KARACHI: The investment in premium prize bonds has surged by 228 percent to Rs19.21 billion by March 2020 as compared with Rs5.86 billion by the same month a year ago.
(more…)Author: Mrs. Anjum Shahnawaz
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Tariff Policy Board discusses budget proposals
ISLAMABAD: The Tariff Policy Board (TPB) on Monday discussed budget proposals submitted by various stakeholders.
Advisor to the Prime Minister on Commerce Abdul Razak Dawood chaired the meeting.
The advisor said that the budget proposals, forwarded by different stakeholders, would be given due consideration by the TPB so that economy of the country could be revitalized at this difficult juncture.
The meeting was attended by the Secretary Ministry of Commerce, Chairperson National Tariff Commission (NTC), Member Customs Federal Board of Revenue (FBR) and other senior officials of the ministries concerned.
During the meeting, Abdul Razak Dawood emphasized that the maximum benefits would be given to the industry and the lowest strata of society, as per instructions of the Prime Minister Imran Khan, so that maximum job opportunities could be generated in the shortest possible time.
In the meeting, the tariff related proposals pertaining to different sectors of the economy, for improving the competitiveness of Pakistan’s exports and giving new impetus to the process of industrialization, were discussed at length.
The recommendations of TPB on tariff structure would be incorporated in the fiscal budget for the year 2020-2021.
It was decided by the TPB that the meetings of the Sub-Committee of the board would be convened regularly and the recommendations of the Sub-Committee would be placed before the Tariff Policy Board for deliberations and taking informed decisions thereon.
The next meeting of the Tariff Policy Board will be held by the end of this week.
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PSX seeks permanent reduction in tax rate for listed companies
KARACHI: Pakistan Stock Exchange (PSX) has recommended to lower the rate of tax for listed companies in order to encourage listing in the equity market.
“The tax rate should be permanently lowered for listed companies, by giving tax credit of 20 percent of tax payable for those companies that meet the prescribed requirements including a minimum free float of 25 percent throughout,” the PSX suggested in its proposals for budget 2020/2021.
The stock exchange said that in order to encourage new listings, the Finance Act, 2011 introduced Section 65C of the Income Tax Ordinance, 2001; whereby tax credit equal to twenty percent (20 percent) for the tax year in which a company opts for enlistment on the Stock Exchange was allowed.
Currently, the tax credit is given for four years from the date of listing, subject to the condition that for the first two tax years.
This tax credit is very insignificant and not enough to attract new listings.
It is generally observed that when companies opt for a listing on a stock exchange, their profits enhance substantially due to effective corporate governance, better disclosures, and availability to additional funds from the market.
Increased profitability ultimately leads to higher tax revenue for the government as the number of listed companies on PSX grows. Higher listings, coupled with regulations to increase trading activity will result in higher liquidity, and also lead to incremental government revenues from capital gain tax.
The table below outlines the five-year summary of listing and de-listing on the PSX:
Particulars Number of Companies Capital (Rs.)* New Listings 24 62,607 Million De-Listings 42 12,971 Million Delisted due to merger 9 140,535 Million *As of December 31, 2019
Giving rationale to the proposals, the PSX said that It is generally observed that publically-listed companies are able to improve profitability due to effective corporate governance, better corporate disclosure and availability of additional funds.
The incremental benefits arising from the preferential tax structure for listed companies will foster a business environment that encourages new listings on the stock exchange, resulting in higher trading volumes and lead to:
a) Higher tax revenue from listed companies’ income as a result of higher corporate profits
b) Higher revenues from tax on brokers activity on new listings
c) Higher revenue from Capital Gains Tax on disposal of newly listed securities.
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Inflows of remittances registers 5.5 percent decline in April
KARACHI: The inflow of workers remittances has registered decline of 5.5 percent in April 2020, State Bank of Pakistan (SBP) said on Monday.
Workers’ remittances during April 2020 amounted to US $ 1.79 billion recording a decrease of US $ 104.4 million or 5.5 percent over remittance received during previous month (March 2020, US $ 1.89 billion).
The workers’ remittances received during July – April FY20 amounted to US $ 18.78 billion recording an increase US $ 980.6 million or 5.5 percent over remittances received during July – April FY19 (US $ 17.8 billion).
The remittances during April 2020 (US $ 1,790.0 million) increased by US $ 19.8 million or 1.1 percent over remittance received during corresponding month of FY 19 (US $ 1,770.2 million).
During April 2020, larger amounts of Workers’ Remittances are received from Saudi Arabia (US $ 451.4 million), USA (US $ 401.9 million), UAE (US $ 353.8 million) and UK (US $ 226.6 million) recording an increase of 14.0 percent for USA whereas a decrease of 0.2 percent, 15.8 percent and 8.8 percent for Saudi Arabia, UAE and UK respectively as compared to March 2020.
