The amendment in Sub-Section 4 of Section 134 of the Income Tax Ordinance 2001, proposed in the Finance Bill 2009 in the 2009-10 Federal budget, to introduce an "innovative" form of "minimum tax regime" by substituting final tax, could become a major source of corruption in the tax department.
Earlier, it was resolved in 1992 that the exporters would pay one percent of the export invoices as final tax to discharge their tax liability even if the balance sheets showed minus loss, but there would be no assessment by the Income Tax Officers.
The banks, on realisation of foreign exchange, were deducting one percent of the export invoices that constituted final discharge of tax liability of an exporter, said Pakistan Tanners Association (PTA) Central Chairman Agha Saiddain while talking to Business Recorder here on Wednesday.
This understanding between the businessmen/exporters and the government not only provided confidence to the exporters, but also resulted in four-five time increases in the government revenue, he said. Moreover, this policy not only saved the exporters from the departmental hassle to get final assessment by the tax officials, but also eliminated corruption, as interference of tax authorities was totally ended, he added.
He further said the exporters were agreed on deduction of one- percent tax to save their valuable time and alleged blackmailing by the income tax officials in issuance of assessment. He said: "It is obvious from the term "Income Tax" that a tax to be deducted on income only and not on loss. The export of leather, during the last 10 months has been declined by 26.69 percent and most of our members are running their factories in loss, thus the deduction of income tax on loss is not legal and is ultra varies and against the basic principle of law.
"There is no concept of minimum tax regime in anywhere in the world. All law books are silent on this new creative idea. By introducing minimum tax regime, the authorities have further burdened the leather export sector, which has great importance in foreign exchange earnings," he added.
Agha said that increasing of withholding tax from two percent to four percent had further pushed up the cost of doing business. Similarly, the gradual withdrawal of subsidy on energy bills would also increase the cost of production. In Turkey, he said, the government charged 50 percent of normal electricity tariff on tanning industry to provide relief in the present world scenario.
Likewise, India, China and Bangladesh had announced relief packages for their export industry, he said. Agha said the Indian commerce minister clearly said that dollar earned through export was better than dollar begged from world donor agencies. All over the world, he said, the export sector was kept out of tax burden. "After an experience of decades, we have learnt the exports are vital for our nation and various incentives were announced from time to time to promote our exports," he added.
Agha urged the government to depend on the country's resources instead of heavy borrowing, which was burden on the nation, while heavy debt servicing in future would put us in a shamble for all times to come and our economy will never grow. The PTA Chairman, however, appreciated the continuation of zero rating regime for export sector and allocation of Rs 40 billion as export investment support.
He urged the government to withdraw minimum Tax Regime and follow the previous policy of one- percent tax deduction as discharge of final tax liability and withdraw the four percent withholding tax on imports of all inputs and machinery for export sector.
Agha Saiddain further suggested that the government should avoid increasing cost of business due to global recession and the Federal excise duty (FED) on banking and insurance and other services like customs agents' services might also be withdrawn.
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