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Category: Trade & Industry

This section covers news on trade and industry. Pakistan Revenue is committed to providing the latest updates on business trends.

  • Minimum tax collection should be suspended for two years

    Minimum tax collection should be suspended for two years

    KARACHI: Pakistan Business Council (PBC) has recommended suspending minimum tax under Section 113 of Income Tax Ordinance, 2001 considering the pandemic of COVID-19 and its impact on businesses.

    The PBC in its budget proposals 2020/2021, said that a turnover based minimum tax is fundamentally flawed in that it fails to take account of the industry specific margins and acts as a barrier to entry of new players.

    A minimum tax at 1.5 percent of sales for manufacturers (and higher rates for the services industry), under the present depressed business conditions will put an unbearable burden on businesses.

    “Pending a review of the continued justification of minimum tax, under the current business circumstances, we recommend that its collection be suspended for at least the next two financial years.”

    The PBC further said that as per Section 61 of the Income Tax Ordinance, 2001, persons falling under the Minimum Tax Regime / Alternative Corporate Tax are not able to claim any sort of tax credit on donations.

    Considering the situation of last quarter ending June 2020 due to COVID, many companies would fall under the minimum tax regime due to reduced product demand and margin issues.

    Section 61 of the Income Tax Ordinance, 2001 be amended to allow direct deduction of donations paid by any person to the Prime Minister’s COVID-19 Pandemic Relief Fund-2020 or any other Fund established by any Provincial Government or to any other approved Non-Profit Organization subject to the condition that the said donation should be made through crossed cheque.

    Moreover, in case of donation in kind, deduction against minimum turnover tax be allowed on the basis of valuation prescribed under Rule 228(4) of the Income Tax Rules, 2002.

    At present, rate of tax deduction on export proceeds is 1.0 percent.

    In order to promote sustainability of industries engaged in exports, rate of tax on export proceeds should be reduced to 0.5 percent from 1.0 percent for the next two financial years.

    In order to get exemption certificate against tax deduction under sections 153 [supply of goods] and 148 [import on goods], taxpayers are required to pay advance tax

    Taxpayers should be allowed unconditional exemption from tax deduction on import and supply stage without heavy upfront payment of advance tax liability. In order to ensure regular inflows to the Government, taxpayers be made liable to discharge at least 70 percent [as against present 90 percent condition] of total estimated annual tax liability in 4 quarterly instalments.

  • Karachi Chamber demands ease in lockdown, resuming trade activities

    Karachi Chamber demands ease in lockdown, resuming trade activities

    KARACHI: The Karachi Chamber of Commerce and Industry (KCCI) has urged the government to ease the ongoing lockdown and allow the resumption of trade activities.

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  • APTMA demands sales tax zero rating revival

    APTMA demands sales tax zero rating revival

    KARACHI: All Pakistan Textile Mills Association (APTMA) on Wednesday demanded restoration of sales tax zero rating as authorities failed to fulfill commitments of repayment of refund under new online refund system.

    In a letter sent to Abdul Razzaq Dawood, Advisor for Commerce, Textile, Industry & Production and Investment, the association informed that since domestic sales constituted 50 percent of textile output, zero rating led to sales tax evasion to the tune of $12 billion sales.

    At the time, APTMA had proved that this was a false assertion and this fact has now been admitted by FBR. This FBR has now stated on record that the domestic sales of the textile sector only account for 20 percent of the overall value of textile production of the country.

    The APTMA said that the misplaced withdrawal of zero rating, the entire textile industry has suffered immensely and the levy of sales tax in its present form and design has led to almost Rs20 billion (5-6 months total impact Rs100 billion) liquidity moving from the industry to FBR.

    It is further informed that prior to July 2019, the industry had become competitive and profitable and if the zero rating scheme would have continued these funds would have been spent on new projects, upgradation and expansion of the industrial base and resulted in increased exports for the country. The economic cost of the withdrawal of zero rating has been colossal.

    The amount of sales tax being paid by the industry is even more that the annual profits of most companies. Many companies have had to borrow from banks to finance this unjustified levy resulting in an increase in their cost of production.

    “Thus, negating the government claims to move on a policy of reducing the cost of doing business in Pakistan.”

