ISLAMABAD: Federal Board of Revenue (FBR) Tax Advisory Council Member Dr Manzoor Ahmed has proposed that the primary role of customs duties should not be to raise revenues as high customs duties make Pakistan’s industry non-competitive, hampering the country’s way to become part of the global supply chain.
In the first meeting of the FBR Tax Advisory Council, Dr Manzoor also proposed reduction in customs tariff slabs to three – 5 percent on raw materials; 10 percent on intermediary goods and 20 percent on consumer goods and duty rates be adjusted for concessionary customs duty allowed under Pakistan’s Free Trade Agreements (FTAs).
During the meeting it was also agreed that the Advisory Council members should submit suggestions for consideration in the next meeting of the council.
In the tax policy reforms Tax Advisory Council member Dr Manzoor suggested that tariff rates and trade policy should be set together due to their common impact on industrial policy, investment policy, and agricultural policy.
He stressed that there should be a maximum of three tariff slabs for example: 5 percent (raw materials), 10 percent (intermediary goods) and 20 percent (consumer goods). There should also be a conscious policy of benchmarking customs duties against other competing countries.
He emphasised the need for customs duty rates adjustment for concessionary rates allowed under the PFTAs to avoid serious trade diversion and loss of revenue.
He pointed out that all duty concession SROs should be abolished and those rates should be reflected in the tariff schedule at the SRO rate.
He argued that the imposition of regulatory duties should be made illegal and instead, where necessary, World Trade Organisation (WTO) compliant anti-dumping, countervailing or safeguard measures should be implemented and enforced. These measures will protect specific industries from injury as a result of imports that are being dumped, subsidised or imported in large quantities.
Similarly, he suggested that sale tax regime, being a major revenue contributor, should be reformed to enhance its benefits.
Sales Tax rates should be reduced to one or two rates and with a few exceptions and zero rating should only be granted for exports.
About the income tax, he proposed that currently, there are two parallel income tax regimes: the Normal Tax regime and Final Tax regime (FTR). A tax reduction for one sector increases the burden on other sectors, and two regimes for incomes derived from different sources is unfair. At times, charging lower taxes on exports is treated as a subsidy by some importing countries, and Pakistani exports are subjected to countervailing duties for the difference between FTR and the normal tax.
Dr Manzoor said that Withholding Tax system should be reformed as the tax was useful in some cases including banking transactions. However, its extensive use complicates the tax system and also results in making withholding taxes function as indirect taxes.
He proposed that amnesty schemes serve as a serious disincentive for honest taxpayers and should be avoided at all costs. Experience shows that amnesty schemes have yielded little extra revenue. The open-ended money whitener scheme under section 111(4) should also be abolished.
