Author: Hamza Shahnawaz

KARACHI: The business community has sought exemption from withholding tax on import of plant and machinery in order to reduce the cost of doing business.

Pakistan Business Council (PBC) in its proposals for budget 2022/2023 submitted to Federal Board of Revenue (FBR), said that Section 148 (1) of Income Tax Ordinance, 2001 covers advance tax on Imports and Section 153 covers advance tax on sale of goods and services.

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Companies are required to pay advance quarterly income tax based on their projected incomes under Section 147 of the Ordinance.

In addition, companies are also required to pay advance tax on imports at 1 per cent/ 2 per cent/ 5.5 per cent and on sale of their goods at 4 per cent and services at 8 per cent. This leads to the creation of refunds as companies are paying advance income tax based on projected income, advance income tax on imports and advance income tax on sales.

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There is a cumbersome procedure for seeking exemptions under Section 148 (advance tax on imports) which also does not take into account capacity expansions.

“Import of plant and machinery by companies should be exempted from withholding at import stage,” the PBC suggested. Moreover, for raw materials, preferably corporate manufacturers should be excluded from the ambit of income tax withholding at import stage. In case, FBR wants to keep track of GD wise import of raw materials and complete exemption from tax collection is not feasible, then at least the rate of income tax collection should be reduced down to 0.5 per cent across the board for all raw materials from the existing 1 per cent / 2 per cent and 5.5 per cent for different items.

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In addition to above, local supply by corporate manufacturers should be excluded from the ambit of income tax withholding under section 153 in line with the general exemption given to commercial importers despite the fact that income tax collection from commercial importers at import stage is minimum.

The PBC highlighted the withholding tax under section 148 of Income Tax Ordinance, 2001 (Imports), Section 161 Subsection 3:

Withholding tax u/s 148 (Imports) -Income Tax Ordinance 2001: Certain raw material covered under category III of Twelfth Schedule are subject to WHT tax and fall under minimum tax regime.

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In order to claim the advance tax, the tax payers are required to file an application to Commissioner/ Board for claiming adjustment of withholding tax deducted as advance tax, which leads to administrative and operational inefficiencies, and puts the company at the risk of exposure till such application is entertained.

Tax deduction on import of raw material for own use u/s 148 (Imports) should be explicitly expressed as withholding advance tax across the board in the Income Tax Ordinance, which will save the companies from exposure resulting from possible delays in acceptance of application by the Commissioner/ Board or non-acceptance at all. It will remove operational and administrative hassle also.

KARACHI: The Federal Board of Revenue (FBR) has been urged to audit sales and income of commercial importers in order to discourage under-invoicing and misdeclaration for tax evasion.

The Pakistan Business Council (PBC) in its proposals for budget 2022/2023 submitted to the FBR, recommended measures to stop under-invoicing by commercial importers.

The PBC suggested: “Monthly sales declared by commercial importers should be matched with sales declared in annual income tax return as well as the credit entries in all business bank accounts. In case of any discrepancy, a reconciliation with justifiable reasons should be submitted by the commercial importers.”

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The council said that transparency in collection of taxes will discourage mis-declaration, measures to discourage evasion of taxes and duties will help industry to fairly compete with unscrupulous imports and also Government stands to benefit from the increased indirect taxes revenues. It will also help in accountability of the customs staff and will reduce the incidence of Customs Duty and Sales Tax evasion and increase government revenues.

The PBC said that values at which import shipments are cleared through PRAL or CARE need to be publicly available.

“The Government of Pakistan must insist of Electronic Data Interchange (EDI), for both FTA and non-FTA imports from China. In future the requirement of EDI should be made compulsory for imports from FTA / PTA partner countries.”

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Depending on industry, the Import Trade Price (ITP) be fixed e.g. on the basis of country of origin, weight, volume etc. after discussion with stakeholders. ITP’s may be fixed for most items prone to mis-declaration such as consumer goods and margins of commercial importers be monitored to assess the value of subsequent supply of imported goods. “A certificate to this effect should be issued by auditors of commercial importers.”

The PBC said for items, prone to under invoicing and mis-declaration, FBR should designate one or two ports (including the dry ports) for clearing of import consignments. “This will allow better monitoring of the import consignments where chances of mis-declaration are on a higher side.”

Additionally, the old Customs General Order 25 needs to be revived with a provision that local manufacturers be given the option to buy at a 15 per cent premium, any consignment which appears undervalued.

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Taxes and duties deposited by local manufacturers and commercial importers should be published.

The rate of tax collected from commercial importers be increased by at least by 2 per cent. Presently, tax collected from commercial importers is treated as Final Tax. In order to avoid burdening of genuine commercial importers, we would recommend that the income tax collected at import stage be treated as an advance tax, it said.

In order to allow commercial importers to claim adjustment of taxes deducted at import stage, commercial importers should be asked to present certificate from auditors that at least 70 per cent of imported items have been exported or sold to registered manufacturers.

Online CREST system must be amended in a way to trace sales along with value addition thereon of person to whom supplies were made by Commercial importers.

The proposed change will help in boosting the manufacturing base of Pakistan. This will also help increase the overall tax base.

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