FBR advised reducing income tax to half for exporters other than five zero-rated sectors

KARACHI: Federal Board of Revenue (FBR) has been suggested to reduce the income tax rate to half for exporters not falling under five zero-rating scheme in order to promote and diversification of exports.

Pakistan Business Council (PBC) in its tax proposals for forthcoming budget 2019/2020 said that at present the rate of tax deduction on export proceeds under Section 154 of Income Tax Ordinance, 2001 is one percent, which is same as for five export oriented sector as well as for other than five sectors.

The council said that in order to promote diversification of exports instead of relying on only five specified sectors, rate of tax on export proceeds should be reduced to 0.5 percent from one percent for sectors which are not covered under the five specified export oriented sectors.

Giving rationale for the change, it said that at present sales tax zero rating is available to five specified export oriented sectors on their input materials whereas such benefit is not available to other potential export sectors.

Moreover, gas supply is also available to five specified sectors at 600/MMBTU whereas rate of gas per MMBTU for non-conventional sectors is Rs780 in addition to GIDC, which makes potential export uncompetitive and consequently, Pakistan is unable to diversify export markets.

“In order to compensate such exporters and to promote export of other than five sectors, rate should be decreased to five percent for such sectors,” the PBC recommended.

The PBC further pointed out that manufacturing bond/DTRE rules are cumbersome and in certain cases lack clarity whereby many potential exporters cannot avail them. Consequently, it results in lost exports.

Therefore, it is recommended that manufacturing bond/DTRE rules should be modified to make it easily accessible and lend full clarity to allow exporters to fulfill potential export orders.

The proposed amendment would increase exports by facilitating existing and potential exporters.

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