Karachi, June 20, 2023: Amidst economic instability, foreign exchange crisis, and declining exports, the Karachi Chamber of Commerce and Industry (KCCI) has called on the government to reinstate the zero-rating facility to support the survival of five export sectors during liquidity crunch periods.
In a statement issued on Tuesday, the KCCI emphasized that the government must prioritize export-oriented industries, particularly the value-added textile industry, in all aspects. They highlighted the need to continue the Regional Competitive Energy Tariff (RCET) for the five export sectors, ensuring a level playing field and enabling them to compete with regional counterparts.
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The KCCI also stressed the importance of restoring and providing all incentives outlined in the National Textile and Apparel Policy 2020-25, such as Duty Drawback for Local Taxes (DLTL) and Technology Upgradation Fund (TUF), to support the value-added textile industry.
Regarding taxes, the KCCI recommended limiting the Super Tax to Tax Year 2023 or reducing the maximum rate from 10 percent to 4 percent if it cannot be removed this year. They also proposed the deletion of a new concept of “additional tax on income, profits, and gains,” as it would impose an additional burden on the already heavily taxed documented sector.
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The KCCI suggested abolishing an amendment in the definition of associates, as it could unintentionally classify many suppliers and buyers as associates, contrary to the original intent of the law. They further recommended that bonus shares, which are not within the scope of income, should not be subject to taxation to promote industrialization and growth.
In terms of tax holidays, the KCCI called for extending the tax holiday for Small and Medium Enterprises (SMEs) exclusively focused on agro-based industries in rural areas to include urban areas as well. This would incentivize investment in agro-based industries across the board.
The KCCI highlighted the need for all unregistered persons to mandatorily file income tax returns and report advance tax payments. They suggested that property registration authorities be liable to charge a 2 percent tax (1 percent increased rate for non-filers) under section 7E on all property tax challans issued to non-filers, thereby broadening the tax net.
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Regarding the powers of tax commissioners, the KCCI recommended limiting their scope to Income Tax, Sales Tax, and Federal Excise Duty (FED) to prevent undue harassment and discretionary tax burdens on machinery.
The KCCI also called for allowing input tax on building/construction materials used for extension, expansion, or modernization of industries to provide incentives for industrial growth.
Additionally, the KCCI proposed increasing the annual turnover threshold for the cottage industry in line with the devaluation of the Pakistani rupee, raising it to Rs50 million.
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The KCCI expressed concern over the 3% Value Addition Tax imposed on commercial importers of polyethylene and polypropylene, which has hindered legal imports of industrial raw materials and encouraged smuggling. They urged the removal of this unfair tax to promote legal imports and discourage smuggling activities.
The KCCI highlighted the disparity in tax rates for dividend received by shareholders under a group holding structure, urging the removal of multilayered taxation to provide a level playing field for documented sectors.
Furthermore, the KCCI suggested reducing the proposed increase in the income tax withholding rate on specified services from 3 percent to 2 percent, considering the financial pressures faced by service providers and the overall market slowdown.
