FPCCI urges slash in presumptive tax for tier-1 retailers

KARACHI: Federation of Pakistan Chambers of Commerce & Industry (FPCCI) has proposed a slash in high presumptive income tax for integrated tier-1 retailers and their suppliers of goods, in line with the withholding tax rate as done for the FMCG sector.

“A lower rate of turnover tax of 0.25 percent be prescribed for every integrated retailer to facilitate voluntary compliance of non-integrated retailers,” the FPCCI said in its proposals for budget 2022-23.

“General immunity be allowed to all retailers from sales tax and income tax assessment and audit proceedings of past tax periods/years who register and integrate with FBR within a given timeframe unless there is definite information available to FBR from third-party sources regarding tax evasion.”

The FPCCI said except for computer balloting for audit selection and withholding tax monitoring proceedings, there should be a general immunity for integrated retailers from desk audit amendment of assessment proceedings.

“The integrated retailers face technical complications relating to FBR POS inter alia software limitations, lack of technical expertise/resources, connectivity, and system maintenance, while various other technical issues also add to the compliance risk.”

It urged the government to establish city-specific, centralised, and dedicated zones within the tax offices for integrated retailers. “Therefore, all issues of integrated retailers may be resolved through one-window for technical and operational matters and an audit-free environment can be ensured.”

The apex trade body also suggested the authorities to introduce special reduced income tax rates to encourage the fully integrated retailers who were showing transparent turnover, and resultant profits, as compared with the non-integrated businesses filing their returns without being integrated or checked comprehensively.

“This reduction might be introduced through a 20 percent to 50 percent tax credit for 3-5 years. This will boost the confidence and viability of integrated and compliant taxpayers until the entire sector is integrated.”

On the withholding tax regime, the apex trade body proposed that varying rates of withholding taxes are the biggest challenge for filing tax returns.

“Currently, there are different withholding taxes on imports of different goods. Such as raw materials are facing WHT at 2 percent, plant and machinery (1 percent), and supplies (4.5 percent). Due to multiple rates, businesses are also reluctant to register themselves on the Active Taxpayers List. It is recommended that the withholding tax rates must be in a range of 0-1 percent and must not exceed 1 percent in any case,” the FPCCI said in its budget proposals.

It proposed the withholding tax on imports under Part-I, Part-II, and Part-III of the Twelfth Schedule under Section 148 be revised to 0 percent, 0.5 percent, and 1 percent respectively.

The number of withholding taxes must also be reduced from 25 and presently due to the multiplicity of taxes for the corporate sector, it goes up to 36 percent (29 percent normal tax + 2 percent Workers’ Welfare Fund + 5 percent Workers Participation Fund), the trade body said.

It said the higher rate of tax was effectively a disincentive for multinational groups for locating their businesses in Pakistan.

The FPCCI proposed the previous policy of reduction in corporate tax rates should be restored and the corporate tax rate be gradually slashed to 25 percent.

The employer should be given the right to spend Workers Welfare Fund on its employees, being an admissible expenditure, it suggested to the government and added that the Advance Ruling facility should also be made available to the resident taxpayer.

“The locals cannot be discriminated against foreign-origin goods or investments in terms of the policy facilitation, which also is expressed as part of TRIMs of WTO. It should also be clarified that the Advance Ruling will be valid even where the non-resident taxpayer, after obtaining the ruling, becomes resident.” It recommended the minimum turnover tax must be reduced.

The current rate of 1.25 percent of the minimum turnover tax is high and unjustified as the minimum tax needs to be paid regardless of the profitability of the entity, the trade association said.

FPCCI also recommended the government to restore the position prior to Finance Act 2016 in respect of exemption on inter-corporate dividends in sections 59AA and 59B as it was used to be before the Finance Act, 2016.

The Finance Act, 2016 excludes entities entitled to group relief under Section 59B from the exemption entirely.

Alternative Dispute Resolution Committee (Section 134A) Sub-section (4) of Section 134A provides that the committee appointed under sub-section (2) shall make a decision over a dispute through consensus.

Generally, in any dispute resolution by the arbitrators, the majority decision is an acceptable norm. It was also proposed that the words “through consensus” be replaced with the words “by the majority”.

The FPCCI suggested that the applications in respect of seeking ADRC by FBR might be transferred to FTO, which could resolve these issues under Section 33 of the FTO Ordinance.

“Within the provision of Section 33, FTO can arrange to resolve the complaint issues at local office levels and by forming honorary advisory committees to resolve the issues. Further FBR will still have the option to make representation against the decision of FTO before the President of Pakistan,” the FPCCI said.

On audit period for six years (Section 174), the trade federation was of the opinion that this Section allows the Commissioner to demand the financial documents for the purpose of audit, therefore businesses are required to keep records for a period of six years. “Such a long period of audit only adds unnecessary cost and burden to the businesses and gives discretionary powers to the assessing officer and recommended to reduce the audit period from the existing six years to three years.”

On the Commissioner's Authority to amend Assessment Order (Section 122 5A), it said that under Section 122 5A, the Commissioner had the right to amend the assessment order as he deems right. “This is causing serious hardships to the taxpayers, as now due to this explanation, the tax authorities are using the explanation as a tax collection avenue instead of a deterrent.” FPCCI also recommended withdrawal of section 122 5A to increase the ease of doing business.