    At the time of withdrawal of SRO 1125, the government had assured the industry that it would review the situation in 6-8 months’ time. More than nine months have now passed, and it is evident that the Sales Tax system is not contributing significantly to the FBR kitty.

    On the other hand, the entire government, FBR and the entire industry is constantly holding meetings and wasting precious time and money on resolving the issue of refunds.

    Sales Tax refunds are not forthcoming as per the promised and unequivocally stated claims that payments would be made would be paid within 72 hours of filing of H forms.

    This has not happened and the sales tax claims even after filing of H forms have remained unpaid for months on end.

    In fact, the flow of quantum of refunds was very tightly regulated by the Ministry of Finance/FBR and processing of payments limited to the quantum/value predetermined by the Ministry of Finance.

    The Sales Tax returns/H forms were routinely deferred or rejected by FBR on artificial limits established by them which had no basis in reality of the industry.

    In other words, nothing had changed from previous years in terms of refund processing.

    The situation post-Covid19 has changed drastically for the industry, as export orders have been cancelled, payments due against LCs delayed, and fresh orders not forthcoming.

    This is because of a complete collapse of markets and demand for textiles in Europe and USA. Circumstances are not expected to return to normalcy for quite some time.

    It is not possible to expect the value chain to keep on paying Sales Tax with little chance of obtaining their refunds in a timely and agreed manner from FBR.

    This delay results in affecting the entire supply chain as the exporters delay payments to their suppliers who in turn are forced to delay down the line.

    This has resulted in severe cash flow problems in part owing to the banks reluctance to finance these payments.

    Under these circumstances, the association demanded the immediate restoration of SRO 1125 i.e zero rating for the textile supply chain. “Should government still wish to collect sales tax on domestic sales, from a market that is already in dire straits, then it should collect the Sales Tax at the Point of Sale.”

    In the foreseeable future the continuation of the Sales Tax regime applicable to an industry with 80 percent exports is counterproductive and will make recovery of exports to any significant level post-COVID very difficult and even make it impossible.

  • KCCI demands policy rate at 4 percent

    KCCI demands policy rate at 4 percent

    KARACHI: Karachi Chamber of Commerce and Industry (KCCI) on Wednesday demanded the central bank to reduce policy rate to 4 percent instead easing in bits and pieces.

    KCCI President Agha Shahab Ahmed Khan in a statement urged the State Bank of Pakistan (SBP) to bring down the policy rate from 9.0 percent to 4.0 percent in view of the extra-ordinary circumstances and a global scale economic crisis, which is certain to have a long term negative impact on Pakistan’s economy.

    In a letter sent to Governor SBP Dr. Reza Baqir, President KCCI stressed that reduction in policy rate in bits and pieces is not enough to provide the much needed stimulus to the economy hence, it is necessary to significantly reduce the interest rate in a single step, to help the businesses sail through the unprecedented crisis.

    He was of the opinion that there is now ample justification for reduction in policy rate because the inflation rate has declined sharply due to a steep fall in prices of crude oil, commodities and raw materials, while the demand has also been suppressed.

    President KCCI appreciated the measures taken by SBP to support the industry and exporters to meet the challenges and financial crunch faced by them due to prolonged lockdowns to prevent the spread of Covid-19 coronavirus.

    While acknowledging the interest rates of 4 percent and 5 percent for filers and non-filers respectively in the package, he suggested that in view of the special circumstances, the rate of interest should be zero to support the economy and sustain the industries at least for the next one year.

    He however stressed that there is a dire need to announce a Rescue Package for Micro level Enterprises and SMEs which contribute around 40 percent to GDP.

    He pointed out that unfortunately, no relief has so far been announced for Micro enterprises and SMEs, which are under much greater financial stress then the large scale businesses and their survival is at stake.

  • Tax relief package to mitigate COVID-19 shocks under consideration, FBR tells KCCI

    Tax relief package to mitigate COVID-19 shocks under consideration, FBR tells KCCI

    KARACHI: A top official of Federal Board of Revenue (FBR) has informed the office bearers of Karachi Chamber of Commerce and Industry (KCCI) that a tax relief package for business community was under consideration in order to dilute the adverse impact of coronavirus pandemic (COVID-19).

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  • FPCCI praises central bank for reducing policy rate to nine percent

    FPCCI praises central bank for reducing policy rate to nine percent

    KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has praised the central bank for reducing policy rate by two percent to nine percent from 11 percent.

