SCCI submits budget proposals

Sialkot Chamber of Commerce and Industry (SCCI) has submitted its budget proposals 2016-17. According to the proposal the income tax charged on exporters' income is covered u/s 154 of the Income Tax Ordinance, 2001 is the final discharge of the income tax liability of exporter's income from export and any adjustable withholding tax charged from exporters is refundable. Hence the withholding tax on cash withdrawal from banks is charged @ 0.3 per cent and on import of raw material used for manufacture of exportable goods, which ultimately accumulates as exporters' refunds.
Large amounts of exporters' precious funds are already piled up in refunds under these two heads. It is therefore strongly recommended that manufacturer cum exporters should be allowed to import raw material and machinery used for manufacture for goods to be exported at the rate of zero percent and tax on cash withdrawal should also be exempted to the exporters. Also a provision should be incorporated in section 159 to allow such exporters to apply for tax exemption u/s 231A. This will prevent unnecessary blockade of funds of exporters. Under SRO 326/327, used for import and purchase by Export Oriented Units (EOU), EOUs are exempted from Custom duty and Sales tax but still they have to pay advance income tax on import and purchase of raw material which is also accumulated as refunds and is paid back by the Government after long awaiting. It is suggested that this SRO should be suitably amended to include Income Tax Exemption for Export Oriented Units (EOU) as well, so that the exporters are not subjected to collection of advance income tax. According to clause 45 of part IV of Second Schedule, the manufacturer cum exporters are absolved from the obligation of withholding income tax u/s 153(1) from suppliers of goods and services used for manufacture of exportable goods. It is suggested that this clause 45 should be suitably amended to include "commercial exporter" as well. Moreover, the words "manufacturer cum exporter" should be substituted with the word "Exporter". Small and large Not-for-Profit Organisations have been required to get their renewal under section 2(36) and performance evaluation is required to be done by an agency as per rule 211(g). This agency is charging substantial fee from even small NPOs operating on Zakat. Previously there was a provision whereby concerned RTO was authorised to form a committee for performance evaluation.
It is suggested that option of performance evaluation by the concerned RTO may be restored and relevant Chamber of Commerce and Industry may be given representation in the RTO Committee to provide cost effective mechanism for evaluation of performance of NPOs. The Chambers and Trade Associations established for promoting business and export and adding value to national economy. These associations are being run on self help basis and without any profit motive. The renting of a portion of their building is the major source of finance their expenses. Recently rental income is being taxed at normal rate and also this rental income is not set off against loss (being excess of expenses over income). This situation has created financial crunch for many Chambers and Associations.
We therefore suggest that the Chambers and Trade associations approved by the Directorate General of Trade Organisation being Non-Profit Organisations may kindly be granted exemption from Income tax. The rate of tax of 12.5% levied on Dividends as per Section 5 read with Clause (b) of Division III of Part I of the First Schedule of the Income Tax Ordinance, 2001, should be rationalised to promote investment in corporate sector. The rate of tax has been enhanced from earlier rate of 10 per cent vide the Finance Act, 2015 and since the dividend is paid from income of a company already taxed, the tax on dividend tantamount to double taxation. It is proposed that rate should be reduced to 5% in case of Filer and 10 per cent in case of non-filer to provide incentive to shareholders and encourage investment in the corporate sector. It will also help to create and boost the corporate culture.
SALES TAX the exporters have been declared as Sales Tax Withholding Agent vide SRO 98(I)/2013. This SRO is controversial for exporters particularly for exporters belonging to SME category. This responsibility has been imposed on the exporters who cannot collect tax from unregistered persons as they have to deal with undocumented sector with the result that 1 per cent Sales tax withholding has added to the cost of the exporters. Also huge penalties are being levied on exporters for non-payment of this withholding tax. It is suggested that "exporters" as category may be deleted from SRO 660(I)/2007, which was included vide SRO 98(I)/2013. Moreover, category of "companies" should be replaced with "companies not being exporters" in the relevant SRO. From experiences of the past especially during the period from 1996 to 2005, the FBR realised that to collect sales tax from exporters and then to refund was a futile exercise. Numerous frauds were reported wherein collection was less than refunds. Ultimately the Federal Government identified five export sectors and prescribed list of items/materials used in these sectors which were charged to sales tax @ zero percent. This measure provided a relief to the genuine exporters. Due to the measure, unscrupulous people in business community and the tax department were never happy as it closed the doors of corruption.
Unfortunately, the exporters have again been dragged into the vicious circle of payment of sales tax and then claiming refunds once again. Initially, the tax rate was fixed @ 2 per cent and 3 per cent through SRO 1125 for exporters but now facilitation under SRO 1125 has been partially withdrawn and tax rates of 3 per cent, 5 percent and 17 per cent have been introduced. It is emphasised that original status of SRO 1125 should be restored and maximum facilitation should be provided to five zero rated export sectors. It is further recommended that zero rating should be extended to vendors of exporters as well for which mechanism could be evolved with the help of relevant trade bodies and associations. At present a limit of cottage industry for a manufacturer was fixed at Rs 700,000 of annual utilities bills in 2008 and cost of electric bill and gas bills has increased manifold since then. Therefore we suggest that this limit of Rs 700,000 should be raised to Rs 1.5 million. Section 73 of the Sales Tax Act, 1990 should be suitably amended to allow refund of sales tax in special cases where exporter has not realised export payments and payments to suppliers are delayed beyond 180 days due to existence of special credit terms with the customer abroad. Large amount of sales tax refund of exporters has piled up and processing of sales tax is critically slow. Due to delay in payment of refunds, exporters are facing shortage of working capital, which is creating problems for their export business. It is suggested that automatic compensation to the exporters should be allowed equivalent to 14 per cent per annum of the outstanding amount for the period after 7th day of issuance of Refund Payment Orders (RPOs) by the concerned RTO. There are number of small exporters who are registered with sales tax only to avail the facility of WEBOC but could not file NIL returns. There is no loss of revenue for not filing of such returns; hence no penalty should be charged.
The penalty for non-filing of returns should be linked with any tax liability payable. CUSTOM the temporary importation schemes are made available to the exporters through temporary importation under SRO 492, manufacturing bond under SRO 450, DTRE Scheme under SRO 450, Export Oriented Unit vide SRO 327 and Export Processing Zone. Keeping aside the last ie the Export Processing Zone, the other schemes do not limit or restrain the exporters to use one and not to use other; therefore, it cannot be assumed that while using one temporary importation scheme, the other temporary importation schemes are not available to the exporters.
It is proposed that requirements fulfilled by the exporter to avail one temporary importation facility should be considered valid for availing facility under other scheme, eg analysis card prepared under one scheme should be valid for availing another.