Lahore: Chairman Federal Board of Revenue Dr. Muhammad Ashfaq has said that more tax exemptions would be abolished soon while the sales tax rate to be rationalized within one or two years.
He was speaking at a meeting at the Lahore Chamber of Commerce & Industry. LCCI President Mian Nauman Kabir presented the address of welcome and highlighted the issues of taxation measures in supplementary finance bill, bank accounts attachment, widhholding tax, harassment by the tax officials and duties and taxes on the essential raw materials etc. Senior Vice President Mian Rehman Aziz Chan and Vice President Haris Ateeq also spoke on the occasion.
The Chairman FBR said that we have to take the responsibility of cost of managing the country so that next generations don’t have to suffer. At present, tax-to-GDP ratio is around 12 per cent while the expenditure are around 20 of the GDP. He said that that the difference of 8 per cent has to be managed through loans which have to be owed by our generations. “We have to pay taxes to bridge the gap of 8 per cent”, he added.
Dr. Muhammad Ashfaq said that those taxpayers would not face any problem who have made their system flawless. He said that duties have been imposed on the import of plants and machinery as being done throughout the world.
The Chairman FBR said that our refund system is one of the best in the world and ST refunds are being cleared in 72 hours. He said that the requirement of CNIC of purchaser is a must as the transactions of billions were being made under fake CNICs. About bank accounts attachment, the Chairman said that it is the civilized way for recovery instead sealing properties or business premises.
While agreeing with the LCCI President Mian Nauman Kabir, the Chairman FBR agreed that there should be no misuse of tax exemptions in FATA and PATA. He said that to rectify the things, a system is well on the way. He said that in the upcoming budget, withholding tax would be rationalized. He said that rs. 100 billions are being collected through minimum tax but it would be abolished within next 3 to 4 years. He said that more tax exemptions would be withdrawn in the next budget.
LCCI President Mian Nauman Kabir said that various taxation measures taken in the Finance Supplementary Act 2022 will have an adverse impact on the growth of our Economy & Industry. He said that the Sales Tax exemptions on imported plant and machinery have been withdrawn and the same are subjected to 17% Sales Tax. This would make it difficult for our industrial sector, particularly SMEs to undertake technological up-gradation and hence the export competitiveness of our Industrial sector would be adversely affected. This measure can start a new wave of De-industrialization in the country.
Mian Nauman Kabir said that the cost of doing businesses in the recent times has increased tremendously. To bring the cost of doing business down, we need to diversify our energy mix to cut the cost of electricity production by increasing the share of renewable energy, particularly Solar. The measure of abolishing Sales Tax exemption on import of Solar Panels and renewable energy equipment can prove to be a big obstacle in achieving the objective of making our energy mix more cost effective.
He said that the sale tax exemptions on seeds for sowing which includes pest-resistant and high yielding hybrid seeds have been withdrawn. This will adversely affect our crop output. Similarly the sales tax exemptions on agriculture equipment e.g. drip irrigation and sprinkler systems have been withdrawn.
The LCCI President said that the Sales Tax exemptions on different feeds have been withdrawn which will adversely affect the poultry, livestock and fisheries sectors. He said that agriculture Income is exempt from income tax under Section 41 of Income Tax Ordinance 2001. It is proposed to include raw hides and skins in agricultural Income.
Mian Nauman Kabir said that Sales Tax Exemptions on the import of raw materials for industries operating in Export Processing Zones have been withdrawn. Since the exports are zero rated, the government should clarify the mechanism of Refunds. This measure will adversely affect the foreign investment in Export Processing Zones.
He said that the legal cover provided to seller from application of sales tax liability and penalty, in case if the CNIC of the purchaser is found to be incorrect has been withdrawn. This change is against the spirit of ease of doing business and would adversely affect day-to-day business operations.
