KARACHI – The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has called on the government to reinstate audit immunity for commercial importers in the upcoming federal budget 2020–2021.
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FPCCI demands 400 basis points cut in policy rate
KARACHI: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Thursday demanded the central bank to cut the policy rate by 400 basis points to five percent.
The State Bank of Pakistan (SBP) is scheduled to release monetary policy statement on Friday May 15, 2020. The central bank in past two months reduced the policy rate by 4.25 percent to present 9 percent.
FPCCI President Mian Anjum Nisar in a statement said that the State Bank of Pakistan (SBP) should bring down the interest rate to 5 percent.
He said that the future anticipated expected inflation will further decline due to low demand and other effects of lockdown to control over spread of coronavirus.
On the other hand external front is also presently sustainable due to foreign financial support and rescheduling of debt that has supported reduction in current account deficit.
The FPCCI chief further stated that with both demand driven and import based inflation in check there is no reason to gradually bring down the interest rates when the case for immediate relief is apparent.
He said economy of Pakistan is already hit very hard as business activities remain stop while they are paying 12 percent banks markup and cannot survive on such high KIBOR rate.
There is 4-5 percent interest rate in Pakistan immediate regional competitors China, India Bangladesh.
The SBP should also advice banks to revise KIBOR on a monthly basis instead of quarterly to pass on the benefit of lower rates faster to companies struggling to survive.
The impact to banks on their deposits will be insignificant as majority is demand deposits instead of time deposits.
Therefore, SBP lower interest rate to 5 percent in one go that is immediately reduction of 400 basis points rather lower in stages.
He said that tough situations under COVID-19 demand support while conditions rationally suggest lowing of policy rate directly to 5 percent.
While appreciating SBP role in sustaining economic growth through supporting trade and industry, Anjum Nisar emphasized upon financial relief by reduction in the interest rate.
He said State bank should take measures and develop strategy to protect the pace of economic and trade progress of Pakistan Other- wise we will again face economic crises, lower industrial growth and shifting of industrial units in sick industry.
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Uniform tax rate suggested on rental income
KARACHI: The tax rate on rental income should be made uniform for individual, Association of Persons (AOPs) and company at 15 percent.
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in its proposals for budget 2020/2021, recommended to bring uniformity in taxing the rental income.
The FPCCI said that at present for every person except companies the income from property is chargeable to tax at the rate specified in Division (VIA) of Part I of the First Schedule to the Ordinance, which is considered to be their final tax liability and they are not allowed any expenditure against gross rent, except option provided under sub-section (7) of section 15A of the Ordinance, in case income exceeds Rs.4 Million. Whereas, the companies are required to pay normal tax (current at 29 percent) on such income after adjustment of admissible expenditure out of gross rent.
The tax rate on rental income has now been gradually increased from 20 percent to 35 percent for individuals and AOPs though the Finance Act, 2019.
Apart from that the lessor is also required to pay Sindh Sales Tax at the rate of 3 percent to Sindh Revenue Board (SRB), which makes the total tax impact very unfair and exorbitant and lead towards un-documented business.
The present scheme of taxation on rental income resulted the rents of warehouses had increased exorbitantly and the exporters who warehoused their exportable goods are financially hurt.
Moreover, it has also distorted the income of the senior citizens, retired persons, pensioners, widows etc., whose livelihood solely depends upon rent of their property, made from their income in good old days.
The FPCCI made following proposals:
i) The rental income from property, AOP or individual and company be taxed at a uniform rate of 15% of the Gross Rent as full and final discharge of tax liability.
ii) Rental income taxable under Normal Tax Regime should be allowed to be adjusted against business loss. The restriction imposed through Finance Act, 2013 needs to be reconsidered.
Giving the rationales to the proposals, the FPCCI said:
i) The impact of taxes (direct and indirect) on rental income will be rationalized.
ii) Investors will be encouraged to declare their genuine rental income.
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FBR suggested to abolish tax refund culture
KARACHI: Federal Board of Revenue (FBR) has been suggested to abolish tax refund culture and bring down sales tax at five percent.
