KARACHI: The Federal Board of Revenue (FBR) has been suggested to allow adjustment of withholding income tax collected at import of raw material against the actual liability.
Karachi Chamber of Commerce and Industry (KCCI) in its proposals for budget 2022/2023 submitted to the FBR highlighted that by amendment to Section 148 of Income Tax Ordinance, 2001, through Finance Bill 2018-2019, withholding tax paid on import of raw materials by commercial importers has been converted to minimum tax and the importers have been taken out of Fixed Tax Regime (FTR).
The chamber said that the collection of withholding tax at source is tantamount to putting the burden of tax-collection from undocumented entities on the compliant tax payers and compounds the burden by treating it as minimum tax.
Concept of treating withholding tax as minimum tax is unique and unfair as it leaves the scope for further squeeze on documented and compliant tax-payers. “Any Tax paid as withholding tax should be adjustable in order to promote the culture of direct taxation and reduce dependence on tax at source,” the KCCI said and added that the rates of withholding tax are already very high and akin to turnover tax.
Giving proposals to the issue, the KCCI said the withholding income tax at import stage on raw materials should be adjustable against actual liability.
The concept of minimum withholding tax on import of raw materials may be phased out.
Further, distinction should be made between importers of finished goods and raw materials who mainly cater to the industry and are fully documented.
Giving rationale to the proposals, the KCCI said commercial importers who are a major source of revenue will be able to resume their business and contribute to revenue as well as promotion of SMEs.
The KCCI further highlighted that the Finance Bill 2021-2022, imported plant and machinery not manufactured locally, has been omitted from 8th Schedule of Sales Tax Act, 1990, resulting in Increase in the rate of sales tax from 10 per cent to 17 per cent.
The chamber said this measure will discourage new investment in industry and upgradation of existing industries and BMR. Industrial machinery falls in the category of capital goods for the purpose of production. It should not be treated under the same criteria as consumer product or raw material, subject to 17 per cent sales tax.
The KCCI proposed to restore plant and machinery not manufactured locally in 8th Schedule of Sales Tax Act, 1990, and exempt from 17 per cent sales tax, to encourage expansion and generate employment.
It will help to promote industrialization, GDP growth and employment.