ISLAMABAD: The Engineering Development Board (EDB) has underlined the need for reduction in turnover tax for automobile industry from existing one percent to 0.5 percent and withdrawal of one percent income tax from the export of engineering goods
In the budget proposals submitted to the Federal Board of Revenue, the EDB pointed out that the turnover tax was imposed as an ultimate resort on undocumented sectors, making huge profits but showing nothing in the books. The board elaborated that the turnover tax rate was increased from 0.5 percent to 1 percent in the budget 2010-11 under Section 113 of Income Tax Ordinance 2001 to increase revenues through turnover tax by targeting unregistered sector. On the contrary, the engineering industry, however, is documented and paying all due taxes and has been confronted with profit margin decline due to global recession and rising cost of doing business.
The EDB argued that any change in the tax base from ‘taxable profit’ to ‘Turnover’ would seriously affect the industry as the amount of tax would be far higher than the profit itself and also the amount of tax that would otherwise be applicable at the normal corporate taxation of 35 percent.
Therefore decrease in tax rate will help the industry to flourish and enable it generate contribute more revenue to the exchequer.
Similarly, the EDB sought withdrawal of one percent income tax on the export of engineering goods. The board is of the view that engineering goods and services industry has huge potential in the global export market, and thereby can earn valuable foreign exchange for the country.
Currently, export of engineering goods is chargeable to 1 percent income tax under section 154 of the Income Tax Ordinance, 2001, which is adding to the cost of exports, and thereby rendering Pakistani products uncompetitive in the global market. It is accordingly proposed that Income Tax at 1 percent chargeable on the export of engineering goods may be abolished or at least reduced to 0.5 percent instead of the existing 1 percent to encourage the export of engineering goods.
