Under-invoicing in imports from China has increased to $1 billion during the last financial year which is a big challenge to the government that has failed to check the menace of smuggling and under-invoicing.
The practice of under-invoicing has given a big jolt to the national exchequer resulting in closure of several small-manufacturing units. Compliance to international trade regimes may be important but not at the expense of taking the breath away from the local manufacturers, and that too due to malpractice of under-invoicing and smuggling.
This was revealed in the budget proposals for the year 2007-08 submitted by the Lahore Chamber of Commerce and Industry (LCCI).
The analyses of the imports revealed that in the year 2003, Pakistan has imported goods of worth $1,150.363 million from China whereas according to Chinese Statistics, China exported goods of worth US $1,854.970 million which shows discrepancy of $704.607 million among both sources. Pakistani and Chinese traders continued the same practice in 2004 and 2005.
In 2004, Pakistan's imports from China stood at $1,488.774 million as compared to Chinese exports to Pakistan, which were $2,465.769 million. There is a difference of $976.995 million in both statistics.
While in 2005, figures of imported goods from China to Pakistan amounted at $2,349.395 million whereas China exported $3,427.662 million to Pakistan, which shows the difference of $1,078.267 million.
The LCCI suggested ensuring checking of under-invoiced goods in the country from where they originated and special studies should be conducted to control rampant under-invoicing, mis-declaration and smuggling from customs stations like Sust (Pak-China border in Northern Areas).
Complaints should be sent to the tax authorities of exporting countries for seeking, necessary measures for countering the menace of under-invoicing.
Existing information network should be promoted and upgraded to control illegal transactions like under-invoicing or over-invoicing. The list of the items prone to these practices with the assistance of relevant stakeholders should be prepared to take necessary action. Incidence of under-invoicing is higher in countries where tariff rates on imported (commodities are higher).
The LCCI also suggested that tariff rates should be slashed on the commodities.
About the bonded warehouse charges, the LCCI urged the government to reduce the rate of bonded ware housing charges for imports to 0.5 % from the existing 1 percent and on exports also reduce these bonded charges to 0.5 percent from 1 percent. The LCCI was of the view that no doubt CBR had relaxed sales tax registration process during the last few years. The physical verification clause is still causing delay in issuance of Registration Certificate to the manufacturers.
The process takes more than 6-8 weeks (sometimes even more) which results in many difficulties for taxpayer entering into tax net. The problem is more acute for intending manufacturers who are importing machinery for installation.
It proposed that registration process must be completed within one week in case of limited and private limited companies and in respect of applicants whose applications are accompanied by NTN, NIC, Bank account, ownership deed and machinery details etc.
At present, income tax at the rate of 0.75 percent (with no sales tax) is imposed on retailers having turnover less than Rs 5 million. However, in case turnover exceeds Rs 5 million, the retailers become liable to turnover tax at the rate of 3 percent (2 percent sales tax and 1 percent income tax). Practically, therefore, a retailer whose turnover is below Rs 5 million pays income tax of Rs 37,500 as against a taxpayer with turnover above Rs 5 million who ends up paying Rs 150, 0007 as tax. This is obviously harsh, un-realistic and discourages business growth.
It suggested that 0.75 percent income tax and 0.75 percent sales tax (total 1-1/5 percent) might be charged from retailers on turnover exceeding Rs 5 million. This will narrow-down the gap between the two sets of retailers and will induce taxpayers to declare their correct turnover.
As far as filing of tax refund claims is concerned, Under SRO 555(I)/2006 dated 05.06.2006, CBR has fixed a deadline for filing sales tax refund claim by exporters which is 60 days. The time limit is proposed to be extended to six months because sixty days is a very short period to prepare the refund cases according to the requirement of the Act.
Many genuine exporters have not been able to file their refund claims within time, which increases financial burdens on them.
At present, under SRO 666(I)/2005, excess input tax is allowed to be carried forward for three months after which the unutilised input tax is refunded. The carry forward is allowed on the basis of 'adjustment advice' issued by the department. There are still delays in issuance of 'adjustment advice' and in case of excess input tax, refund claims are not expeditiously sanctioned after the period of three months. This unnecessarily blocks the funds of businesses.
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