Overseas Investors Chamber of Commerce & Industry (OICCI) has proposed budget makers to resume the zero-rating facility for the dairy sector, reduction in Federal Excise Duty (FED) from 11.5 per cent to 8.5 per cent on 'aerated waters', zero-rating of local supply of medicines/drugs and reduction in sales tax and customs duty on import of IT Network equipment in 2018-19.
According to the budget proposals of OICCI prepared for 2018-19, OICCI has finalized sector-specific budget proposals for 2018-19.
In case of automobile, OICCI proposed reduction in Minimum tax u/s 113 for Authorized Dealers of vehicle manufacturers and Exemption of Withholding tax u/s 231B on sale to dealers and reduction in Minimum tax u/s 113 of the Income Tax Ordinance, 2001, from 1.25 per cent to 0.25 per cent on turnover of authorized dealers of vehicle manufacturers, as being allowed to Motorcycle dealers, distributors of FMCG, Pharmaceutical, Fertilizers, etc.
It proposed that withholding income tax u/s 231B be exempted on sale of vehicles by manufacturers to their authorized dealers to effectively implement wholesale-retail mechanism. For banking and leasing industry, it proposed that FBR to issue administrative instructions to the field officers to follow 7th Schedule in letter and spirit and not disallow un-realized foreign exchange losses as this is a timing difference only.
The Inland Revenue officials are interpreting total advances as 'Advances' shown on the face of the balance sheet (net of provisions), therefore an explanation should be inserted in Rule 1(c) of the Seventh Schedule that total advances means 'Cross Advances' before provisions for Bad & Doubtful Debts.
It proposed that significant investments have been made to setup large Poly Vinyl Chloride (PVC) and Pure Terepthalic Acid (PTA) manufacturing facilities in the country. These industries are highly capital intensive and dependent on government incentives for sustainability and growth. PTA and PSF are the backbone of the Textile Industry, while, PVC for leather and plastic industry and it is crucial that GoP takes a longer-term strategic view on these Industries. It is therefore recommended that PVC tariff regime be amended and import duty to be increased to 20 per cent; PTA tariff regime be amended and import duty to be increased from 5 per cent to 7.5 per cent and customs duty on PSF should be increased from 7 per cent to 10 per cent.
OICCI observed that having changed the tax structure in the previous 2016-17 budget, it is recommended to re-transpose the dairy products to the 5th schedule of the Sales Tax Act 1990 & resume the Zero Rating facility for the dairy sector, for continuous growth and availability of good quality products to the consumer at an affordable cost through the tax complaint sector.
Under Finance Act 2017, 5th schedule of Customs Act 1969, serial No 22, certain LED products were exempted from custom duty, RD and sales tax (under 6th Schedule, Table 3, heading No 15), which being for promotion of renewable energy technology or for conservation of energy effective July 1, 2016. By issuance of Customs General Order (CGO), all exemptions have been withdrawn on such products effective April 19, 2017. It is recommended above LED products be deleted from said CGO.
The term prize should be defined in Income Tax Ordinance, 2001 and only be restricted to its general connotation ie where element of chance is involved. Currently there are two separate withholding tax rates in place under the law. It is recommended that a single rate of 10 per cent should be prescribed under section 156.
It proposed that the aerated waters fall under third schedule of the Sales Tax Act, 1990 and under First Schedule of Federal Excise Act, 2005. The Federal Excise Duty (FED) should be decreased from 11.5 per cent to 8.5 per cent, and eliminated gradually, 'Aerated waters' is the only item within food and beverage industry that is subject to both sales tax and FED. Earlier in 20 11-12, FED rate was reduced from 12 per cent to 6 per cent with commitment that it shall be eliminated in 2 to 3 years but this was not implemented.
For Oil Exploration and Production Companies, OICCI proposed that the higher corporate tax rate on E&P sector be reduced and aligned to the rate of other corporate sector. To incentivise oil and gas exploration in the country especially after the massive reduction in the international oil prices, the corporate tax rate on E&P sector should be reduced from the current 40 per cent to the rate applicable to other corporate sectors.
Extra tax on lubricating oils: [Chapter XIII of the Sales Tax Special Procedure Rules 2007]. In addition to manufacturers, registered distributors of lubricating oils are allowed to charge sales tax on their supplies. Presently, industrial consumers are reluctant to buy goods directly from distributors as they are unable to issue sales tax invoice, thus resulting in a significant setback to the business carried out by the distributors.
It proposed that the section 148 [Par II of First Schedule]: A reduced rate of 1 per cent as advance tax is collected by the Collector of Customs under section 148 for (vii) Designated buyer of LNG on behalf of Government of Pakistan to import LNG, instead it should be allowed to all buyers of LNG.
Local supply of medicines/drugs should be classified under Zero-rating, instead of the current "exempt" status from levy of sales tax, so that the pharma industry, whose selling prices are regulated by the government, may claim input tax credits on taxable inputs. Alternatively, the taxable raw materials and packing materials, whether imported or locally procured may be notified as exempt from sales tax, if purchased by a pharma manufacturer. Alternatively sales tax input paid by Pharma companies should be adjustable against corporate income tax.
Telecom being very investment intensive should be given investment incentives similar to industrial undertakings section 65 B & 148. This will align Digital Pakistan vision by encouraging investments in IT infrastructure. SRO 575 has been rescinded in Finance Act 2014-15 and consequently custom duties on network equipment have been increased from 5 per cent to 20 per cent and sales tax exemption has been removed. The increase in custom duty and levy of sales tax has affected the telecom industry negatively in terms of slow investment, Custom duties and sales tax on import of IT Network equipment should he rationalized by reducing the rates.
To tackle issue of illicit trade in tobacco industry, it recommended the government to introduce a monitoring system through tax stamps printed by the Pakistan Security Printing Corporation or a similar internationally experienced entity selected through a transparent process. Moreover, stricter criminal penalties to be introduced under the Federal Excise and Sales Tax Act and rules for non-compliance.
Enforcement Measures: To support the legal industry revival, via actively taking enforcement action against illicit players as well as further amending the excise laws to make excise and sales tax evasion a criminal offence, OICCI added.
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