WEDNESDAY MARCH 30: KCCI budget proposals: levy of agriculture tax strongly proposed

April 04, 2011

RECORDER REPORT

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Karachi Chamber of Commerce and Industry (KCCI) has informed the Federal Board of Revenue (FBR) that the revenue generation capacity of the agricultural income tax is approximately Rs 200 billion in 2011-12 in case the federal government makes filing of income tax returns compulsory for the agriculture sector through suitable amendments to the law in the budget 2011-12.

Sources told Business Recorder here on Tuesday that the budget proposals of KCCI strongly proposed imposition of the agricultural income tax with annual potential of roughly Rs 200 billion and documentation of all professional service providers. According to the estimates of the KCCI, the FBR has the revenue generation capacity of around Rs 200 billion through agriculture income, Rs 20 billion from Afghan Transit Trade by checking revenue leakage and particular focus on documentation of doctors; lawyers; transporters; schools having high fee structure; luxury automobile and consultants.

In its budget proposals for 2011-12, KCCI observed that owners of 90 percent of state resources pay only 5 percent of taxes. It is essential to know the legal position in this regard. There is a law in place since 2000-01 wherein the tax was changed from land based to an income based tax. Even after the recent floods and the relief efforts in place the brunt of the anticipated tax is borne by the common man. The constitution of 1973, bars the federal government to apply any agriculture tax except provinces under whose domain the tax falls singularly. All the four provinces have enacted the said laws regarding agriculture tax from the assessment year 2000-01.It is still being collected as a land based tax by the provinces.

The KCCI further said that the total collection by all the provinces in 2009-10 was Rs 2 billion only whereas the potential is Rs 200 billion with share of 22 percent in GDP. Under section 114 (1) b of Income Tax Ordinance of 2001 every single citizen of this country who owns immovable property is bound by law to submit his return even in case of no income. However, the government has not mentioned any such condition in the Income Tax Law for the agricultural sector.

It is quite extraordinary to note that while the whole country is facing a massive drive to enhance tax collection and increase, revenues' the agriculture sector and other potential areas are not being explored for revenue leakage or for generation of revenue. The FBR is well aware of the existence of these avenues. Is it the responsibility of the industrialist alone the bear the yolk of the finances of this country or being a democracy everyone have to chip in with his share?, KCCI added.

According to the KCCI, damage to private and public infrastructure, the policy response to floods, direct and indirect impacts of supply disruptions, energy shortages, weak consumer & business confidence, stagnant LSM growth, law and order conditions etc were negative factors.

Beside negative growth in Large Scale Manufacturing, the construction activity declined partly owing to cut backs in public development expenditure, production came to a standstill in the country's largest refinery due to inundation, and the textile sector had to face raw material shortages for yet another year. The export demand declined for cement, pharmaceutical, and electric fans, as Pakistani manufacturers lost ground in some of the export markets captured in the past two years.

The combination of revisions in energy (fuel and electricity) prices, higher margin's on many agri. products (as traders took advantage of perceived supply shortages and administrative weaknesses), rising cost of imports (as international commodity prices began to firm. up), and the demand stimulus from the magnetization of the fiscal deficit all contributed significantly to the rise in inflation to 15.5 percent YoY in December 2010, up from 12.3 percent YoY in the first month of the fiscal year. The only sustainable way to: protect low income groups from inflation is by targeted subsidies' and the creation of ample employment opportunities, it added. The recovery in the US and Europe provided a boost to the leather and textile sector with the export receipts of the latter growing largely as a result of the sharp increase in prices of cotton. For textiles, higher export prices in FY11 improved profit margins in comparison to regional peers. The strong growth in social, community, and personal services led by massive relief and rehabilitation efforts undertaken in flood-affected areas positively impacted the services sector, the KCCI added.