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SBP to announce monetary policy on May 15
KARACHI: State Bank of Pakistan (SBP) on Monday said that it will announce monetary policy statement for next two months on Friday May 15, 2020.
The SBP in previous three announcement during past two months reduced the policy rate by 4.25 percent to 9 percent from 13.25 percent.
In the last monetary policy meeting on April 16, 2020 decided to cut the policy rate by a further 200 basis points to 9 percent.
The SBP said that at its last meeting on 24th March 2020, the Monetary Policy Committee (MPC) noted the worsening outlook for global and domestic economic activity in the wake of the Corona pandemic. Given the unfolding situation, the MPC noted that it “remains ready to take whatever further actions become necessary in response to the evolving economic impact of the Coronavirus.”
Since the last MPC meeting, the global and domestic outlook has further deteriorated. The world economy is expected to enter into the sharpest downturn since the Great Depression, contracting by as much as 3 percent in 2020, according to projections released this week by the IMF.
This is a much deeper recession than the 0.07 percent contraction during the global financial crisis in 2009. Moreover, there are severe risks of a worse outcome. In addition, global oil prices have plummeted further, with futures markets suggesting low prices will persist.
Domestically, high-frequency indicators of activity―including retail sales, credit card spending, cement production, export orders, tax collections, and mobility data from Google’s recently introduced Community Mobility Reports―suggest a significant slowdown in most parts of the economy in recent weeks. On the inflation front, both the March CPI out-turn and more recent weekly SPI releases in April also show a marked reduction in inflation momentum.
While there is exceptionally high uncertainty about the severity and duration of the Coronavirus shock, the developments discussed above imply further downward revision in the outlook for growth and inflation.
The economy is expected to contract by -1.5 percent in FY20 before recovering to around 2 percent growth in FY21. Inflation is expected to be close to the lower end of the previously announced 11-12 percent range this fiscal year, and to fall to 7-9 percent range next fiscal year.
While there are some upside risks to headline inflation in case of temporary supply disruptions or food price shocks, these are unlikely to generate strong second-round effects due to the weakness of the economy.
Similarly, the inflationary impact of the recent exchange rate depreciation is expected to be contained given low import demand and falling global prices.
This reduces forward looking real interest rates (defined as the policy rate less expected inflation) to around zero, which is about the middle of the range across most emerging markets.
The MPC was of the view that this action would cushion the impact of the Coronavirus shock on growth and employment, including by easing borrowing costs and the debt service burden of households and firms, while also maintaining financial stability. It would also help ensure that economic activity is better placed to recover when the pandemic subsides.
The MPC highlighted that this rate cut would complement other measures recently taken by the SBP to support the economy, including concessional financing to companies that do not lay off workers, one-year extension in principal payments, doubling of the period for rescheduling of loans from 90 to 180 days, and concessional financing for hospitals and medical centers incurring expenses to combat the Coronavirus pandemic.
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FBR suggested to abolish tax refund culture
KARACHI: Federal Board of Revenue (FBR) has been suggested to abolish tax refund culture and bring down sales tax at five percent.
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in its proposals for budget 2020/2021 suggested that the culture of refunds should be abolished and government should collect GST at the rate of 5 percent.
“It will transfer the benefits to the end consumers which lead the control over inflation and poverty and enhancement in economic activities,” the FPCCI said.
The apex trade body said that the reduction in the rate of sales tax will enlarge the size of consumer markets and government earnings will definitely increase.
It will transfer the benefits to the end consumers which lead the control over inflation and poverty and enhancement in economic activities.
The FPCCI highlighted the present structure of taxation policies in Pakistan.
Here, it is noteworthy that inducement of private investment particularly foreign direct investment is the only feasible option to develop the badly deteriorated infrastructure in Pakistan.
Greenfield investment and capitalization of the savings of expatriate Pakistanis are also included in this program.
FPCCI proposed fiscal policy, while revival strategy will be based on foreign investment. It is unfortunate that tax rates in Pakistan are considered as major hurdle in investment.
Tax and contribution as percentage of Gross profit is 33.9 percent in Pakistan, while it is 49.7 percent in India, 38.7 percent in Malaysia, 36.6 percent in USA, and 33.4 percent in Bangladesh.
The average tax rate on corporate sector in Pakistan is 29 percent; it is 25 percent in India, 24 percent in Malaysia, and 21 percent in USA.
It is important to note that tax system in Pakistan emphasizes on indirect taxes and surcharges. The share of direct taxes in government revenue is around 37 percent in Pakistan, 47 percent in India, 46 percent in Malaysia, 38 percent in UK and 50 percent only in USA.
