KCCI Pushes for Inclusion of Commercial Importers in FTR

KCCI Pushes for Inclusion of Commercial Importers in FTR

The Karachi Chamber of Commerce and Industry (KCCI) has called for the inclusion of commercial importers into the Final Tax Regime (FTR), particularly concerning the tax treatment at the import stage.

This proposal, part of KCCI’s recommendations for the Budget 2024-25, aims to address the financial strain on importers due to the current tax structure.

In its budget proposals, KCCI highlighted that commercial importers of raw materials are subjected to a withholding tax (WHT) ranging from 2.0% to 5.5%. This tax rate assumes a gross profit margin of 30%, a figure significantly higher than the actual margins of 2% to 3% typically earned on raw materials sold without any value addition or change in form. The Finance Bill 2018-19 amended Section 148 of the Income Tax Ordinance, converting the WHT on imported raw materials by commercial importers into a minimum tax, thereby removing them from the FTR.

KCCI presented several key proposals to address these issues:

1. Adjustable Withholding Income Tax: The withholding income tax at the import stage on raw materials should be adjustable against the actual tax liability of the importers.

2. Abolishment of Minimum WHT: The concept of minimum WHT on the import of raw materials should be abolished.

3. FTR for Finished Goods: Withholding income tax on the import of finished goods (commercial imports) should be treated under the FTR.

4. Differentiation Between Importers: A clear distinction should be made between importers of finished goods and those importing raw materials for industrial purposes, who are fully documented.

KCCI argued that the current withholding tax system unfairly burdens compliant taxpayers with the responsibility of tax collection from undocumented entities. This burden is compounded by treating the WHT as a minimum tax. Instead, the Federal Board of Revenue (FBR) and its subordinate departments, armed with the power to access information under Sections 56A and 56B of the Income Tax Ordinance, 2001, should focus on identifying non-compliant and undocumented entities rather than imposing additional burdens on existing taxpayers.

The chamber emphasized that the minimum WHT concept hinders the objective of expanding direct taxation and increases reliance on indirect taxes, which are generally regressive in nature. By adjusting the withholding tax to be more in line with actual liabilities, the KCCI believes that it will promote fairness and compliance within the tax system.

Furthermore, the KCCI pointed out that commercial importers, who are a significant source of revenue, would be better positioned to resume and expand their business activities under the proposed changes. This adjustment would not only enhance revenue collection but also support the growth and development of small and medium enterprises (SMEs).

In conclusion, the KCCI’s proposals aim to create a more equitable tax environment that encourages compliance, reduces undue burdens on documented taxpayers, and fosters economic growth. By aligning the tax system more closely with the actual profit margins and operational realities of commercial importers, the KCCI believes that both the government and the business community will benefit.

As the government prepares the Budget 2024-25, these recommendations from the KCCI will likely be closely scrutinized and considered for their potential to streamline tax collection and support the commercial sector’s growth.