KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has suggested measures to broaden tax base and improving tax to GDP ratio.
(more…)Category: Budget
This is parent category of budgets presented by Pakistan government. Here you will find year-wise federal and provincial budgets.
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Exemption from withholding tax at import stage suggested
KARACHI: Pakistan Business Council (PBC) has suggested the tax authorities to exempt withholding tax at import stage for avoiding generation of tax refunds and expansion of industry.
In its proposals for budget 2020/2021, the PBC recommended exemption from collection of withholding tax under section 148 at import stage and exemption for manufacturing concerns under Section 153.
It said that procedures and rules for obtaining exemption certificates for import of plant and machinery and raw material by tax payers have serious restrictions, which causes hardship.
Corporate manufacturing sector should be excluded from the purview of income tax withholding at import stage under section 148 as well as from tax deduction on local supply under section 153.
Similar exemption is already given to the greenfield industries through the Finance Supplementary Second Amendment Act 2019 announced in March 2019.
The same exemption, however, is not available, for the brownfield expansion.
Moreover, all the companies engaged in manufacturing should be exempt from withholding of tax under section 153.
Similar exemption is available for Sales Tax in the Sales Tax Special Procedure (Withholding) Rules, 2007 via SRO 586 dated July 1, 2017.
Alternatively, issuance of exemption certificate from withholding under sections 148 and 153 should automatically trigger on the FBR portal based on payment of quarterly advance tax under section 147 to avoid harassment of genuine taxpayers.
This will enable taxpayers to avoid creating huge tax refunds and focus on more expansion.
This would increase the investments for brownfield capacity expansion as well and would provide a meaningful relief (similar to greenfield expansion) with regard to BMR and extension / expansion. Further, it will also attract foreign direct investment in the form of new expansion ventures as well as partnerships and hence will also result in export growth.
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PSX proposes funded pension scheme
KARACHI: Pakistan Stock Exchange (PSX) has proposed funded pension scheme that should offer old age benefits to retired employees at public sector enterprises and government workers, without putting burden on the annual budget.
At present, Pakistan’s pension scheme for government employees is an un-funded, pay-as-you-go scheme. Government of Pakistan exclusively finances the pension expenditure by obtaining a provision in the annual budget for this purpose.
This has all the making of an impending pension crisis in future, and places unfair burden on future generations. In case of public sector enterprises too, much of the pension liability remains unfunded.
The future monetary obligations are taken to be met from taxation, which places undue fiscal burden and responsibility on future generations. Age analysis of population suggests growing state pension expenses given the expected increase in the older age group.
These conditions have led to increasingly stressed pension arrangement.
Pension’s system reforms are focused on extending coverage to funded pension systems, which are professionally managed, extend to the informal sector, and facilitate switching from the existing employer schemes.
While in the public sector, funds have been created at the provincial level to pre-fund the future liability.
The PSX said that government of various countries have actively worked to provide financial security for their aging populations by maintaining adequately funded pension funds.
These pension funds invest in a diversified range of global assets including equities, bonds, mutual funds, ETFs, and even real estate, infrastructure, and alternative assets.
In Canada, the CPPIB (Canada Pension Plan Investment Board) is the government’s primary pension scheme, and has grown to become one the largest pension funds in the world.
The CPPIB invests in the full stack of assets outlined above and returns are used to finance government’s pension liabilities every year. This takes the burden of pensions away from the annual budget.
The CPP fund now manages over $409.5 billion in asset, up from $128 billion in 2010.
An actively managed government pension fund in Pakistan will also help channel investment towards capital markets, since equities feature heavily at global pension funds.
In Pakistan, the federal government could set up such an investment holding as a single-purpose asset management company with 100 percent control, and run by professional investment managers.
The government should start funding its pension liabilities to avert a future pension crisis and encourage capital formation in Pakistan. An adequately funded pension scheme would offer old age benefits to retired employees at public sector enterprises and government workers, without putting burden on the annual budget. Further, it is recommended that a certain percentage of the funded pension scheme be invested in the capital markets.
With Pakistan facing very high levels of poverty and the Government of Pakistan facing a rise in the old age population and having a scarcity of resources and funds to provide any old age benefits. An adequately funded pension scheme is one of the resources which the Government of Pakistan could offer to facilitate retired public sector employees.