    In a statement issued on Friday, Mian Anjum Nisar, President, FPCCI appreciated reduction in the policy rates by 2 percent from 11 percent to 9 percent by State Bank of Pakistan (SBP) in view of the current situation and banks should follow SBP immediately accordingly.

    The reduction in policy rate by 4.25 percent in a month is commendable step of the government in the present situation that will positively affect cost of doing business and will encourage Investors and Industrialists to make new investment in the country.

    The president FPCCI also said that the pandemic COVID-19 has affected the global economy and pushed to the depression resulting contraction in the economic activities and a threat to unemployment.

    He told that the expected long-terms affects are more severe than the previous great depression losses.

    He apprehended that the economy of Pakistan will contract by 1.5 percent due to COVID-19 in the current fiscal year and the government has to take immediate measures to protect the trade and industry that will ensure future employment, economic growth and socio-economic prosperity.

    Present available resources must be utilized to safeguard the trade and industry so that our industry could be able to compete with global world after this crisis.

    The whole economy is in lock down situation since last 26 days, and will continue for 3 months which is building liquidity crunch and our policies should address post CORONA situation so that business can run and jobs can be secured.

    He also said that affected countries have considerably reduced interest rates and Pakistan’s trade and industry is also in a dire need to further reduction in the interest rate to nearly 5 percent so it could be sustain under the prevailing conditions.

    He further stated that foreign exchange reserves are increasing due to assistance from IMF, World Bank, Asian Development Bank and other friendly countries so SBP also control and manage the market more effectively particularly the exchange rates.

    FPCCI chief emphasized that the SBP Scheme of loans to industry for salaries payment of employees should be interest free and the government should also contribute in it as it will be a liability to payback with interest for the period when industry is closed and workers are at homes.

    The scheme needs to be revisited with the consultation of the stakeholders who are facing multidimensional problems and are able to guide the policy maker under this terrible situation.

  • PBC demands suspending collection of Sindh infrastructure cess

    PBC demands suspending collection of Sindh infrastructure cess

    KARACHI: Pakistan Business Council (PBC) has demanded the Sindh government of suspending collection of infrastructure to provide relief the industrial and businesses in the wake of coronavirus outbreak.

    In a letter sent to Sindh Chief Ministry Syed Murad Ali Shah, the PBC demanded the suspension of collections under the Sindh Development and Maintenance of Infrastructure Cess Act, 2017.

    The PBC is composed of country’s leading employers, including multinationals. PBC members, directly and through members in their value chains provide employment to more than two million individuals.

    The COVID-19 pandemic has severely impacted liquidity of businesses in Pakistan including those operating in Sindh.

    While PBC members are committed to retaining their direct employees and are also taking steps to ensure that livelihoods of employees in their supply chain are not adversely impacted, they do however, look towards governments for the maximum help to ensure that liquidity is available to pay these unusual expenses.

    “We are therefore writing to request you to initially suspend all collections under the Sindh Development & Maintenance of Infrastructure Cess Act 2017 till June 30, 2020. The exemption may be reviewed in June and extended if the crisis persists,” it said.

    The government of Punjab on April 02, announced the suspension of collections under the Punjab Infrastructure Development Cess Act 2015 till June 30th, 2020.

    The PBC hopes for a similar gesture from the Government of Sindh and requests that the announcement for the suspension of collections under the Sindh Development & Maintenance of Infrastructure Cess Act 2017 be made at the earliest.

  • Why non-filers happy in paying high withholding tax rates, FPCCI asks FBR

    Why non-filers happy in paying high withholding tax rates, FPCCI asks FBR

    KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has expressed concerns over lower number of return filers and asked Federal Board of Revenue (FBR) to identify reasons that why non-filers happy in paying higher rate of withholding tax.

    According to a statement on Thursday, the FPCCI has finalize proposals for upcoming budget 2020/2021.

    The proposals have been drafted keeping in view of the objectives of (i) Revamping Taxation System (ii) Documentation of Economy (iii) Employment generation through Industrialization (iv) Promoting a responsive and equitable Taxation System (v) Infrastructure Development (vi) Trickledown effect of the fiscal space to the grass root level etc., and would be submitted to the concerned quarters within fortnight”.