The LCCI President added that the FBR has allowed its officers to forcefully recover taxes from the bank accounts of taxpayers without seeking approval of Chairman FBR and intimation to the CEO/owner of the company. We are of the view that actions like bank attachment would prove to be a big hindrance in the creation of business friendly atmosphere in the country. We recommend such discretionary powers should be withdrawn.
LCCI Senior Vice President Mian Rehman Aziz Chan said that the long-standing issue of misuse of tax exemptions by the industries based in erstwhile FATA/PATA is hampering the competitiveness of industries especially based in Punjab. The FBR granted Sales Tax and Income Tax exemption to industries based in erstwhile FATA/PATA in 2018 on imports of certain raw materials for their consumption under SROs 889(I)/2018, 890(I)/2018 and 1213(I)/2018.
Mian Nauman Kabir said that in a recent development, the exemption of FED has also been granted to the industries based in erstwhile FATA/PATA w.e.f 1st July 2021. These raw materials are imported and sold in Punjab which results in heavy Tax Evasion. This misuse is seriously hurting the regular industries based outside FATA/PATA especially the Foam Industry and Steel Melters etc. We request you to resolve this issue on urgent basis.
He said that to reduce the cost of doing business, Government should reduce the rate of Withholding Tax. Since most of the Businesses operate on very low profit margins, the rate of withholding tax which goes up to 4.5% should be brought down between 0% and 1% to make sure that businesses do not face liquidity problems.
The LCCI President said that the Government has reduced import duties on many raw materials lines in the last few years and also in the previous Budget. We hope that this process would continue in the Federal Budget 2022-23 and all the remaining raw materials which are not manufactured locally would be declared zero rated through the elimination of Regulatory and Customs Duties.
He said that Tier-1 retailers are being integrated with FBR through Point of Sale (POS) system. The Policy guidelines for POS integration are not clear. This is being done through pick and choose. The FBR Staff is also deputed on the premises of the businesses integrated with FBR, which is causing harassment.
Mian Nauman Kabir proposed that a clear policy be devised for POS integration without causing harassment of business community. For the purpose of Tier-1 retailers, the condition of area specification may be removed, declare the one shop retailers exempted from the POS integration and the consumption of electricity units may be used as a parameter instead of cost of electricity. For retailers operating in air conditioned mall, plaza or shopping center, the area of 500 square feet or more may be specified.
Mian Nauman Kabir said that Small & Medium Enterprises play a vital role in accelerating economic growth and poverty alleviation by employment generation. There are up to 5.2 million SMEs in Pakistan with 30% contribution in GDP. SMEs are the largest contributor to employment generation in the country i.e., 78% of non-agriculture sector employment, and having 25% of the share in exports of the country. Small and Medium Enterprise are manufacturers having business turnover up to two hundred and fifty million rupees. Levy of standard rate of Sales Tax through Finance (Supplementary) Act 2022 (Mini Budget) will increase the value of turnover for the purpose of definition of SME.
LCCI Vice President Haris Ateeq said that A fairly good number of SMEs having turnover close to the threshold limit will cross the threshold and will be out of the ambit of SMEs resulting in loss of tax concessions given under the Income Tax Ordinance 2001 and will have to bear additional burden of Tax. He said that Keeping in view the vital importance of SMEs in the economy, it is proposed that Turnover threshold for definition of SMEs may be enhanced to five hundred million rupees net of Sales Tax, FED and discounts.
The LCCI office-bearers promote conducive business environment, rate of minimum tax under Section 113 of Income Tax Ordinance 2001 is proposed to be reduced form 1.25% to 0.5%. Minimum production (Per Ton) of steel products should be determined on the basis of consumption of 800 kwh of electricity for small steel furnaces having capacity of 5-10 tons of production.
LCCI former presidets Bashir A. Baksh, Sohail Lashari, Tahir Javed Malik, Zafar Iqbal Chaudhry, former vice presidents Shafqat Saeed Piracha, Kashif Anwar, Tahir Manzoor Chaudhry and Executive Committee Members were also present.