This would result in improvement in liability management of Federal Government Employees Pension Scheme.
Appropriate amendment to be made in the Income Tax Ordinance, 2001.
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Misuse of Afghan transit trade should be checked
KARACHI: Smuggling through Afghan Transit Trade has always been the biggest threat for economic growth and hardly any sector has been left untouched by this menace.
Pakistan Business Council (PBC) in its proposals for budget 2020/2021 said that smuggled goods through the borders of Afghanistan, Iran China, India and the Afghan Transit Trade form a chunk of the informal economy, volume of which ranges between 50 to 60 percent of the formal economy.
It is costing the national exchequer in billions. Markets across the country are flooded with smuggled goods and local industries are struggling for survival as smuggled goods are not only easily available everywhere but are also attracting the buyers who prefer foreign merchandise Goods moving under ATT from Pakistan to Afghanistan should be charged with duties and taxes under the Pakistani laws and the same should be transferred to Afghan Government.
Secondly, the duties/taxes so paid should be deposited with State Bank in USD.
A quantitative restriction should be applied on goods moving under ATT on the basis of consumption.
Allow industry to fairly compete with unscrupulous imports, Government to benefit from increased revenue.
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Curtailing powers of tax officers in recovery, entering premises suggested
KARACHI: Business community has suggested curtailing powers of tax officers while invoking provisions of sales tax laws.
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Withholding tax rate should be increased for immovable property purchase by non-filer
KARACHI: The withholding tax rate should be enhanced to 10 percent for non-filer purchaser of immovable property in the budget 2020/2021.
Pakistan Business Council (PBC) in its budget proposals 2020/2021 recommended to increase the rate of withholding tax for unregistered and non-filers of income tax returns.
The PBC recommended that advance income tax is collected on sales of immovable property under section 236C, which is 1 percent for both filers and non-filers, should be increased for non-filers to 10 percent for properties of 900 square yards or more.
The PBC said that the concept of separate withholding tax rates for filers & non-filers was introduced as a measure for increasing documentation of the economy.
Though large amounts are being collected from non-filers, no effort has been made to increase the tax base.
The non-filers for the most part have built the cost of this government levy into pricing and passed it on to their customers.
In order to broaden the tax base and to achieve increase in overall tax collection without burdening existing tax payers, the policy to increase tax on non-filers / unregistered persons should be implemented specifically in the following cases:
a) unregistered industrial / commercial entities (not having STRN) having bill amount in excess of Rs. 20,000 per month, extra sales tax should be increased from 5 percent to 20 percent.
b) After collection of extra tax as referred above for a continuous period of 6 months, all these connections should be provisionally converted into NTN and STRNs and return filings from these connections should be enforced.
c) In case of provisional registration as above, utility companies be directed to issue show cause notices where annual billing amount exceeds Rs.2.4 million and directing provisionally registered persons to obtain permanent registration. In case of non-compliance, utility companies be directed to disconnect utility connections.
d) Moreover, in order to bring all commercial / industrial users in the tax net and to verify filer status, Electric distribution companies should provide one year to all such consumers to get their NTN registered with electricity distribution companies. In case of failure to provide NTN, electricity connection should be disconnected. Considering the fact that all industrial / commercial connections will be linked with NTN, the tax department will then be in a better position to assess the electricity consumed by commercial / industrial users and corroborate the same with amount of sales / production etc. reported in sales tax / income tax return
e) in order to bring all commercial / industrial users in the tax net and to verify filer status, electric distribution companies should provide one year to all such consumers to get their NTN registered with them. Thereafter, such commercial/industrial consumers without NTN should be charged advance income tax @ 30 percent (from existing 12 percent) on their utility bills. Those with NTN but non-filer status be charged at 20 percent WHT.
f) Residential consumers be made liable to provide NTN in case electricity bill amount exceeds Rs.1.2 million per year or levy advance income tax withholding of 20 percent.
g) All exemptions (like exemption on agricultural income) under the Income Tax Law should only be made available to filers so that exempt income is also reported and wealth is reconciled.
