Businessmen asked to join hands for expanding tax base

Central Board of Revenue (CBR) Chairman Abdullah Yusuf has asked the business community to join hands for expanding tax base to achieve aggressive target of Rs 690 billion in 2005-06, raising tax-GDP ratio.
Addressing a seminar on "business community's role towards a prosperous Pakistan" organised by the CBR on Tuesday, Yusuf said that black economy has no future in the country. The business community and tax officials should jointly evolve a strategy for documentation of the economy.
This year the major challenge for tax authorities is to achieve the ambitious target of Rs 690 billion, which could not be achieved without the co-operation of the traders.
The business community placed two major demands before the tax authorities. First, the "Carry Forward" scheme should be restored for certain sectors, which makes purchases in bulk and secondly, the warehousing period be increased from six months to one-year to facilitate the importers.
On the latter issue, Yusuf said that if any importer store the raw material/inputs in the bonds for a longer period, it would be no use for the industry as well as the department. However, the CBR could conduct a research for extending the timeframe for a reasonable period.
He said, "It is not only the responsibility of the CBR to take measures for expanding tax-base, but the businessmen should also play their due role in this regard. It is impossible to move ahead with this narrow base," he said.
Keeping in view higher growth rates, there is a need to expand the tax base on both the income tax and sales tax sides.
He said that the introduction of Universal Self-Assessment Scheme (USAS) is a 180 degree turn, as taxpayer have been given facility to file a simplified income tax return on self assessment basis. On the other hand, we also expect a similar response from the business community, he added.
The CBR paid over Rs 30 billion income tax refund in 2004-05, which is 40 percent higher as compared to the corresponding period of the last year. People even get refunds while sitting in their offices.
The facilitation measures should have resolved 90 percent of the chronic problems of the business community.
Moreover, the problem of litigation has also been resolved. All 58,000 appeals pending at the first stage of the appellate forum have been settled and now the CBR wants to liquidate all the appeals pending at the higher courts, including high court and Supreme Court of Pakistan.
The complaints of the exporters about the issuance of delayed refund have been resolved by declaring five major sectors as zero-rated.
The CBR chairman ensured that the auditors of Directorate of Revenue Receipt Audit (DRRA) would not directly interact with the taxpayers. If someone has any complaint, he should directly report to the CBR and the issue would be taken up with the concerned authorities.
On the issue of sales tax internal audit, Yusuf said that the audit was temporarily suspended. The CBR is still working on the new audit mechanism and officials are being trained in a professional manner.
He said that changing of mindset is a very critical issue for both the tax collectors and taxpayers. On the one hand, people do not declare the real income, whereas on the other, tax officials presume that the taxpayers have under-declaring their income. There is a need of changing the mindset on both the sides.
A representative of sales tax committee of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said that 90 percent of the refunds have been claimed on fake invoices and the genuine claimants are still unable to process their claims. The number of refund claims on fake invoices is not in hundreds, but in thousands.
He suggested that independent computer experts should operate refund programmes like STARR and STREAMS to ensure its credibility, whereas the department's computer operators should not be permitted to do data feeding under these programmes for avoiding any misuse of the facility.
Member Sales Tax Shahid Ahmed said that the CBR has issued a separate simplified sales tax return form for the five zero-rated sectors. Similarly, the CBR has not disturbed the sales tax payment procedure on the basis of minimum value-addition by the retailers of specific sectors.
On the issue of sales tax refund, the member sales tax said that the CBR is closely monitoring the refund claims to ensure admissibility of the genuine claims. It was alarming to note that purchases of Rs 12 billion have been shown this year against Rs 4 billion in the corresponding period of the last fiscal. After zero-rated sales tax for five export-oriented sectors, it is our responsibility to clean the accounts to operate under the new environment of zero-rated regime.
The software STREAMS has an in-build provision of storing information on the summary of purchase of invoices. If the statement matches with the amount of refund claim, then the department will give the refund.
Shahid Ahmed added that a simplified return form for the distributors would be issued in one or two days.
FPCCI Standing Committee on Taxes Chairman Zakariya Usmani proposed that Section 33 (Offences and Penalties) of the Sales Tax Act, 1990 be amended to create a conducive environment for the business community as provision of harsh penalties develop fear in their minds that they could be punished on committing mistakes.
Secondly, 0.1 percent withholding tax on cash withdrawals from the banks is acceptable to the business community provided the CBR should give assurance that the levy should be final discharge of their tax liability.
Thirdly, he said that the CBR should submit a permanent authenticated list of items "locally manufactured or not". This will end the problems arising out between the tax collectors and taxpayers regarding status of a specific item. The business community does not want to indulge in repeated meetings with the Engineering Development Board (EDB) for determining whether an item is locally manufactured or not.
Responding to queries, Yusuf said that the purpose of levying 0.1 percent withholding tax on cash withdrawals from the banks is to move towards documented economy. "This tax will stay in future which is a right step towards documentation," he added.
Clarifying the issue of Section 33 of the Sales Tax Act, 1990, he said that every country has tax laws to keep a check on trade and business. Similarly, Pakistan's tax laws also have provision to keep it as a deterrent. If somebody flouts the law, there should be some check on the same. Law is there, but it is not the intention of the CBR to use these harsh punishments until and unless necessary.
Tariq Saeed, a representative of the FPCCI suggested that the concept of Alternate Dispute Resolution (ADR) mechanism should be institutionalised. The new building of Dispute Resolution Complex in Karachi should give rooms to the chairmen of ADR committees for hearing of the cases.
Presently, the ADR meetings are taking place at different locations. Secondly, the CBR should amend the tax laws on the basis of experience of ADR cases as recommended by the chairmen of these committees.
The Northern Areas Chamber of Commerce and Industry president demanded tax incentives package by declaring Northern Area as Free Economic Zone. The CBR chairman said that we have no objection on this proposal, however, the Export Processing Zone is the competent body of Industries and Production Ministry to deal with the issue.
On a query raised by the steel re-rolling industry, former member Customs Muhammad Ramzan Bhatti said that the CBR has introduced a new Section 16-A in the Customs Act, 1969 to do cutting of the disputed steel items for subsequent release at the ports.