In order to broaden the tax net and force more companies to submit their accounts exporters are no longer in the final tax regime. Since 1992, upon realisation of foreign exchange on account of export of goods - one percent tax was deducted by the bank. This constituted full and final discharge of tax liability of an exporter.
Now Finance Bill 2009 proposes to amend sub-section (4) of Section 134 by substituting the tax deducted as a "minimum tax" which was hitherto deemed as a "final tax". Empirically it has not been established whether this provision of "final tax" has contributed favourably in the past in promoting exports from Pakistan. Parliamentarians need to ascertain what is more needed at this critical juncture - more foreign exchange or higher generation of tax from this sector as exporters are expected to oppose this change.
In order to cater for export of goods to Afghanistan, which is normally against cash, the proposed Bill has also introduced a new sub-section (3c) which requires the Collector of Customs to collect tax at the time of clearance of goods exported at one percent of the gross amount of such goods. It should be noted that under sub-section (1), the bank is required to deduct one percent at the time of realisation of foreign exchange proceeds on account of exports.
Hitherto, goods exported without a letter of credit against a contract for which payment may be tendered through non-banking channels needed to brought within the tax net ie such export proceeds which are outside the framework of dealings by authorised dealers (banks).
A lot of hue and cry is expected from the exporters and there is a likelihood of reversal of this proposal and continue with the presumptive tax regime conceived way back in the Finance Act 1992 which claimed to insulate certain categories of taxpayers from the harsh rigours and vagaries of the tax system.
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