KARACHI: Karachi Chamber of Commerce and Industry (KCCI) has sought fair treatment on collection of withholding tax for commercial importers on import of industrial raw material.
KCCI in its budget proposals submitted to the Federal Board of Revenue (FBR), said that under Section 148(1) of Income Tax Ordinance, 2001, 6 percent withholding income tax is levied on import of industrial raw materials, whereas manufacturers are exempt from such withholding tax at import stage under Section 159 read with Rule 72B (PART IV OF SECOND SCHDULE OF Income Tax Ordinance, 2001).
The exemption has created disparity of 7 percent between commercial importers and manufacturers in total incidence of taxes (when 3 percent further tax are included).
This anomaly has led to rampant misuse and evasion of taxes through over-import by manufacturers for trading purpose, fake registrations by commercial importers and corruption in tax offices for issuance of exemption certificates U/S 159 (1).
The KCCI said that most of the commercial importers of Raw Materials have now registered as manufacturers to avoid high rate of WHT, 3 percent value addition tax and further tax of 3 percent.
Nearly 90 percent of all industrial raw material is now imported under the category of manufacturers, while the industry also imports raw materials for trading.
Loss of revenue is at over Rs.80 billion on total raw material import of Rs.3,250 billion in Pakistan.
The KCCI proposed that the rate of withholding tax on import of raw materials should be equal for both commercial importers and manufacturers and fixed at 3percent on import stage.
Further, exemption under Rule 72B (PART IV OF SECOND SCHDULE OF ITO) on raw materials imported by manufacturers should be withdrawn and disparity in WHT may be removed.
The rate of withholding tax on commercial importers is very high and should be reduced to 1.5 percent to qualify as minimum tax as is the case for industry and large import houses.
The chamber said that the measure will help broaden tax base, prevent misuse of exemption by fake registration as manufacturers.
Besides, this will help in substantial Increase in revenue collection through rationalization.
The KCCI said that the commercial importers of raw materials are a major support to SMEs and recover taxes on behalf of the government.
Therefore, rationalization will revive the commercial import, support SMEs and prevent misuse of exemption.