The lower share of direct taxes is because of exemptions and less e orts for tax collections from agriculture, services, real estates and retail trading activities.
This situation leads to dependency on indirect taxes. The indirect taxes hampered the industry in many ways: they increase the cost of production and reduce the demand for manufacturing products, because of higher market prices of those products by inclusion of sales tax. By such a manner, they damage the industrial competitiveness and induce the inflation in economy.
The FPCCI has recommended the shifting of dependency from indirect to direct taxes. We strongly recommend the reduction rate of sales tax to provide relief to the general public.
This step will improve the buying power of general public and will help the industry in revival process and accelerate the investment in the country.
It is extremely important for the survival of Pakistan economy at this stage. The reduction in the rate of GST is proposed on the basis of expected enhancement in revenue because of enhanced economic activities.
To increase its revenue government should not depend on indirect taxation. This approach leads the poverty and inflation. We should encourage revenue enhancement through direct taxation on equity and egalitarian basis.
Tax should be paid according to the magnitude of earning regardless the source of earning.
To accelerate economic activities and improving efficiencies, the FPCCI suggests reduction in the rate of GST.
This is the pivotal point of our taxation policy. A solution of containing the ongoing unsettled business environment is imperative. The present ongoing conflicts and contradictions has reduced the sales and as well as have chocked the sales points and agents of sales. The re-initiation efforts of FPCCI towards saleable policy objective of fixed sales system may find a substitute of settlement of ongoing disputed business environment.
The reduction in the rate of sales tax will enlarge the size of consumer markets and government earnings will definitely increase. The sources of FBR have been indicating the effective tax rate of GST is less than 5 percent, which indicate that 71 percent of total collection of sales tax has to pay back in account of input adjustment and refund claims.
The FPCCI in 2014 took-up a subject of fixed sales tax regime, which attended the influence level and even the then Finance Minister conceded to consider the same during his tenor as the document, submitted by FPCCI, concluded towards the objective that the collection would increase and not decrease by promoting business conducting environment through fixed sales tax regime.
This will provide demand supported production environment for manufacturing. It will improve the collections and settle the disputed business environment.
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FPCCI suggests measures to boost exports
KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has suggested measures to boost exports of the country.
The apex trade body in its proposals for budget 2020/2021 suggested measures to improve exports.
The FPCCI said that if the proposals are implemented that those would create domestic demand suppression to promote investment– both local and foreign in exporting sector.
The apex trade body suggested following measures to improve exports:
i. Pakistan should formulate strategies to decrease dependence on traditional exports like textiles, leather, carpet, sports goods, stainless steel, surgical goods rice etc. There needs a shift in the composition of its exports that means promoting exports of high/ medium technology products whose participation in the world trade is increasing.
ii. Either Zero rated or on reduced rate (say) 6 percent or 9 percent should be allowed on all inputs of five export sectors including the Packaging materials or refunds claims be paid within the stipulated time period.
iii. To make Pakistan’s exports competitive in the international market, the exports be allowed 50 percent air freight subsidy from EDF.
iv. Support from the government should be provided to establish Showrooms and warehouses and exhibition areas in mega departmental stores.
v. Warehouses be established at borders of neighboring countries.
vi. Land routes to the neighboring countries (Iran & Afghanistan) should be strictly controlled to stop smuggling.
vii. The prevailing non-tariff barriers have restrained the volume of Pakistan’s exports to China and EU. Pakistani exporters are facing non-tariff barriers in safety and quality standards under the sanitary and phytosanitary (SPS) agreement. Sanitary and phytosanitary measures apply to trading commodities.
viii. The importance of research cannot be neglected in today’s fast-changing world. Especially in high technology products, the need for research and development is to a greater extent. It will make the government more efficient in terms of production up-gradation and opportunities that arise from increasing technological export base. The relations between research institutions and the firms should be established and firmed.
ix. All steps including increase in acreage under cotton crop, quality seed development and removal of weeds and eliminating of insects need to be adopted in this connection.
x. To enhance the subsidized credit for exporters on higher interest rates.
xi. To lower the imports tariff rates on the basis of cascading allowing effective protection rate to local industries – import substitution and export oriented – as per WTO agreement.
xii. To enhance credit limit to SMEs to encourage the value chain of exports.
xiii. There is a need of improving the export strategy to ensure sustainable growth and the role of fiscal responsibility to avoid recurrent external account crises.
xiv. There is also a need of shifting from inward orientation to an outward looking economy as it puts a greater emphasis on exports to achieve high and sustainable growth. Moreover, different contours of an export oriented strategy that Pakistan should adopt in order to remain competitive in international market especially with regards to countries like India and Bangladesh.
xv. Pakistan needs to penetrate the global synthetic products market which have overtaken cotton as synthetic / MMF, particularly polyester fibre (PSF) has substantially replaced cotton based fibre production. But Pakistan still lag behind MMF based production as a result is limiting itself to only some products.
