KARACHI: The Pakistan Business Council (PBC) Wednesday came up with major concerns regarding the Finance (Supplementary) Bill 2021 and proposed a set of recommendations that include a ‘clear’ definition of digital means and restoration of 10 percent rate of advance tax on telecom services.
In a letter to the Federal Minister for Finance & Revenue Shaukat Tarin, Ehsan A Malik CEO PBC said that his organization appreciates that the Finance (Supplementary) Bill 2021 has been drawn up under considerable revenue pressure but would like to list our major concerns, some of which have no revenue implication.
In view of the budgetary constraints, we have not on this occasion repeated our earlier recommendations on phasing down the minimum tax on turnover; avoidance of multiple taxation on inter-corporate dividends in group companies; provision of incentives to list companies on the stock exchange; tax credit on capital expenditure on plant and machinery; and reduction in corporate tax and GST. We will separately take up these matters with you as part of a fiscal policy.
He said the Bill has proposed to add a new definition of “digital means” through inserting Section 2(17B) in the ITO. Proposed definition: “digital means” mean electronic or digital payments as defined by the State Bank of Pakistan (“SBP”).
However, while identifying the issue, Ehsan said that the proposed amendment does not mention which specific legislation, circular and/or notification of the SBP must be relied upon. The proposed amendment is unclear on whether “Digital Means” includes crossed cheques, pay orders and demand drafts which are instruments that result in electronic and transparent inter-bank settlement of payments, thus meet the objective of documenting the economy.
He said that roposed amendment needs to be redrafted to a clearer definition of digital to include crossed cheques, pay orders and demand drafts.
Rate of advance tax on telecom services increased from 10% to 15%. Currently, the Advance tax on telecom services is 10% for FY-22 year, which was to be reduced to 8% for future years to reduce the impact on those that have no tax liability. Increase in tax to 15% on telecom services affects the affordability of internet & data services and works counter to the government’s aim to digitize the economy.
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This increase will also impact export of IT services, given their tax-exempt status. PBC has recommended that the current provision be restored where advance tax is 10% for this year and 8% for future years.
Sales tax zero rating on local supplies of raw materials, components, plant and machinery, etc, has been proposed to be withdrawn on supplies to exporters registered under the Export Facilitation Scheme, 2021 [EFS].
While identifying the issue, PBC CEO said Export Facilitation scheme was launched to consolidate all export promotion schemes like DTRE, EOU and Manufacturing Bond. The scheme allows exporters to purchase goods without payment of sales tax on the basis of quota approved by Custom Authorities.
Quota to purchase goods is allowed on the basis of financial security submitted by exporter, therefore, there is no risk of loss of sales tax. Goods purchased by exporters under the Export Facilitation scheme are subject to quota approval by, and strict scrutiny of, the Customs authorities. To avoid impacting exports, zero rating should be kept intact.
At present, sales tax @ 10% is applicable on import of Plant and Machinery. Said rate is proposed to be increased to 17%. Moreover, Sales tax exemption is also proposed to be withdrawn on Machinery, equipment and materials imported for exclusive use within the limits of Export Processing Zone for making exports. He said the proposed imposition of sales tax @ 17% on import of plant and machinery will unnecessarily increase the cost of investment and that too without raising any additional revenue for the Government as sales tax will either be adjustable or refundable.
In addition to industries in general, this amendment will be extremely detrimental for Greenfield industries, which normally take 2-3 years for commencement of commercial production. This proposal should be withdrawn as it increases investment cost for entrepreneurs with only a short term jump in cash flow for FBR as the sales tax collected is adjustable/refundable.
It has been proposed to omit the third proviso to Section 23(1) of the Sales Tax Act, 1990, which states that if it is subsequently proved that CNIC provided by purchaser was not correct, liability of tax or penalty would not arise against the seller in case of sale made in good faith.
This is a harsh step which shifts the penalty for providing incorrect CNICs from the buyer to the seller who receives it in good faith. Ehsan said the proposed amendment, is unfair and works counter to need for ease of doing business. It should be deleted.
The 17% sales tax imposed on import & sales of seeds including corn, cotton, rice and others. The 17% sales tax on agriculture implements and seeds (including maize, vegetable and others) will directly impact the cultivation cost and put quality seed inputs out of reach of many farmers. This will impact the efforts of the government to increase crop yields, reduce imports and promote exports of agricultural products.
PBC CEO recommended that in the interest of food security, to reduce imports and promote exports of agri products from Pakistan, this needs to be withdrawn.
Copyright Business Recorder, 2022
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