    This was stated by Mian Anjum Nisar, President, FPCCI and Zakaria Usman, Convener of the FPCCI Budget Advisory Council.

    Elaborating the methodology of the budget proposals exercise, they stated that the FPCCI with a consistent commitment to developing and promoting a modern, responsive and equitable taxation system, has formulated these proposals on the basis of impartial, unbiased and transparent manner after taking a painstaking lengthy process which involved incorporating feedback received on matters related to revenue and taxation throughout the year from our members located across the country and input obtained from our member trade bodies, stakeholders, tax practitioners, knowledgeable people etc., through invitation of proposals, organizing workshops and holding a series of Budget Advisory Council meetings wherein these proposals were discussed in detail and some contradictory proposals were re-examined and final proposals were redesigned in line with the best interest of the country.   

    They informed that the FPCCI Budgetary document consists of three Volumes – Vol-I discusses issues / solution of macroeconomic nature ; Vol-II contains policy issues relevant to Taxation (Sales Tax, FED, Income Tax and Customs) ; while Vol-III contains Industry Specific Proposals received from FPCCI members .

    Moreover, the FPCCI would also submit its proposals to meet the challenges being faced by the trade & industry due to outbreak of COVID-19 as its severe and adverse impacts on various aspects of Pakistan’s economy is quite discern which may lead to negative growth rate, deterioration in current and fiscal balance, disruption in supply chain, increased unemployment etc.

    The FPCCI Chief Mian Anjum Nisar added, “The Macro Economic proposals contains long term action plan to boost exports ; promotion of Branding ; Enhancing SMEs sector ; Monetary Policy ; Creating Employment Opportunities through industrialization ; Taxpayers Bill of Rights ; Independent Tax Judicial System etc”.

    Zakaria Usman, Convener of the Budget Advisory Council disclosed, “In Direct Taxes, it has proposed to the Federal Board of Revenue (FBR) to reduce the tax rates to help increase competitive edge of indigenous products in both local and global markets; broadening of tax base; curtail parallel economy etc., as high tax rates provide incentives for tax evasion and corruption and results in high cost of doing business.

    At present the total numbers of NTN holders in Pakistan are over 4 million, however, the FBR has miserably failed to obtain return of income from such NTN holders and increase the number of active taxpayer during the last decade.

    They added that according to a study, 2.1 million Pakistanis (individuals) filed income tax returns in 2006-07 which shows that FBR during the last 14 years could not fetch much tax filers, despite prescribing higher withholding tax rates for non-filers”.

     “This underscores the need that FBR should conduct a study to find out what has gone wrong that even after penalizing the non-filers, they are happy to pay more by way of advance tax instead of filing returns”.

    He proposed that it is desirable that measures should be taken to facilitate to those, who are already existing taxpayers and contributing in the national tax pool in all manners, so that they become goodwill ambassador for FBR.

    “Resultantly, since many years, the registered taxpayers are less than 1 percent of the population of our country, which need to be enhanced”, he concluded.

  • Karachi Chamber advocates unregistered transactions

    Karachi Chamber advocates unregistered transactions

    KARACHI: Karachi Chamber of Commerce and Industry (KCCI) reiterated demand for eliminating condition of Computerized National Identity Card (CNIC) and allow unregistered persons to make purchases freely.

    KCCI President Agha Shahab Ahmed Khan in a statement on Monday urged the government to immediately waive CNIC requirement for sales to unregistered persons and three percent further tax in order to revive the economic activities and business transactions.

    In a letter sent to PM’s Advisor on Finance & Revenue Dr. Abdul Hafeez Shaikh, President KCCI said that waiver of CNIC condition and 3 percent Further Tax would result in release of major stockpiles of commodities and consumer goods into the markets and revenue collection will improve through liberalization of transactions.

    “Small and Medium Industry will also benefit as a result of such measure because a very large volume of raw materials is supplied to SMEs by commercial importers who are stuck with inventories. In order to stimulate the economy, an across the board relief is required rather than selective assistance to already favored sectors,” he added.

    President KCCI pointed out that in the Finance Act 2019, an amendment was made to Section 8 (Sub-Sec.1, Clause M) of Sales Tax Act, by addition of 10th Schedule, whereby it is mandatory to provide CNIC number of unregistered buyers in the invoice and Sales Tax Returns in addition to payment of 3 percent Further Tax. Similar statute has been added U/S.19A of Federal Excise Act, Sec.216A to Income Tax Ordinance and Sec.156A of Customs Act.

