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The All Pakistan Cement Manufacturers Association (APCMA) has presented its budget proposals to the Federal Board of Revenue chairman, saying the industry is subject to the Federal Excise Duty at the rate of 5 percent of retail price and General Sales Tax at the rate of 17 percent of maximum retail price.
"These taxes come to around Rs 95 per bag. This incidence of high taxation encourages evasion and negatively impacts consumption," said APCMA Chairman Mohammad Ali Tabba in the proposals.
He suggested to the government to reduce FED stepwise to zero as announced by the previous government to encourage cement off take as this is not a luxury item because abolishment of Excise Duty not only eliminates tax evasion but also enhances cement consumption at reduced price.
Similarly, the cement industry is using coal as fuel for its kiln and the federal government through the Finance Act 2014 imposed 1 percent import duty on coal while previously it was zero. "It is proposed to restore the pre-budget duty structure relating to coal ie subject to nil import duty," he suggested.
He said coal was one of the few fuels after the budget to have import duty which is a sheer injustice to the cement industry that is the predominant consumer of imported coal in Pakistan and consumes almost 95 percent of 4.5 million tons imported annually. "Other industries have switched to coal and many others are also converting to coal due to non-availability of gas, so this duty is to nullify the positive initiative of the government to use coal as an alternate energy source," he said.
The APCMA Chairman said that the Sales Tax rate in Pakistan was very high as compared to global tax rates; therefore, Sales Tax rate should be reduced to 12.5 percent in order to reduce the already soaring cost of doing business in Pakistan. "It should be gradually reduced to 10 percent over next three years for registered entities because the reduced rate will encourage the registration of the unregistered taxpayers to avail the benefits of input adjustment," Tabba said.
He added that through the Finance Act, 2014, withdrawal of SRO 575, import duty at the rate increased from 10 percent and a tariff rate of 20 percent have been imposed on import of waste and scrap of tyres. "It is proposed that this fuel should be subject to nil import duty to bring this alternate fuel at par with other fuels at zero percent Customs Duty," he suggested.
While giving the rationale, he said that a lot of investment has been made by cement manufacturers in state of the art machinery from Europe and these projects were registered under CDM/Kyoto protocol of UNFCCC. The waste material replaces fossil fuel ie coal by 20 to 35 percent during the cement manufacturing process, resulting in reduction on CO2 emissions.
"To encourage use of alternate fuels technology, the alternate fuels must be allowed to import at zero rate of duty. This positive initiative of the government to use alternate energy source will encourage further investment in this sector," the APCAMA Chairman suggested.
With regards to the Customs Duty on capital goods, he said it was well conscious decision of the government that Customs Duty shall be 5 to 10 percent, which is applicable in contrast/juxtaposition on plant/machinery and equipment but through the Finance Act, 2014, the FBR has withdrawn SRO-575, thus withdraws concession on capital goods.
"It is proposed that to encourage investment/efficiencies through BMR (balancing, modernising and replacing) the 'capital goods' should be included in Serial #18 of the 5th Schedule of the Customs Act, 1969 because due to rapidly changing technologies and advancement/improvement in efficient technologies, a considerable investment is required in existing industries, in order to work/produce efficiently," Tabba suggested.
Secondly, he added, it is also a conscious decision of the government that such machinery and equipment or parts and accessories or capital goods shall attract the slab of Customs Duty at the rate of 5 percent or maximum 10 percent where said goods are not manufactured in Pakistan.
"The government may therefore consider to reduce Customs Duty and taxes within the slab of 5 percent or maximum 10 percent where said machinery, equipment, spares or capital goods are not manufactured locally so that industries have a level playing field and may be able to reduce the cost of doing business," he added.
Regarding the Customs Duty on off highway dump trucks for the cement industry, the Chairman of APCMA said that the government has allowed specialised off highway dump/rigid trucks at Customs Duty rate of 5 percent with the condition that these will be solely used by the cement industry for mining purpose and with the condition of indemnity bond, that the same will not be sold or transferred within 10 years to any other entity/company. But FBR has withdrawn SRO 575, thus withdrawing concession on these off highway dump/rigid trucks. "It is therefore proposed that rigid dump trucks/off highway dump trucks (which are not manufactured in Pakistan) should be allowed for import by the cement industry at the rate 5 percent Customs Duty and should be included in the 5th Schedule of the Customs Act 1969," he said.
He said that to ensure efficient mining operations of the cement industry, both environmentally sustainable and cost of mining, these rigid trucks are essentially required for production, by the cement industry on regular basis (due to lifespan of about 10-12 years of these trucks/machines).
Also, the corporate tax rate other than Small Companies is 33 percent (for the tax year 2015) whereas small companies are subject to direct tax at the rate of 25 percent. In addition to direct taxes, large corporate houses are contributing handsome amounts of Workers Profit Participation Fund (WPPF), Workers Welfare Fund (WWF) and Stamp Duty on purchase orders and contracts that lead to additional tax burden or increase the cost of doing business.
The small companies enjoy benefit of lower tax rate with even lower documentation compared to large companies especially those operating in the manufacturing sector. "This discourages further investment and industrialisation of the economy. Further small companies are also not under the detailed security of the FBR as in the case of the large corporate entities, facing multiple audits," he added.
The APCMA Chairman proposed that the income tax rate on taxable income of companies and small companies should be immediately standardised with a common rate of 30 percent because uniform income tax rate will encourage investment in the corporate sector enabling Pakistan to be internationally competitive.
"The elimination of gap between the corporate organisations and others will provide equal opportunity to all sectors to be competitive. Corporate sector growth will generate extra revenue contributions to the government and promote documentation," he concluded.

Copyright Business Recorder, 2015

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