KARACHI: Pakistan Business Forum (PBF) has recommended the federal government to simplify the tax system to reduce complexity and make it easier for businesses to comply, along with rationalising tax rates and eliminating the tax exemptions to create a fair and equitable tax system including automating the tax processes to reduce human interaction.
PBF also urged government to reduce the Pakistan Telecommunication Authority (PTA) tax up to 25 percent on smartphones in the federal budget to generate more revenue in the fiscal year of 2024-25.
Central Vice President of PBF, Ahmad Jawad told Business Recorder that removal of additional customs duty (ACD) and regulatory duty (RD) on imported raw materials and machinery and rationalisation of customs tariff structure to eliminate anomalies and disparities to enhance competitiveness.
The legislative measures concerning the FBR in order to modify Sections 25(A) and 25(D) of the Custom Act 1969 ("Act") and grant permission to domestic manufacturers. Likewise, the misuse of the Afghan Transit Trade (ATT) poses a significant problem for formal sector companies, whether they are engaged in manufacturing or imports.
Ahmad Jawad viewed a quantitative restriction should be applied on goods moving under ATT on the basis of consumption. Similarly rate of minimum tax of 1.25% under Section 113 is extremely high and unrealistic. To promote industrialisation, the minimum tax should be abolished for all listed companies as these companies are subject to stringent regulations and audit. For other companies, 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 to 10% 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 restriction under Section 8B, manufacturers are reluctant to venture into export markets.
PBF also urged to reevaluate 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.
Similarly 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. However PBF further proposed transparency in collection of taxes will discourage mis-declaration, measures to discourage evasion of taxes and duties will help industry to fairly compete with unscrupulous imports and also Government stands to benefit from the increased indirect taxes revenues.
Included to promote value addition to enhance the share of horticulture and agriculture exports, a tax holiday of three years may be granted in the budget for the setup of new machinery and latest Control Atmosphere (CA) stores.
Copyright Business Recorder, 2024
Comments
Comments are closed.