PBC resents restoration of final tax regime for commercial importers

PBC resents restoration of final tax regime for commercial importers

The business association representing multinational companies (MNCs), the Pakistan Business Council (PBC), has strongly criticized the proposed restoration of the Final Tax Regime (FTR) for commercial importers, urging the government to reconsider its decision. The PBC’s concerns were voiced in response to the Finance Supplementary (Second Amendment) Bill of 2019.

Under the proposed FTR, commercial importers would be subject to a Full and Final Tax payment of 6 percent of the declared import value. In return, these traders would be exempt from filing income tax returns, effectively bypassing accountability for profit. The PBC expressed disappointment, highlighting that this restoration contradicts the earlier decision made during the last PML (N) budget, which withdrew the FTR to promote greater accountability.

The PBC suggested an alternative approach, proposing that the 6 percent tax at the import stage be considered as an advance adjustable tax, retaining the requirement to file tax returns. This, according to the council, would ensure tax revenue collection while fostering a basis for accountability.

The issue of under-invoicing in Pakistan, estimated at $6 billion annually, was also raised. The PBC acknowledged Pakistan’s ongoing negotiations for Electronic Data Interchange (EDI) with major trading partners as a strategy to overcome this challenge.

While recognizing the government’s efforts to address talent and technology gaps within the Federal Board of Revenue (FBR), the PBC expressed disappointment that accountability was not given sufficient opportunity to be established, contrary to the expectations of a ‘Naya Pakistan.’

The PBC, however, commended certain aspects of the Finance Supplementary Bill. It lauded the innovative measure to incentivize bank lending to Small and Medium-sized Enterprises (SMEs) and the agriculture and low-cost housing sectors, addressing critical funding gaps in these segments. The council also welcomed exemptions from import duty and Goods and Services Tax (GST) on plant and machinery, along with an income tax holiday for greenfield projects, which it deemed positive for investment promotion.

Expressing satisfaction with the withdrawal of the super tax, removal of tax on retained profits, and the exemption of inter-corporate dividends from cascading taxes, the PBC noted that these measures aligned with longstanding demands. The confirmation of a 1 percent per annum reduction in corporate tax until it reaches 25 percent was seen as a beneficial planning tool.

Exporters were anticipated to benefit from promissory notes issued in lieu of tax refunds, and local manufacturing was expected to receive a boost through lower duty on raw materials, further contributing to the positive outlook for local manufacturing.

While overall praising the announced package, the PBC expressed hope that measures to facilitate and expedite export rebates, as indicated by the Finance Minister, would further stimulate and fortify the export sector.