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FBR suggested to issue exempt list of persons not required to pay withholding tax
KARACHI: Federal Board of Revenue (FBR) has been urged to issue a separate list of exempt list of persons who do not require to pay withholding tax as mentioned in Section 100BA and Tenth Schedule of Income Tax Ordinance, 2001.
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FED on locally manufactured vehicles proposed to be withdrawn
KARACHI: Local automobile manufacturers have urged the Federal Board of Revenue (FBR) to withdraw federal excise duty, which will help in rationalizing prices in domestic market.
Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 said that the Finance Act, 2019 revised FED on all categories of locally manufactured motor vehicle (Motor car & SUVs, 8703 category) as follows:
Vehicles FED Up to 3 to 1000CC 2.5 percent 1001CC to 2000CC 5 percent 2000CC and above 7.5 percent The OICCI said that this had resulted in significant increase of the sales price of the vehicles with consequential reduction in sales volume of the respective vehicle categories.
The OICCI recommended that levy of FED on locally manufactured vehicles should be withdrawn by deleting the Serial No. 55B of Table I of First Schedule to the Federal Excise Act, 2005.
The OICCI also suggested changes in advance income tax collected on various engine capacity.
Currently, as per table under Division VII of Part IV of First Schedule, following advance tax under section 231 B is collected by manufacturers on the following categories of vehicles:
Engine Capacity Tax 1001CC to 1300CC Rs25,000 1301CC to 1600CC Rs50,000 The OICCI said that presently most of the locally manufactured sedans passenger cars fall slightly above the 1300CC categories which includes Honda City (1339CC) etc. This slightly higher engine capacity size results in these vehicles falling in higher tax bracket making it more expensive with higher upfront cost to customers.
The OICCI recommended that amendment should be made in the categories of vehicles mentioned in Division VII of Part IV of First Schedule as follows:
Engine Capacity Tax 1001CC to 1350CC Rs25,000 1351CC to 1600CC Rs50,000 The OICCI highlighted levy of additional customs duty (ACD). It said that ACD was levied through SRO 1178(I)/2015 on various items, including raw materials at one percent which was enhanced to two percent through SRO 630(I)/2018. Through SRO 670(I)/2019, levy of ACD was further enhanced and slab wise ACD was introduced as follows:
Tariff Slab Additional Customs Duty Tariff Slab of 0%, 3% and 11% 2% Tariff slab of 16% 4% 20% and higher 7% The OICCI proposed to exempt imports under SRO 655(I)/2006 & SRO 656(I)/2006 from ACD.
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Bearer bonds, certificates should be stopped to prevent tax evasion
KARACHI: The government has been recommended to stop all kind of bearer certificates, bonds and other instruments in order to eliminate parking lots for untaxed funds.
Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 recommended measures to eliminate legally permissible parking lots for untaxed funds.
The OICCI said that bearer certificates, bonds and other instruments lead to tax evasion.
Therefore, sale of all kinds of bearer securities, prize bonds, and other such items should be stopped.
The OICCI further said that despite the revision of real estate values there is still a lot of difference between actual market value and various ‘official’ values of real estate across the country.
It is proposed that shortcomings in the mode and manner of valuation of immovable properties to be addressed. Registration of sale and purchase of real estate should be on fair market value at the time of the transaction. Necessary information on market value of real estate can be easily obtained.
In order to broaden the tax base, the OICCI also suggested introduction of books of account and cash registers.
It said that the Federal Board of Revenue (FBR) does not have any proper shop-wise record of approximately 35 million SMEs, which are mostly sole proprietorship or partnerships, despite the fact that jurisdictions within the tax offices are location centric, especially for small and medium sized businesses.
The OICCI recommended:
i. It should be made mandatory for all businesses to maintain books of account and taxes should be levied on ‘net income’ basis only.
ii. Registration of all retail outlets and electronic cash registers should be made mandatory without any turnover thresholds, which gives rise to tax evasion. The
iii. installation of these registers should be inspected regularly by tax inspectors.
iv. FBR should engage with representatives of small manufacturers, wholesalers and retailers and ensure their buy-in for introduction of these documentation measures so that the previous back-tracking on these actions is not repeated.
v. The book keeping requirements/ outline be regularly upgraded considering the best practices learnt from other neighboring countries in the region with similar business infrastructure.