h) Withholding tax on International business class tickets under section 236L is same Rs. 16,000 for filer and non-filer, it should be increased to Rs. 50,000 for non-filers.
i) Withholding tax @ 5 percent or Rs. 20,000, whichever is higher, is applicable under section 236D on all functions organized by filers as well as nonfilers. Rate of withholding be increased for non-filers to Rs. 100,000 as minimum and no WHT from filer.
j) Function halls withholding tax on electric bills should be 30 percent which can be adjusted against tax liability by providing proof of tax deducted from their customers.
k) Withholding income tax on interest income u/s 151 is 15 percent for filer and 30 percent for non-filer. Rate should be increased to 50 percent for non-filers in case interest income is more than Rs.2,000,000/-
l) Annual private motor vehicle tax u/s 234 for non-filers is Rs. 9,000 for 1600cc-1999cc and Rs. 20,000 for 2000 cc and above. Rate for non-filers should be increased to Rs. 50,000 for 1600cc-1999cc and Rs. 200,000 for 2000 cc and above
m) Advance income tax is collected on sales of immovable property under section 236C, which is 1 percent for both filers and non-filers, should be increased for non-filers to 10 percent for properties of 900 square yards or more
n) Holding of land by non-filers should be made more expensive by asking those authorities collecting property tax (cantonment boards / societies/ registrar) to collect adjustable advance income tax, from non-Filers, on behalf of the Federal Government as follows:
o) Rs. 500,000 per year for 800 yards or more but less than 1800 yards
p) Rs. 1 million per year for 1800 yards and above.
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Massive under-invoicing by commercial importers destroying domestic industry: PBC
KARACHI: Pakistan Business Council (PBC) has said that massive under-invoicing especially by commercial Importers is destroying domestic industry.
In its budget proposals for fiscal year 2020/2021, the PBC said that across the board massive under invoicing and dumping of imported products has been increasing.
Information regarding values at which various custom check posts clear import consignments is not publicly available.
“This encourages unscrupulous importers to under-declare the value of consignments to evade government revenues.”
There are massive leakages in the Afghan Transit Trade (ATT) and smuggled goods are being openly sold in all major shopping centers of the country.
“Customs however is not willing to act against smuggled products citing lack of cooperation from local authorities.”
In order to resolve the problems, the PBC proposed following:
a) Values at which import shipments are cleared through PRAL or CARE need to be publicly available.
b) 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.
c) 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.
d) 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.
e) 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 percent premium, any consignment which appears undervalued.
f) Taxes and duties deposited by local manufacturers and commercial importers should be published.
g) The rate of tax collected from commercial importers be increased by at least by 2 percent. Presently, tax collected from commercial importers is treated as an advance tax. Final Tax.
h) 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 percent of imported items have been exported or sold to registered manufacturers. This will also help increase the overall tax base.
i) 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
j) 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.
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 & Sales Tax evasion and increase government revenues.
The proposed change will help in boosting the manufacturing base of Pakistan, the PBC added.
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One percent sales tax proposed on every stage of supply chain
KARACHI: Business community has proposed imposing one percent sales tax on every stage of supply chain of five export oriented sector without input adjustment.
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in its budget proposals for fiscal year 2020/2021 said that Finance Act, 2019 abolished zero rating regime extended to five major export sectors i.e. textile, leather, carpets, sport goods and surgical goods by rescinding SRO 1125(I)/2011.
Sudden removal of zero rating for export oriented sectors has proved fatal for already struggling export oriented sector as the same has resulted accumulation of huge refunds, which in turn has forced genuine taxpayers to knock the doors of tax officers for issuance of their RPOs, which has further promoted harassment and opened up a new window of bribery.
Withdrawal of zero rating has caused liquidity issues even for large exporters.
The removal of zero rating has made it almost impossible for exporters to stand anywhere near global competitors.
Moreover, in order to get maximum possible input tax adjustment, suppliers who are able to supply locally as well as in international markets are preferring local sales at the cost of exports to get maximum possible input tax adjustment.
This has resulted in visible decline in quantitative exports of these sectors, damaging foreign exchange reserves and worsening current account deficit.
The FPCCI proposed that Sales Tax at one percent on total value of supply may be charged at every stage in supply chain of these sectors without any input adjustment.
