Tax exemption withdrawal ahead budget to adversely affect trade, industry

Tax exemption withdrawal ahead budget to adversely affect trade, industry

KARACHI: The apex trade body of the country has expressed reservations over withdrawal of tax exemptions ahead of federal budget 2021/2022 and said that it will adversely affect trade and industry.

Mian Nasser Hyatt Maggo, President of Federation of Pakistan Chambers of Commerce and industry (FPCCI) in a statement on Sunday said that under the prevalent difficult condition of COVID-19, the pre-budget withdrawal of number of exemptions will affect trade and industry negatively, which is based on planning of fiscal based promised position for year up to June-2021.

“Such non predictability is against the sustainable growth of business economy and encroaches upon ease of doing business,” he said.

He was referring to the Tax Laws (Second Amendment) Ordinance, 2021 dated March 24, 2021.

While expressing concerns over the amendments before budget, he said that FPCCI has already suggested that the amendment should be made only with prior consultations with, to be affected stakeholders with sufficient time space to prepare the future plan of the left out period up to June-2021.

The outcome of consultations of both public and private sector may have otherwise trimmed the contents of the ordinance in the business economy interest, equally important for government in terms of goodwill and believe in consultations with private sector.

He further said that the business sector is already facing tight restrictions as per IMF program conditionality, much being agreed amongst stakeholders as originating implementation directions concurred by public sector without any reference to the negotiations with private sector.

The amendments were introduced through the Tax Laws Amendment Ordinance, 2021 issued through presidential Ordinance to amend 76 corporate income tax exemptions and allow tax credit facility from March 24, 2021.

The tax credit facility has been extended to industrial undertakings; charitable organizations and IT export services. Under the Ordinance, 100 percent tax credit would be allowed to the IT services or IT-enabled services after fulfillment of certain conditions including the filing of returns/withholding tax statements.

President FPCCI further stated that withdrawal of exemptions in lieu of extending credit facilities is a measure which gauges the poor performance of FBR up till now and hence the collection targets are finding the only priority and it appears that FBR is running on a bad doctrine that more tax collection will improve the growth of economy, to which we disagree in absolute terms.

President FPCCI Mian Nasser Hyatt Maggo also said that the newly promulgated Ordinance 2021 is also limiting the charitable activities by allowing restricted number of such institutions and placed them under newly introduced 13th schedule for Section 61 of the Income Tax Ordinance.

President FPCCI said that we are not following the successful tax models which are based on reducing the tax rates and extending the facilities to be affecting the increase in tax collections, rightly agreed by the apex body that Laffer curve will result in maximum tax revenue for government by cutting taxes in certain circumstances that would allow governments to cut the taxes and simultaneously increase revenue and economic growth.

President FPCCI said that public sector negotiating with IMF in exclusion of participation of apex body representing private sector trade, industry and service sector is dictatorial impositions of decisions negatively affecting the business and its growth for reducing the fiscal deficits, a prime objective we believe is being asked for by IMF.

He further said that country like US during the period of Ronald Reagan, 40th US President, the tax cuts resulted in doubling the tax from USD 500 Billion to Dollar 01 Trillion. The Georgian politicians and businessmen together in the reforms reduce the number of taxes to 1/3rd and reduce the national tax burden to quarter of a GDP resulted in doubling the percentage of taxes from 13 percent to 25 percent of GDP.

He further said that the case of India is no exemption wherein single GST increase the GST registrations by almost 100 percent.

“We are not learning any lesson from the available examples of tax reforms and what we are marching towards is to hide our inefficiencies in tax administration by withdrawing the exemptions, imposing RDs, ACDs and taking all the measures which has made the whole taxation structure full of the anomalies,” he said, adding that the government should think about that if either the economy will generate taxes or imposition of increase in taxes will generate growth of the economy.