The dairy sector has made five major budget proposals before the National Assembly Standing Committee on Finance including continuation of zero-rating regime, re-transposition of dairy products form 8th Schedule to 5th Schedule of the Sales Tax Act 1990, payment of Rs 20 billion pending sales tax refunds and implementation of minimum Pasteurisation Laws.
On the behalf of dairy sector, Waqar Ahmed Head of Corporate Affairs, Nestle Pakistan briefed the committee that the continuation of the zero-rating regime is necessary for the dairy industry. Responding to this Asad Umar from PTI endorsed the viewpoint of Waqar saying that we fully support the proposal of the dairy sector.
Chairman Federal Board of Revenue (FBR) Nisar Muhammad Khan responded that the FBR is trying to convert zero-rating to exemptions for the last two years. This year we will again propose conversion of zero-rating to exemptions, but it would be the decision of the government to accept the FBR proposal or not. The National Assembly standing committee on Finance was held here Tuesday chaired by Qaiser Ahmad Sheikh, and various trade bodies were invited to speak to the committee and highlight their concerns.
Waqar Ahmed said that the sales tax be abolished on the finished goods sold in packing including cheese, butter, flavoured milk and packed cream. "Various dairy products including cream, ghee and cheese are essential parts of diet for women and children, this should not be taxed, as it discourages people from eating healthy diet especially the urban population who are not getting good quality open milk," he said.
Head of Corporate Affairs, Nestle Pakistan shared Turkish Tax experience which led to enormous growth of the dairy sector in Turkey and their revenue collection increased manifolds. In Turkey, legal regulations were prepared for the improvement of raw milk and other major initiatives were taken. Food related entitlements are given only to the Ministry of Food, Agriculture and Livestock. Legal regulation provided to move fast on enforcement and controls in Turkey. In Turkey, incentives and grants for producers included exemption from customs duty, Value added tax (VAT) exemption/tax deduction, investment allocation, insurance premium/employer shares of support and interest rate support. Learning from the Turkish experience, Pakistan's dairy sector can further grow in future, he said.
FBR officials showed their interest in the Turkish dairy reforms and measures which resulted in the success story of dairy sector in Turkey. Waqar Ahmed also highlighted the taxation structure of dairy products and its impact on the industry. He also explained in detail the issues faced by the dairy sector and its increased contribution in the national kitty.
The officials of Pakistan Dairy Association highlighted various taxation issues faced by the sector and it was decided that the PDA would hold meeting with FBR to resolve the matter. The committee recommended that the differential between the withholding tax rate on commercial importers and industrial undertakings should be reduced.
The committee also considered the recommendations received from Karachi Chamber of Commerce & Industries (KCCI), including addressing anomaly in the value addition in sales tax on imported raw material, and the other issue was the 6.5 percent withholding tax on import of raw material.
Addressing the NA Finance Committee, Muhammad Ibrahim of the KCCI also criticised the discretionary powers of the FBR under Federal Excise Act and Sales Tax Act like powers to depute IR officer at business premises, raid and withhold records, freeze bank accounts, arrests without warrants. He said that despite attaining excessive powers the tax collection body was still not heading in any direction.
"Did you ever try to see why the - registration of traders failed? Because they openly express fear factor against the FBR," Ibrahim said, adding that "Besides it is important to clear the misappropriations in the FBR." He said that as per Pakistani records the imports from China are worth $10 billion, while Chinese claim that the exports to Pakistan are around $14 billion. "So this missing $4 billion record is something to do with the FBR only." Ibrahim added.
Meanwhile, the FPCCI proposed that there should be Zero rating duties on export sector, zero percent duty should be imposed on plants and machinery, which is not manufactured in country, sales tax ratio should be gradually reduced from 17 to 15 percent and the new industry in the country should be provided tax exemption.
Zubair Tufail of FPCCI proposed that the 2 percent further tax be abolished in budget as it is resulting in flying invoices and wrong tax adjustments. Zakria Usman from Federation of Pakistan Chambers of Commerce & Industry talked about the double taxation on rent. He referred to the Sindh Revenue Board which has imposed 5 percent sales tax on rental services, whereas the FBR is already charging income tax on rental income. After payment of 33 percent tax to the FBR and 5 percent tax to the SRB, the total incidence of taxes on rent comes to 40 percent.
The representative of the KCCI informed the committee about the ongoing corruption in Customs Valuation Department. There is a need to increase funds of the directorate of valuation Karachi so that they would be able to conduct global research and access to international valuation reports for assessment of duties and taxes on the imported items.
The committee also heard the point of views of Pakistan Tanners Association (PTA) regarding exemption on Sales Tax on Raw Hides and Skins and the Chairman Nisar Khan was directed to hold a separate meeting with the PTA on the issue of retrospective applicability of exemption. FBR Chairman said that as a policy we are not in favour of granting retrospective exemptions. The FBR's powers to grant exemptions have already been taken away, he added.
The Committee was informed by Pakistan's steel industry that low quality steel products were being imported in country in the garb of high quality product from China, which have negligible import duties. The committee recommended to the Ministry of Commerce for an early response in this regard. The representative of Pakistan Steel Manufactures Association also referred to the National Tariff Commission (NTC) which is dysfunctional due to a stay order of the Lahore High Court. Abbas Akbar Ali informed the committee that the judgement of the LHC has been reserved for the last three months.
Chairman of the Committee endorsed that it is true NTC forum is not complete now a days. The local manufacturers of Acetic Acid criticised the FBR for anomaly in the Custom Tariff, as the raw material for producing acetic acid had import duties up to 20 percent whereas there was no duty on import of acetic acid from China. The committee unanimously recommended to the government to take considerations from the stakeholders while discussing FTAs, with any country.
FBR Chairman was of the view that massive tariff rationalisation exercise is underway at the level of FBR taking into account the viewpoint of all stakeholders. Members said that after signing FTA with China a number of sectors such as male shoes manufacturing, toys, children's garments etc have closed down. "The main issue is that FTA is viable only if the input cost is competitive," said Dr Nafisa Shah of the PPP. Finance committee was attended by Syed Naveed Qamar, Jehangir Khan Tareen, Ms Shaza Fatima Khawaja, Rana Shamim Ahmed Khan, Sheikh Fayyaz-ud-Din, Mian Abdul Mannan, Dr Nafisa Shah, Syed Mustafa Mahmood, Asad Umar, MNAs and senior officers from the FBR.