ISLAMABAD: The Federal Board of Revenue (FBR) has warned provincial governments that imposition of two percent infrastructure development cess (IDC) by the Khyber-Pakhtunkhwa (KP) government would negatively impact exports from the province.
The FBR has conveyed its reservations to the Senate over of the imposition of cess on exports.
Pakistan Business Council (PBC) has also cautioned that the KP export cess will undermine the competitiveness of Pakistan’s exports.
Business community demands withdrawal of 2pc cess on exports from KP
According to the FBR, KP government has levied IDC at the rate of two per cent on export consignments through air, road or rail vide a public notice in terms of Section 3(c) of the Khyber-Pakhtunkhwa Infrastructure Develop-ment Cess Act, 2022 (Annex-F) with effect from 23.08.2024.
The Federal Legislative Lists empowers Federation to levy duties and taxes on imports and exports.
The Federating Units (provinces) are competent to levy cess on goods/services produced, brought into or taken out of the province. Provincial governments have already levied IDC on imports and are collecting the same through Customs computerised system for the past over one decade.
The provinces under the Constitution appear to have power to levy an IDC on transportation, carriage or movement of goods for imports to or exports from the province.
However, in order to encourage exporters and to increase exports, duties/taxes are usually not levied on exports as it might have an adverse effect on exports and the flow of foreign exchange into the country.
The province of Khyber-Pakhtunkhwa borders with Afghanistan and apart from exports to other countries via sea or air, substantial exports are made to Afghanistan from different border stations located in KP. Levying two per cent IDC by the Khyber-Pakhtunkhwa government might negatively impact exports from the province of Khyber-Pakhtunkhwa.
Pakistan Customs to-date is not collecting this cess rather banks are collecting it on behalf of provincial government, the FBR added.
The PBC has informed that the KP Government has recently introduced a new cess at the rate of two per cent on the value of exports routed through the KP province.
This additional cost now applies to all exports to Afghanistan and Central Asia. Market diversification, among others, through regional trade is an important pillar of Pakistan’s export growth strategy.
Regional trade is also an enabler for broadening the export basket as goods in demand in Central Asia and Afghanistan are different from our traditional exports.
As goods from Pakistan gain a stronger foothold in these landlocked markets, two-way trade, utilising our highways and ports is also likely to grow.
The KP province will be an obvious beneficiary from the additional business that this transit traffic will bring. Our eastern neighbour is rapidly building market share in Central Asia and Russia.
The KP export cess will undermine the competitiveness of our exports. The federal government should intervene with the KP government to have this export cess removed.
Also, we recommend that that the federal government obtain the agreement of all provinces through the Council of Common Interests to exempt exports from provincial levies. Exports are a vital need of the country and all governments must support this national effort, the PBC added.
Copyright Business Recorder, 2024