    He noted that since the number of registered persons in Sales Tax regime stood hardly at around 45,000 all over Pakistan, it is not possible for suppliers/ sellers and manufacturers to provide the CNIC of buyers on account of all their sales. This condition has resulted in a slowdown of business transactions and proliferation of cash economy.

    Agha Shahab said that the situation has further aggravated due to country-wide lockdown and disruption in supply chain due to the outbreak of coronavirus.  Consequently, stocks and inventories with importers, manufacturers and wholesalers are accumulating while recoveries from markets have completely stopped and a large number of bank defaults are likely to take place due to liquidity crunch.

    Unfortunately, while giving major relief to export sectors which hardly contributes 5 to 6 percent to GDP, the government has entirely ignored the larger sectors of industry and trade catering to domestic markets and contributing 94 percent to GDP and major part of tax revenue, he said, adding that it will prove to be detrimental for revenue collection by the FBR if the business transactions remain stalled while the government would surely miss the revenue targets and incur larger fiscal deficit as a result of imposition of CNIC provisions and 3 percent further tax.

    “Hence, as a relief measure, the requirement of CNIC for sales to unregistered persons and 3 percent Further Tax has to be waived immediately in order to revive the economic activities and business transactions”, Agha Shahab stressed.

  • Tax incentives for all sectors demanded; letter sent to PM

    Tax incentives for all sectors demanded; letter sent to PM

    KARACHI: Business community has urged the government to grant tax relief package for all sectors of the economy in order to dilute the adverse effect of coronavirus.

    Agha Shahab Ahmed Khan, President, Karachi Chamber of Commerce & Industry (KCCI) while emphasizing the need to consider out of the box solutions, urged the government to formulate an across-the-board incentive package encompassing all the sectors of trade and industry in order to stimulate the economy so as to minimize the impact of global recession and prevent massive unemployment in Pakistan.

    In a letter sent to Prime Minister Imran Khan, Agha Shahab gave numerous recommendations for the proposed across-the-board incentive package in which General Sales Tax (GST) rates should be reduced from 17 percent to 9 percent while Withholding Tax (WHT) on all supplies by manufacturers and traders must also be brought down from the current 4.5 percent to 2 percent and the anomaly in WHT rates on import of raw materials by industry and commercial importers has to be removed and a uniform rate of withholding tax should be applicable on both to support the Small & Medium Enterprises (SMEs).

    He said that most importantly the discretionary powers under Section 140 of Income Tax Ordinance to access the bank accounts of registered persons be withdrawn, in order to restore confidence of investors and encourage transactions through banking system.

    He recommended that the policy rate has to be reduced to 7 percent in line with other countries to stimulate the economy whereas the deferred import bills which are due for payment through banks should be refinanced at 5 percent mark-up.

    President KCCI also recommended no questions should be asked for all investments in capital goods, raw materials, premises, acquisition of land and building for industry and trade up to June 30, 2022.

    He noted that many other countries have taken initiatives to support their economies and announced incentive packages worth trillions of dollars to bail out the businesses which are going to suffer due to o recession triggered by COVID-19 pandemic.

    “Even the Bangladeshi government has announced an across the board relief package of $8.6 billion which includes significant support to SMEs.”

    He pointed out that the black economy in Pakistan is twice the size of documented economy and due to the present coercive tax regime and laws, a very large amount of capital is blocked in idle investments.

    In view of the prevailing global economic crisis and its negative impact on Pakistan, it is essential to release the blocked capital and encourage investments into productive economic activities such as industry and trade.

    Appreciating the Special Incentive Package for Construction Industry, President KCCI, however, said that the benefits of concessions granted to one or two specific sectors will neither reach the majority of trade and industry nor provide relief to common man.

    In the present extra-ordinary circumstances, it is necessary to provide across the board incentive package for investment in all sectors of trade and industry, and the SMEs which have a major contribution to GDP and Tax revenues, he added.

    It is a critical and challenging time for the country and its economy, therefore the government has to remove the bureaucratic shackles and handicaps created by a very complex tax system, to unleash the entrepreneurial capacity of business community.