KARACHI: According to the Karachi Chamber of Commerce and Industry (KCCI) and the Leadership of Businessmen Group, the Supplementary Finance Bill 2021-22 should be reexamined and should not be implemented without the involvement of the primary stakeholders.
They expressed reservations over various taxation measures implemented by the federal government through Supplementary Finance Bill 2021-22 in accordance with IMF directives, which will not only have negative consequences for industry and trade but will also overburden the poor and middle-class segments as a result of an increase in the prices of consumer goods, among other things.
Businessmen Group chairman Zubair Motiwala, vice chairmen Tahir Khaliq, Haroon Farooki, Anjum Nisar, and Jawed Bilwani, general secretary BMG AQ Khalil, KCCI president Muhammad Idrees, SVP Abdul Rehman Naqi, vice president Qazi Zahid Hussain and former SVP Ibrahim Kasumbi pointed out that harsh measures and withdrawal of exemptions on inputs of essential consumer items such as packaged dairy milk, oil seeds for sowing, plant and machinery, and industrial raw materials including raw cotton will have a detrimental impact on the economy by terribly affecting industrial performance and also the lives of the poor masses.
These harsh measures have imposed taxes on milk and many other daily necessities, further aggravating the lives of the poor masses. Talks to increase petrol prices by Rs4 per liter every month and also raising the electricity and gas tariffs give the impression that the IMF has devised a program to make Pakistan completely unviable, they added.
It was argued that rather than taxing industry and consumers more to meet IMF conditions, the government and FBR should focus on expanding the tax base and raising Rs.340 billion more than the number of unregistered persons. In fact, the government can generate significant additional revenue by closing loopholes such as import exemptions for PATA/FATA that were massively abused. It includes metal, bulk edible oil, and plastic materials. Moreover, massive smuggling of black tea, Iranian edible oil, auto parts, and many other high-value products was taking place, costing the government a lot of money.
IMF can only provide broad guidelines to curtail fiscal deficit and cannot micro-manage the economy.
Therefore, it is unjust and unfair to continue targeting those sectors which are tax compliant and unable to bear more taxes.
BMG and KCCI leadership stated that Vide amendment Sec.23 (sub-sec.1, G) of Sales Tax Act 1990, the supplier has been held liable under the new law for fake CNIC number provided by purchaser, whereas earlier the Seller/Supplier was not held responsible for fake CNIC provided by purchaser. Already small number of around 50,000 entities are registered in Sales Tax regime.
Putting additional burden of liability for fake CNIC and Further tax of 3 percent over and above 17 percent, will result in many persons going out of Sales Tax net and was tantamount to absolving the tax authorities from broadening the tax base.
Business and industry leaders claimed that they felt forced to permanently close their doors, and they pointed out that the sales tax on raw materials imported has been raised from 5% to 10%. The seller has no right to demand that an individual’s CNIC be verified if they are paying with cash and paying the statutory penalty.
Because he is paying a 3% surcharge, we can ask for his CNIC verification. The government must realise that by imposing a 3 percent penalty, they were granting permission to remain unregistered.
They believed despite better crops and increase in output of raw cotton, a shortfall of about 4.5 to 5.0 million bales was likely which will result in higher cost of finished products of domestic textile industry.
With recent incentives provided under TERF, a substantial number of plant and machinery for textile industry has already been imported and a huge lot was also in the pipeline. Increase in Sales Tax on raw cotton will be counterproductive at this stage hence, the government must restore concessional rate of 5% Sales Tax on import of Raw Cotton to support the industry”, they urged.
They further stated that by amendment to Sales Tax Act 1990, concessional rate of Sales Tax on Plant & Machinery has been withdrawn and Sales Tax at the rate of 17 percent will be imposed on import of Plant & Machinery, (other than those having specific concessional rate or exemption).
In principle, all plant and machinery imported in Pakistan, is meant for industrial expansion and new industries for production of goods.
Due to the positive effects of investment in plant and machinery, imposing such a high tax rate is counterproductive. Because of this, Plant & Machinery subsidies must be reinstated.
The government needs to understand that the machinery imported will definitely be put in place for production and it was not something that will go waste or can be misused.
BMG and KCCI leaders also mentioned that for the very first time in the history of Pakistan, tax has been imposed on Tax-Free Export Processing Zones which was undoubtedly a conspiracy to destroy the activities in these zones.
The imposition of 17 percent Sales Tax on Export Processing Zones was a proof of being slaves to the IMF” he said and stressed that the Clause 8 of Serial # 102 of the Amendment Bill must immediately be withdrawn, and the original status of the Export Processing Zones must continue as it was a well-known fact that seeking export rebate or sales tax refund has always been an uphill task for the industrialists and exporters.
All the proceeds of these export zones, which are described as a place outside Pakistan, are treated in a separate account hence these cannot be subjected to normal taxes.
They noted that the Sales Tax rate under 8th Schedule on Branded and Packaged Milk and Dairy products has been increased from 10 percent to 17 percent.
This sharp increase in Rate of Sales Tax will have an inflationary impact and under the prevailing situation of high prices of all essential food items, the measure will put additional burden on consumers.
Hence, the rate of Sales Tax must be restored to 10% on packaged Milk and Dairy products.
They argued that the Flavored Milk has been omitted from the 8th Schedule and 17 percent Sales Tax has been imposed, which was extremely unjust and an anomaly to impose such a high rate of Sales Tax on locally produced Flavored Milk which was a health drink for children. In the current situation, only 3 to 4 factories produce Flavored Milk, which is used to replace imported goods.
The 17 percent Sales Tax on Flavored Milk will make the industry unviable due to an increase in retail price and a decrease in demand. Consequently, in order to guarantee the availability of flavoured milk at reasonable prices and the expansion on this industry, they proposed that the exemption be restored, and Flavored Milk included in the 5th Schedule of Sales Tax Act, 1990.
As a result of the FBR’s refunding practices and the increased cost of pharmaceuticals, which will be passed on to consumers, a sales tax on raw materials used in their production will be implemented.
Sewing Machines of the Household type, which are used primarily by self-employed women who work from home and earn a living, have also been subject to a 17 percent Sales Tax. Because it is unfair to tax these sewing machines at 17 percent and thus make them unaffordable for women who are self-employed, the sales tax exemption for sewing machines of the household type must be reinstated.
Exemption of Sales Tax on oil seeds for sowing has also been withdrawn, which means that these seeds are now subject to 17 percent Sales Tax.
High-value crops of Oil Seeds intended for edible oil production can be grown from Oil Seeds for Sowing. Due to a severe shortage of edible oil in Pakistan, the country must import Palm Oil and other edible oils to meet domestic demand. Taxing oil seeds for planting at a rate of 17% will have the opposite effect of encouraging local production of edible oil, which is just a cover for importing it. Therefore, the sales tax exemption for Oil Seeds for Sowing should be reinstated.
Copyright Business Recorder, 2022