commerce and Industry (FPCCI) through video link. He outlined that Pakistan’s economy is showing signs of recovery amid the coronavirus pandemic, with construction and manufacturing sectors in lead. However, the smart and micro lockdowns during the third wave have posed new challenges. The government is pursuing a strategy to achieve a robust economic growth to benefit under-privileged and middle class for ensuring equal distribution of economic gains across all segments of the society. The government will encourage self-assessment and incentivize businessmen and traders to pay taxes in line with best international practices.
In his concluding remarks, the Finance minister stated that the suggestions presented during the meetings for budget preparation would be accorded due consideration. He assured regular interaction with FPCCI members and affirmed that all key stakeholders would be taken on board before making important economic decisions.
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