Federation of Pakistan Chambers of Commerce and Industry's (FPCCI) former vice president Zubair Tufail has urged the government to reduce existing number of taxes and their rates as the higher rates lead to tax evasion and corruption. Moreover, income generated from any source must be fully taxed with a political will and without exemption for broadening the tax net, he added.
Emphasising the need for broadening tax base and coverage of under taxed sectors, he said that the tax to Gross Domestic Product (GDP) ratio is 9.1 per cent, whereas the number of tax payers comes to just 1pc of the country's population and, as such, entire burden of direct taxation was being borne by a microscopic minority. He also recommended that the service sector and agriculture sector, having 21pc and 58pc shares in the GDP, respectively, should be taxed properly.
He also demanded that around 2.5 million people, who despite living a lavish lifestyle were not paying tax, should be brought under tax net as their data was already available with Federal Board of Revenue (FBR).
He also suggested that the current rate of corporate tax at 33pc in case of public limited and private limited companies was on higher side and hence it should be drastically reduced for attracting investment and promoting industrialisation in the country. In this regard, he recalled that the Karachi Declaration of International Chamber of Commerce Regional FDI conference held in February 2002 had recommended reduction of corporate income tax to 16pc. As for other countries, it is noteworthy that in 2002 Singapore had already brought down both corporate and income tax rates to 20pc from 26pc only to bring its direct taxes in line with arch rival Hong Kong, where highest corporate tax rate is 16pc, he added. Sales Tax: He said that since 17pc sales tax was quite high as compared to other countries in the region, the FPCCI has proposed 7pc sales (non-adjustable and non-refundable) and it be collected at single stage at import and/or at manufacturing. In value added chain industry it may be collected at 0.5pc at each stage of value addition or 15pc adjustable sales tax as per existing policy.
Elaborating, he said that there are only about 150,000 registered sales tax payers out of which about 75,000 are Page 6 of 12 actively filing sales tax returns and a large number of potential tax payers such as retailers are out of tax net, besides major part of sales tax is either refunded or adjusted and net tax collection in the kitty of government comes to about 5pc to 6pc.
With regard to high cost of production, he said that custom duty, sales tax and withholding tax on import of raw materials, substantially increase the cost of finished products and erode its competitive edge both in local and global market against the foreign products. In principle, all those capital goods and raw material, not produced locally, be allowed to import at zero per cent duty and taxes as these are ultimately used/consumed in production process. Moreover, 5pc ST imposed on import of machinery vide Finance Act, 2014 under Eight Schedule of Sales Tax Act, 1990 be removed.
Talking about cost of utilities, he said that efforts should be made to minimise the cost of doing business, which according to World Bank was relatively high in Pakistan.
The manufacturing sector has to contend with multiplicity of taxes and agencies and a number of levies such as social security, old age benefit etc, which have high compliance cost.
In this regard, he said gas tariff (18.23 cent) in Pakistan was 180pc higher than Bangladesh having (6.45 cent). Pakistan has a high rate of electric transmission and distribution losses and is ranked the top 14th among 131 countries, he added.
According to K-Electric, its transmission and distribution losses in 2013 were 28pc of energy generated by state-owned power distribution companies (Discos) which should be drastically reduced instead of raising power tariff every now and then.
"The poor governance in the power transmission and distribution system is causing an estimated loss of Rs100 billion per annum leading to power shortfall in the country," Tufail quoted a former federal minister for planning and development as saying.
In fact, the high cost of production might force the trade and industry either to operate under-capacity or closure of units, he said, suggesting all other levies included in utility bills such as withholding tax, should be excluded.
JOBS: In our considered opinion, industrialising process in the country can pick up in case industrial raw materials are allowed to be imported at zero per cent duty/sales tax. It will spur up exports of manufactured goods via enhancing the liquidity of exporters. Presently, the sharp squeeze of cash flows faced by exporters due to stuck-up drawback/refunds impairs their ability to meet future commitment and diverts entrepreneur's energy towards recovery efforts, he said.
The revenue forgone from duty/sales tax at import stage can be partly recovered through levy of sales tax on resultant value added products sold in the local market, and partly from increase in trade and industrial activities, he said, adding agro-based industries be set up in rural areas to arrest the trends of urbanisation and to create employment opportunities.
PSDP: He said that in the past couple of years, higher growth especially in large scale industrial sector has been possible through increased capacity utilisation, but country's capital stock was fast depleting and infrastructure was beginning to stifle growth and was likely to stop growth.
In fact, Asian Development Bank has identified the inadequacy of infrastructure as one of the critical reasons constraining rapid industrial growth, he pointed out, saying it is time to put in place a simulative environment and the initiative has to come through greater public development funding before domestic investors respond and foreign investment flows in.
Annual Public Sector Development Program, which is aimed at building of social and physical infrastructure was Rs525 billion in 2014-15 or about 2pc of GDP (Rs29,078 billion) in 2014-15 which required to be raised at least to 9pc of GDP i.e. about Rs2600 billion per year and should be exclusively spent on the proposed development schemes only and should not be diverted to other areas such as natural calamities.
L & O: Law and order situation has badly hit the foreign investment, despite the fact that the country has extremely liberal policies in place, which allows 100pc equity to foreign investors and 100pc repatriation of profits, he said, adding the current growth in foreign investment was not sufficient to meet current account deficit, resultantly the government was compelled to rely on international debt.
He underscored the need to restore the confidence of the foreign investors and remove their apprehension about the law and order situation and political uncertainty in Pakistan, for bringing more foreign direct investment in the country.
Talking about refund of sales tax and income tax, he said that although the concerned department/collectorate was bound to issue the refund within the stipulated time of 45 days after the claim date, perhaps it never happened and the department held the amount on one pretext or the other for an indefinite period thus rendering the taxpayers to suffer from shortage of working capital and compelling them to acquire loan from financial institution at exorbitant make-up rate to avoid default and meet the exports order well in time.
He deplored that although the federal finance minister in his last budget speech had announced that the claims will be refunded by the September, 2014, nothing tangible has, so far, been seen in this direction.
Tufail said that presently Tax Appellate authorities operates under the executive side of FBR and are not independent hence it was imperative that in line with Page 11 of 12 constitutional requirement, adjudicating officers may be removed from subordination of FBR.
He also suggested that appellate forums should work under the respective high courts and Appeal Commissioner should be temporarily transferred on deputation in Inland Revenue and go back to his parent department/court.
He was of the view that the Commissioner Appeal will decide the case without influence of FBR's higher officers.