Institute of Cost and Management Accountants of Pakistan (ICMAP) has urged Ministry of Finance (MoF) and Federal Board of Revenue (FBR) to allow pharmaceutical manufacturers to have an increase in export sample products and first consignment of new product limits by 10 percent.
Currently, pharmaceutical companies are allowed to export free samples up to the extent of 10 percent for existing products and 20 percent for the first consignment of new product of the commercial exports' quantity. It should be increased from 10 to 20 percent and the latter from 20 to 30 percent, said Mohammad Nadeem Ajari, Vice President (VP) ICMAP.
"To increase free export sample limit from 10 percent to 20 percent, as the export requires registration and stringent promotional activities, it gets difficult to stay within limits, he said adding that export limit should not be tied on consignment basis, but should be approved on limit prescribed and agreed for one complete financial year".
A corporate entity opting to move from the presumptive to normal tax regime for commercial imports would not be able to revert to presumptive regime for 5 years, said Ajari.
He said that rates of Corporate Income Tax is on the higher side as compare to global or regional rates and has to be rationalised to retain and attract Foreign Direct Investment (FDI). "High tax rate as compared to highest tax rate of 25 percent for the non-corporate sector is becoming a big incentive for converting limited companies into partnerships and proprietorships," he said.
"Currently imports of pharmaceutical API, chemicals, and packaging materials attract Customs duty from 5 to 20 percent, withholding tax 3 percent on packaging material and 1 percent SED, Ajari said, adding that in the wake of stringent price control since 2002, withholding tax should be reduced to 1 percent and the import duty should be waved off immediately".
He was of the view that imposition of Value-Added Tax before documentation of the economy and putting in place an efficient, transparent and tested VAT system may lead to massive shortfalls in revenue collections. "The absence of an efficient, transparent and tested VAT refund mechanism would create opportunities for "rent seeking" and filing and payments of bogus refund claims," he said.
He added that General Sales Tax (GST) is not allowed as an output tax and this cost on average constitutes 5 percent of sales to the export unit of pharmaceutical industry. "Impact of GST could not be translated on export price, so it is recommended to exempt pharmaceutical industry from sales tax on packaging materials," he urged.
Quoting an example, he said Indian company in global pharmaceutical market, have allowed investment in pharmaceutical companies with a tax credit of 200percent. There is a need of technological advancement in industry so that capital expenditure made on plant and factory buildings gets allowed to have tax credit of 200percent.
He said that 35 percent Custom duty, 16 percent sales tax, 1 percent income tax and SED over import of machinery equipment, research equipment and generators, increased expenditures of industry and resulted in borrowings at soaring rates. Machinery, equipment and generators for export unit of pharmaceutical company should be exempted under the tax net," he suggested.
"Mark up cost on export refinance facility at the moment is 8 percent, (plus 1 percent spread charged by commercial banks), which is very high as compared to the rates charged in neighbouring countries, he said adding that the cost needs downward revision and suggested to reduce the same up to 5 percent".
He said SBP allows 15 percent retention of foreign currency on receipt and there should be permission for 50 percent retention of the proceeds to enable industry to finance their respective offshore expenses such as field force salaries, marketing staff salaries, reimbursements, telecommunications and official expenses.
"Until 2007 export rebate on pharmaceutical exports was allowed maximum up to 4.5 percent, which drastically reduced to 1.4 percent in Finance Bill of 2006/2007, so it is suggested export rebates on pharma products should be raised to 7.5pc," he added. He also stressed that there is a need of strong representation from Trade Development Authority of Pakistan (TDAP) for removal of misunderstandings on the pre-tax of antidumping and World Trade Organisation (WTO) restrictions.
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