The Karachi Chamber of Commerce and Industry (KCCI) has proposed that withholding tax on imports should be calculated on the value of goods, excluding sales tax, at customs stage, and not the duty paid value by amending section 148(9) of Income Tax Ordinance.
In its proposals for 2006-07 budget, the KCCI demanded that exemptions under section 148 of Income Tax Ordinance should be discontinued, and withholding tax on import of raw material must be imposed at a uniform rate of 2 percent, on both industrial and commercial importers.
The chamber noted that all withholding taxes on imports were calculated on the basis of import value, after addition of sales tax. The chamber termed this tax over tax unjustified and unfair to the taxpayer. The Supreme Court of Pakistan has declared this illegal. It also increases the cost of industrial raw material subjected to withholding tax.
The chamber proposed that maximum corporate tax rate should be reduced to 25 percent for private limited and 20 percent for public limited companies.
The chamber proposed that companies incurring losses in a financial year should be exempted from turnover tax u/s 113. Association of persons be exempted from advance tax u/s 147, irrespective of limit.
The KCCI noted that corporate tax rates at 35 percent in case of a public limited company, 37 percent for a private limited company and 41 percent for a banking company are on higher side.
The chamber noted high taxes act as incentive for tax evasion, disincentive for investment and disincentive for corporatisation of businesses. The chamber proposed that the period for one percent reduction in corporate tax on newly listed company on the stock exchange be extended from one year to 5 years with 5 percent reduction in the tax rate. The chamber noted that one percent reduction in the tax for a company for getting enlisted on stock exchange during 1st July 2005 to 30 June 2006 is an incentive but for a very short period.
Regarding salaried class, the chamber suggested that taxable income exemption limit be raised to Rs 300,000 and maximum tax rate be reduced from 35 percent to 25 percent.
The KCCI further proposed that limit for including perquisites in salary income be raised to Rs 10,50,000. Educational expenses be deductible on straight line against total income and the house rent exemption of 45 percent based salary from total income should be same for all salaried person, without any maximum threshold.
Valuation of conveyance or conveyance allowance paid in case as per the provision of income tax rule 2002 for salary income below Rs 600,000 should be applicable to all salaried employees irrespective of ceiling. The chamber suggested that salary tax of an employee, borne by the employer, should be allowed without considering it as a perquisite and should not be grossed up.