Saturday December 03, 2022

Govt nods reduction in upfront taxes on machinery imports

By Our Correspondent
May 26, 2021

ISLAMABAD: Finance Minister Shaukat Tarin on Tuesday agreed to a proposed cut in upfront tax levies on import of plant and machinery and gradual reduction in corporate tax rates and general sales tax to 12 percent.

Tarin said the government planned to broaden the retail tax base through point-of-sale terminals and prize schemes for customers who demand proper general sales tax receipts. He directed the establishment of consultative bodies composed of the Federal Board of Revenue (FBR), Pakistan Business Council (PBC), Overseas Chambers of Commerce and Industry (OICCI), American Business Council (ABC) and Federation of Pakistan Chambers of Commerce and Industry (FPCCI) to discuss issues related to taxation and customs.

In a meeting with office bearers of PBC, ABC and OICCI, the finance minister assured his government’s full resolve to make it easier to do business. He highlighted the measures being taken to reduce harassment and bring objectivity and independence to audits through the Institute of Chartered Accountants of Pakistan.

The minister supported a gradual reduction in both corporate tax rates and general sales tax. He also warned that willful defaulters would be punished through imprisonment.

The finance minister supported formation of groups, development of scale and for deepening the capital market through wider shareholding and asked the FBR to review PBC’s proposals. The need to restore the exemption of intercorporate dividends from cascading taxes was also advocated.

FBR Chairman indicated an intent to gradually reduce minimum tax on turnover starting with 0.25 percent in the forthcoming budget. Specific rates will also be issued for low margin businesses and issues relating to the offset of minimum tax would be resolved, he said.

The FBR chief was supportive of inter-adjustability of income tax and sales tax refunds and payables. The FBR would also look to remove the limit of 90 percent for input adjustment of sales tax. However, it did not support the continuation of incentives for balancing, modernisation and replacement (BMR) or investment in new projects citing past misuse by some unscrupulous taxpayers. The FBR assured the PBC that withholding taxes would be rationalised.

On proposal of discontinuing tax incentives for BMR, the PBC urged the FBR to rethink this and not punish law-abiding taxpayers for the misdeeds of others. It also recommended that the incentives could be restricted to imported plant and machinery.

Proposals to bring down the cost of essentials such as medicines and packed dairy products by zero rating them for sales tax were also presented. The FBR would examine the case on its merits. The main recommendations were developed in a spirit of ment on broadening the tax base, accelerating formalisation of the economy, controlling evasion and under-invoicing, promoting investment, liberating cash flow of business, bringing down the cost of essentials and facilitating consolidation and scale through formation of groups.

Anomalies in the current fiscal regime such as minimum tax on turnover and the complexity arising from multiple withholding and advance taxes were also discussed.

Saquib Shirazi, chairman of PBC said all the recommendations could not be implemented in one go and urged the government to provide a direction through phased introduction of measures.

The finance minister was appreciated for listening, understanding and collaborative attitude and the FBR’s efforts to reduce complexity and address the flaws in the fiscal regime.