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in its proposals for budget 2020/2021 suggested that the culture of refunds should be abolished and government should collect GST at the rate of 5 percent.
“It will transfer the benefits to the end consumers which lead the control over inflation and poverty and enhancement in economic activities,” the FPCCI said.
The apex trade body said that the reduction in the rate of sales tax will enlarge the size of consumer markets and government earnings will definitely increase.
It will transfer the benefits to the end consumers which lead the control over inflation and poverty and enhancement in economic activities.
The FPCCI highlighted the present structure of taxation policies in Pakistan.
Here, it is noteworthy that inducement of private investment particularly foreign direct investment is the only feasible option to develop the badly deteriorated infrastructure in Pakistan.
Greenfield investment and capitalization of the savings of expatriate Pakistanis are also included in this program.
FPCCI proposed fiscal policy, while revival strategy will be based on foreign investment. It is unfortunate that tax rates in Pakistan are considered as major hurdle in investment.
Tax and contribution as percentage of Gross profit is 33.9 percent in Pakistan, while it is 49.7 percent in India, 38.7 percent in Malaysia, 36.6 percent in USA, and 33.4 percent in Bangladesh.
The average tax rate on corporate sector in Pakistan is 29 percent; it is 25 percent in India, 24 percent in Malaysia, and 21 percent in USA.
It is important to note that tax system in Pakistan emphasizes on indirect taxes and surcharges. The share of direct taxes in government revenue is around 37 percent in Pakistan, 47 percent in India, 46 percent in Malaysia, 38 percent in UK and 50 percent only in USA.
The lower share of direct taxes is because of exemptions and less e orts for tax collections from agriculture, services, real estates and retail trading activities.
This situation leads to dependency on indirect taxes. The indirect taxes hampered the industry in many ways: they increase the cost of production and reduce the demand for manufacturing products, because of higher market prices of those products by inclusion of sales tax. By such a manner, they damage the industrial competitiveness and induce the inflation in economy.
The FPCCI has recommended the shifting of dependency from indirect to direct taxes. We strongly recommend the reduction rate of sales tax to provide relief to the general public.
This step will improve the buying power of general public and will help the industry in revival process and accelerate the investment in the country.
It is extremely important for the survival of Pakistan economy at this stage. The reduction in the rate of GST is proposed on the basis of expected enhancement in revenue because of enhanced economic activities.
To increase its revenue government should not depend on indirect taxation. This approach leads the poverty and inflation. We should encourage revenue enhancement through direct taxation on equity and egalitarian basis.
Tax should be paid according to the magnitude of earning regardless the source of earning.
To accelerate economic activities and improving efficiencies, the FPCCI suggests reduction in the rate of GST.
This is the pivotal point of our taxation policy. A solution of containing the ongoing unsettled business environment is imperative. The present ongoing conflicts and contradictions has reduced the sales and as well as have chocked the sales points and agents of sales. The re-initiation efforts of FPCCI towards saleable policy objective of fixed sales system may find a substitute of settlement of ongoing disputed business environment.
The reduction in the rate of sales tax will enlarge the size of consumer markets and government earnings will definitely increase. The sources of FBR have been indicating the effective tax rate of GST is less than 5 percent, which indicate that 71 percent of total collection of sales tax has to pay back in account of input adjustment and refund claims.
The FPCCI in 2014 took-up a subject of fixed sales tax regime, which attended the influence level and even the then Finance Minister conceded to consider the same during his tenor as the document, submitted by FPCCI, concluded towards the objective that the collection would increase and not decrease by promoting business conducting environment through fixed sales tax regime.
This will provide demand supported production environment for manufacturing. It will improve the collections and settle the disputed business environment.
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FPCCI suggests measures to boost exports
KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has suggested measures to boost exports of the country.
The apex trade body in its proposals for budget 2020/2021 suggested measures to improve exports.
The FPCCI said that if the proposals are implemented that those would create domestic demand suppression to promote investment– both local and foreign in exporting sector.
