OICCI voices concern over ‘abrupt changes’ in taxes, duties through bill

ISLAMABAD: Overseas Investors Chamber of Commerce and Industry (OICCI) has expressed serious concerns on changes in taxes and duties through Supplementary Bill, 2021, saying that the abrupt policy changes will damage investors’ confidence and negatively impact on the flow of foreign direct investment (FDI) in the country.

In a letter to Finance Minister, Senator Shaukat Tarin, CE/Secretary General OICCI Abdul Aleem has said that the body fully supports need for broadening the tax base through documentation of the economy but what is disturbing its members is that such measures proposed abruptly and without due consultation process negates the principle of predictability and consistency of policy, which is necessary for attracting FDI.

According to the letter, a few of its members, like Indus Motors Company, Hub Power Company (Hubco) and K-Electric have already initiated new investment projects. These projects will be negatively impacted with such abrupt actions. Hubco, as a case in point, has made substantial investments in various power projects on certain assumptions, including GoP guarantee, that import of capital assets including plant and machinery would be tax-free, and now during construction phase the exemption is proposed to be withdrawn. Amid high cost of financing, this has serious cash flow and operating cost implications.

Similarly, industries that have been zero-rated, like pharmaceuticals, etc., have also shown serious concern of timely refunds, which also have severe cash flow implications considering the history of very delayed tax refunds by FBR/ GoP. In order to build confidence of these businesses, there is a need for a clear, predictable and committed process of tax refunds.

Further, some of OICCI members have also raised operational issues and anomalies from the proposed legislation, selectively listed below, which need clarification by relevant authorities. These issues are:

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Pharma Sector-(i) Claiming input tax for pharma companies on stock in hand. Currently, no procedure/ mechanism has been specified, which should be provided by the FBR through rules; (ii) GST registration of pharma distributors. Adequate registration time should be allowed to distributors for their registration in Sales Tax Act.

Banking Sector- (i) Definition of Digital Means: The proposed amendment does not mention which specific legislation/ circular of the SBP must be relied upon. It would have made compliance easier if an inclusive definition was provided in the proposed legislation.

Furnishing of Information by Banks: The banks have to provide a list of persons containing particulars of their business accounts opened or re-designated during each preceding calendar month. The term “re-designated” needs to be elaborated to ensure proper compliance.

Retail Sector- CNIC details provided by purchaser: Retail sector members have raised concerns, asking that FBR should prescribe a human-friendly procedure for verification of CNIC.

Telecom Sector- Proposed Increase in rate of advance tax on telecom services from 10% to 15% will significantly undermine the role of Telecom Industry and government vision of Digital Pakistan. The GoP after detailed deliberations with the industry formally approved the reduction of WHT from 12.5% to 10% this year through the Federal Budget approved in June 2021 along with a further reduction from 10% to 8% in the next financial year. This type of action is another example of unpredictable policy actions by the authorities.

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Agriculture Sector - Withdrawal of sales tax exemption on key agriculture inputs: The proposed withdrawal of ST exemption on import of corn seeds will add to the cost of doing business and directly contribute to inflation since the local supply thereof is still exempt. To allow adjustment of input tax and implement the value addition concept throughout the supply chain in true spirit, the exemption on local supply of seeds should also be withdrawn.

Furthermore, in order not to disrupt the spring season for corn seeds that started in January 2022, the proposed tax amendments should be deferred until March 2022 when the season will be over.

FMCG Sector - Imposition of 17% GST on locally produced infant nutritional products (currently 0%) should be withdrawn.

Export Facilitation Scheme, 2021 [EFS] - 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 EFS is contrary to the objective of reducing imports, which after this amendment will continue to remain zero-rated thereby not providing a level-playing field to local producers/ manufacturers. This will defeat the government’s objective of increasing import substitution.

“The OICCI supports government measure for documenting the economy, we once again advocate the need for transparency, consistency, and predictability of policies,” Aleem added.

Copyright Business Recorder, 2022