An example of finished garment chain is given as follows:
i. import or local purchase of fiber – 1 percent
ii. ginning – 1 percent
iii. spinning – 1 percent
iv. knitting/weaving – 1 percent
v. dying – 1 percent
vi. cloth – 1 percent
vii. garment stage – 1 percent
In this way, say in case of a finished garment product, exchequer will collect 7 percent sales tax.
All the raw materials including chemicals and dyes which were included in the erstwhile SRO 1125(I)/2011 dated 31-12-2011 be also subject to 1 percent Sales Tax without adjustment as it will incur no loss to the government exchequer.
The above sales tax in the value chain without input tax adjustment will provide the required revenue to exchequer on one hand, while on the other, the same will relieve the taxpayers of liquidity issues being faced by them in form of huge refunds.
This will also save administrative costs and time of the Board, enabling the force field force to focus on broadening tax base and real revenue collections.
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FPCCI suggests introducing taxpayers’ bill of rights
KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has recommended introducing taxpayers’ bill of rights in the forthcoming budget.
The apex trade body in its proposals for budget 2020/2021, said that the present situation of antagonism between the tax collection agencies and taxpayers needs to be reconciled through a democratic process and implementation of Taxpayers’ Bill of Rights.
The goals fixed under Pakistan Raises Revenue (PRR) Project, estimated at US $1.6 billion, of which financing by World Bank is $400 million, cannot be achieved through handpicked experts (mostly coming on donors’ dictates) who are completely oblivious to the mundane realities of Pakistan.
The bad faith, antagonism and mistrust prevailing between the government and taxpayers can only be removed through a process ensuring a just and fair tax system in Pakistan for which the blueprint and roadmap is available, and we need no foreign funding.
The only thing lacking is political will to debate, promote research on the various challenges and find out workable solutions. This process will certainly require some time.
Meanwhile, PTI Government in order to restore the confidence of the taxpayers should immediately start the process of enactment of Taxpayers’ Bill of Rights.
The draft of Taxpayers’ Bill of Rights was prepared for the first time in 2014 by a sub-committee, constituted by the Federal Tax Ombudsman (FTO), in which Dr. Ikram Ul Haq had put in his best skill to suggest the balance between the rights of taxpayers and authority of tax collectors.
Thereafter, the Tax Reforms Commission (TRC), after 18 months of its establishment, also presented the same in its final report submitted in February 2016. However, until today no practical step has been taken to implement it.
It is high time that the incumbent Government should introduce the Taxpayer Bill of Rights in the finance bill 2020-21
The FPCCI further said that it is a time that we should focus on macroeconomic management issues including budgetary consideration which can have positive effect on long term business efforts towards capital formations and investment of trust and justice in the tax policies and obligations of tax statutes.
Independent Tax Adjudication System, which was promised two decades back during the period of General Parvez Musharraf be included in the ensuing Finance Bill, 2020. Some of the actions were taken but un-sustainability and cascaded developments remain absent. The prosecutors continue to remain adjudicators in the system.
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Immunity from audit against CNIC condition demanded
KARACHI: The business community has demanded the Federal Board of Revenue (FBR) to give immunity from audit against CNIC condition for tax year 2020.
In its budget proposals for fiscal year 2020/2021, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) demanded amnesty from audit against Computerized National Identity Card (CNIC) condition for tax year 2020.
The FPCCI said that the condition of CNIC on unregistered sales was introduced in the Finance Act 2019 but it was not implemented in its true spirit because of various reasons.
The FPCCI highlighted that in July 2019 was initially exempted of CNIC condition through legislation.
From August 2019 to January 2020, the condition was relaxed through agreement between shopkeepers and FBR.
Thereafter, from late February 2020 till unforeseen future, there has been tremendous pressure on the markets due to complete lockdown of the whole country because of the ongoing COVID-19 pandemic.
The FPCCI said that CNIC condition has been causing cashflow issues since its implementation which will further intensify during the current pandemic of COVID-19, especially for registered taxpayers.
Therefore, in order to facilitate the registered Taxpayer, a general amnesty through legislation is requested in the next budget regarding CNIC condition for the whole tax year 2020 starting from August 2019 to June 2020.