The apex trade body suggested following measures to improve exports:
i. Pakistan should formulate strategies to decrease dependence on traditional exports like textiles, leather, carpet, sports goods, stainless steel, surgical goods rice etc. There needs a shift in the composition of its exports that means promoting exports of high/ medium technology products whose participation in the world trade is increasing.
ii. Either Zero rated or on reduced rate (say) 6 percent or 9 percent should be allowed on all inputs of five export sectors including the Packaging materials or refunds claims be paid within the stipulated time period.
iii. To make Pakistan’s exports competitive in the international market, the exports be allowed 50 percent air freight subsidy from EDF.
iv. Support from the government should be provided to establish Showrooms and warehouses and exhibition areas in mega departmental stores.
v. Warehouses be established at borders of neighboring countries.
vi. Land routes to the neighboring countries (Iran & Afghanistan) should be strictly controlled to stop smuggling.
vii. The prevailing non-tariff barriers have restrained the volume of Pakistan’s exports to China and EU. Pakistani exporters are facing non-tariff barriers in safety and quality standards under the sanitary and phytosanitary (SPS) agreement. Sanitary and phytosanitary measures apply to trading commodities.
viii. The importance of research cannot be neglected in today’s fast-changing world. Especially in high technology products, the need for research and development is to a greater extent. It will make the government more efficient in terms of production up-gradation and opportunities that arise from increasing technological export base. The relations between research institutions and the firms should be established and firmed.
ix. All steps including increase in acreage under cotton crop, quality seed development and removal of weeds and eliminating of insects need to be adopted in this connection.
x. To enhance the subsidized credit for exporters on higher interest rates.
xi. To lower the imports tariff rates on the basis of cascading allowing effective protection rate to local industries – import substitution and export oriented – as per WTO agreement.
xii. To enhance credit limit to SMEs to encourage the value chain of exports.
xiii. There is a need of improving the export strategy to ensure sustainable growth and the role of fiscal responsibility to avoid recurrent external account crises.
xiv. There is also a need of shifting from inward orientation to an outward looking economy as it puts a greater emphasis on exports to achieve high and sustainable growth. Moreover, different contours of an export oriented strategy that Pakistan should adopt in order to remain competitive in international market especially with regards to countries like India and Bangladesh.
xv. Pakistan needs to penetrate the global synthetic products market which have overtaken cotton as synthetic / MMF, particularly polyester fibre (PSF) has substantially replaced cotton based fibre production. But Pakistan still lag behind MMF based production as a result is limiting itself to only some products.
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FPCCI suggests measures to broaden tax base, improving tax to GDP ratio
KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has suggested measures to broaden tax base and improving tax to GDP ratio.
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FBR extends time limit for filing goods declaration
KARACHI: Federal Board of Revenue (FBR) has extended time limit for filing goods declaration in order to facilitate trade considering problems faced during lockdown.
The FBR on Monday issued a notification for extension in time limit for filing of goods declaration. The FBR said that it had further extended the time for filing of goods declaration for all IGMs filed between April 07, 2020 to May 09, 2020 provided that this order shall not be applicable in case any fine or penalty had already been paid by the importers.
Earlier, Khurram Ijaz, Vice President, Federation of pakistan Chambers of Commerce and Industry (FPCCI) on May 02, 2020 requested the FBR for further extension in time limit for filing of goods declaration.
Khurram Ijaz in his communication with the FBR appriciated the revenue board for extending the time for filing of goods declaration from 10 days of arrival of goods to further 15 days (total 25 days) for all IGMDs filed between March 17, 2020 and April 07, 2020.
However, the FPCCI vice president apprised the FBR that continued extension in lockdown by the government causing delay in timely filing of goods declaration, hence opportunity provided the revenue board should be extended up to the current lockdown till May 09, 2020.
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Curtailing powers of tax officers in recovery, entering premises suggested
KARACHI: Business community has suggested curtailing powers of tax officers while invoking provisions of sales tax laws.
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One percent sales tax proposed on every stage of supply chain
KARACHI: Business community has proposed imposing one percent sales tax on every stage of supply chain of five export oriented sector without input adjustment.
