The business community has recently put forth a significant proposal for budget 2024-25 aimed at boosting efficiency of manufacturers within Pakistan.
They suggest exempting advance income tax at the import stage for manufacturers who import goods for their own use.
This recommendation, part of a broader set of suggestions for the 2024-25 budget, has been submitted to the Federal Board of Revenue (FBR), highlighting critical areas for tax reform that could potentially ease the financial burden on local manufacturers and enhance overall economic productivity.
Under the current fiscal framework established by the Income Tax Ordinance, 2001, manufacturers face multiple layers of advance tax obligations. These include a quarterly advance income tax based on projected incomes under Section 147, as well as advance taxes of 1%, 2%, and 5.5% on imported goods depending on the category, and further taxes of 5% on the sale of goods and 9% on services. The cumulative effect of these taxes can lead to significant financial outlays for businesses, affecting their cash flows and operational efficiencies.
The business community argues that the requirement to pay advance income tax on imported goods, when such imports are for their own consumption and not for resale, creates an unnecessary financial burden. They propose that manufacturers should either be exempt from this tax at the import stage or that the Commissioner of Income Tax should be empowered to issue withholding tax exemption certificates to qualified manufacturers for a full year. Such certificates should be promptly issued within 24 hours of application, not restricted by item or quantity, thus providing much-needed flexibility and efficiency.
Moreover, for industries established in Special Economic Zones (SEZs), the proposals recommend an even more streamlined approach. It suggests that the exemption certificates under sections 148 and 153 of the Income Tax Ordinance, 2001, should be granted immediately upon the submission of a commencement of business certificate as required under Clause 126E, Part 1, Second Schedule of the Ordinance. These certificates should be valid for a minimum of five years and should be issued without the need for additional, unnecessary documentation.
The rationale behind these proposals is clear: existing rates and procedural requirements often lead to the generation of refunds, as companies find themselves overpaying advance income tax based both on projected incomes and actual sales and imports. This results in a cumbersome refund process that ties up capital and complicates financial planning for businesses.
Additionally, the current procedures for seeking exemptions under Section 148 (advance tax on imports) are seen as overly complex and inflexible, failing to account for factors like capacity expansions which are critical for business growth and scaling operations.
By adopting these proposals, the FBR would not only alleviate some of the financial pressures faced by manufacturers but also encourage a more favorable business environment conducive to investment and growth. Simplifying tax obligations could lead to increased production capacities, enhanced competitiveness in international markets, and ultimately, a stronger economy fueled by a robust manufacturing sector.
As the FBR considers these recommendations for the upcoming fiscal budget, the potential positive impacts on the country’s industrial landscape and economic health remain a compelling argument for change. The proposed reforms offer a pathway towards a more efficient, effective, and entrepreneur-friendly tax regime in Pakistan.
