Budget proposals: PBF underscores need for strengthening agri sector

KARACHI: Pakistan Business Forum (PBF) have sent the detailed proposals for the budget 2024-25 to the Ministry of Finance, emphasising to reduce of cost of doing business, strengthen agriculture sector and export-led growth along with measures for curbing massive under-invoicing by commercial importers and revaluation on the super tax.

PBF President Khawaja Mehboob ur Rehman demands that mechanisation and technology adoption to enhance productivity and efficiency and in this regard solid incentives may be placed in the federal budget.

PBF suggests improving irrigation systems and water management practices to reduce waste and optimise water usage.

In this regard the federal government may set up a mechanism with provincial governments. It emphasises the need for high-quality seeds and fertilisers to boost crop yields and improve productivity.

The forum recommends improving supply chain management to reduce post-harvest losses and enhance market access. It suggested increasing the access of credit and insurance facilities for farmers to mitigate risks and invest in their operations. In this regard special instructions may be given to ZTBL and NBP banks under the special KIBOR scheme.

In the research and development the PBF highlights the importance of investing in research and development to improve crop yields, disease resistance, and climate resilience, so special allocation may be given in the Federal Budget to PARC and NARC with pilot projects for the necessary implementation before the field.

PBF advocates for improved market access and trade agreements to increase agri exports and enhance the competitiveness of Pakistani agricultural products.

It stresses the importance of ensuring food security and reducing hunger and malnutrition in Pakistan through effective policy with the consent of experts including value addition to increase the share of horticulture and agriculture exports; in this regard tax holiday may be granted in the budget of three years on the setup of machinery included Control Atmosphere (CA) stores.

It viewed that the government should simplify and streamline the export process by reducing the number of documents required for export and implementing an online system for submitting documents to provide incentives for exporters, such as tax breaks and subsidies, to encourage them to export more.

Allocation may be taken place in the budget to provide training and capacity-building programs for the new exporters in order to improve their competitiveness through TDAP.

Also, in the taxation regime the forum recommends to simplifying the tax system to reduce complexity and make it easier for businesses to comply, especially the newly introduced “Tajir Dost Scheme” for traders, along with rationalizing tax rates and eliminating distorting tax exemptions to create a fair and equitable tax system including automating the tax processes to reduce human interaction and minimise the risk of corruption.

Further eliminating withholding taxes to reduce the burden on businesses and individuals included Withholding tax on cash withdrawal may be abolished in the Federal Budget.

PBF also stated that in custom duties the tariff reduction on raw materials and machinery to 0-5% could encourage industrial growth and exports.

The removal of additional customs duty (ACD) and regulatory duty (RD) on imported raw materials and machinery and Rationalization of customs tariff structure to eliminate anomalies and disparities with the alignment of customs tariff according to international best practices to enhance competitiveness.

However in documenting the economy, the PBF proposed some legislation regarding FBR to amend the 25(A) and 25(D) of the Custom Act 1969 (“Act”) to allow local manufacturers. Similarly Misuse of the Afghan Transit Trade (ATT) is a major issue for companies in the formal sector; whether in manufacturing or imports.

In addition, smuggling from Iran is causing irreparable loss to industry and FBR revenues, In this regard Goods moving under ATT from Pakistan to Afghanistan should be charged with duties and taxes under Pakistan laws and the same should be transferred to the Afghan Government.

A quantitative restriction should be applied on goods moving under ATT on the basis of consumption. Further the government of Pakistan should take up the issue of smuggling from Iran. Similarly, the minimum tax of 1.25%under section113 is extremely high and unrealistic.

To promote industrialization, the minimum tax should be abolished for all listed companies as these companies are subject to stringent regulations and audits.

For other companies, the rate of minimum tax be reduced gradually by 0.25% on an annual basis so that by Tax Year 2027 the rate is 0.5%. Since exports do not contribute towards Output tax; therefore, the condition of 50% should be amended to10% on monthly basis for all exports irrespective of any sector otherwise it would not be possible for registered person to absorb the amount of input tax paid for the purposes of manufacturing of items for local and export sales and consequently, the same would discourage export of goods.

This amendment is necessary to encourage local manufacturers with excess production capacity to look for export opportunities for unutilized capacity. At present, due to restrictions under section 8B, manufacturers are reluctant to venture into export markets.

PBF also urged to re-evaluate on the super tax Super Tax as it was imposed on the documented sector retrospectively through the Finance Act, 2022. This is a penalty on the well-organised documented sector that creates jobs and disposable incomes for millions and also generates substantial tax revenues for the country.

Moreover, Under Section 4C, super tax is not progressive in nature and is applied on the entire profit once a threshold is crossed. This is contrary to the concept of marginal tax rates under the progressive basis of computing tax liabilities.

Further under the Sales Tax Act, Section 8B, a company is not allowed to adjust input tax in excess of 90% of the output tax for that period. Considering the recent unprecedented increases in gas/ electricity prices coupled with extraordinary depreciation of the Pak rupee, cost of manufacturing has increased exponentially. As a result, it has become almost impossible to absorb the amount of input tax.

On top of this, application of section 8B further aggravates the situation by placing embargo on claim of total input tax and results in piling up of huge sales tax carry forward balance with huge increase on a month-on-month basis; if restriction under section 8B is removed, there won’t be any revenue loss to the Government as the amount paid under section 8B is ultimately refundable after end of the financial year.

The Corporate services sector and limited companies and their subsidiaries should be taxed under the normal tax regime instead of the minimum tax regime and rate of WHT under section 153(1) (b) for the aforesaid companies may be reduced to 3% in the federal budget.

PBF also stated that on massive under-invoicing especially by commercial importers is destroying domestic industry in this regard special measures should be taken seriously in the budget.