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in its budget proposals for fiscal year 2020/2021 said that Finance Act, 2019 abolished zero rating regime extended to five major export sectors i.e. textile, leather, carpets, sport goods and surgical goods by rescinding SRO 1125(I)/2011.
Sudden removal of zero rating for export oriented sectors has proved fatal for already struggling export oriented sector as the same has resulted accumulation of huge refunds, which in turn has forced genuine taxpayers to knock the doors of tax officers for issuance of their RPOs, which has further promoted harassment and opened up a new window of bribery.
Withdrawal of zero rating has caused liquidity issues even for large exporters.
The removal of zero rating has made it almost impossible for exporters to stand anywhere near global competitors.
Moreover, in order to get maximum possible input tax adjustment, suppliers who are able to supply locally as well as in international markets are preferring local sales at the cost of exports to get maximum possible input tax adjustment.
This has resulted in visible decline in quantitative exports of these sectors, damaging foreign exchange reserves and worsening current account deficit.
The FPCCI proposed that Sales Tax at one percent on total value of supply may be charged at every stage in supply chain of these sectors without any input adjustment.
An example of finished garment chain is given as follows:
i. import or local purchase of fiber – 1 percent
ii. ginning – 1 percent
iii. spinning – 1 percent
iv. knitting/weaving – 1 percent
v. dying – 1 percent
vi. cloth – 1 percent
vii. garment stage – 1 percent
In this way, say in case of a finished garment product, exchequer will collect 7 percent sales tax.
All the raw materials including chemicals and dyes which were included in the erstwhile SRO 1125(I)/2011 dated 31-12-2011 be also subject to 1 percent Sales Tax without adjustment as it will incur no loss to the government exchequer.
The above sales tax in the value chain without input tax adjustment will provide the required revenue to exchequer on one hand, while on the other, the same will relieve the taxpayers of liquidity issues being faced by them in form of huge refunds.
This will also save administrative costs and time of the Board, enabling the force field force to focus on broadening tax base and real revenue collections.
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FPCCI suggests introducing taxpayers’ bill of rights
KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has recommended introducing taxpayers’ bill of rights in the forthcoming budget.
The apex trade body in its proposals for budget 2020/2021, said that the present situation of antagonism between the tax collection agencies and taxpayers needs to be reconciled through a democratic process and implementation of Taxpayers’ Bill of Rights.
The goals fixed under Pakistan Raises Revenue (PRR) Project, estimated at US $1.6 billion, of which financing by World Bank is $400 million, cannot be achieved through handpicked experts (mostly coming on donors’ dictates) who are completely oblivious to the mundane realities of Pakistan.
The bad faith, antagonism and mistrust prevailing between the government and taxpayers can only be removed through a process ensuring a just and fair tax system in Pakistan for which the blueprint and roadmap is available, and we need no foreign funding.
The only thing lacking is political will to debate, promote research on the various challenges and find out workable solutions. This process will certainly require some time.
Meanwhile, PTI Government in order to restore the confidence of the taxpayers should immediately start the process of enactment of Taxpayers’ Bill of Rights.
The draft of Taxpayers’ Bill of Rights was prepared for the first time in 2014 by a sub-committee, constituted by the Federal Tax Ombudsman (FTO), in which Dr. Ikram Ul Haq had put in his best skill to suggest the balance between the rights of taxpayers and authority of tax collectors.
Thereafter, the Tax Reforms Commission (TRC), after 18 months of its establishment, also presented the same in its final report submitted in February 2016. However, until today no practical step has been taken to implement it.
It is high time that the incumbent Government should introduce the Taxpayer Bill of Rights in the finance bill 2020-21
The FPCCI further said that it is a time that we should focus on macroeconomic management issues including budgetary consideration which can have positive effect on long term business efforts towards capital formations and investment of trust and justice in the tax policies and obligations of tax statutes.
Independent Tax Adjudication System, which was promised two decades back during the period of General Parvez Musharraf be included in the ensuing Finance Bill, 2020. Some of the actions were taken but un-sustainability and cascaded developments remain absent. The prosecutors continue to remain adjudicators in the system.