All Pakistan Textile Processing Mills association (APTPMA) has made the following suggestions proposals for the next federal budget. Whereas it is a known fact that the textile processing sector is one of the most value-added and export-oriented sectors of the textile industry in Pakistan, the ratio of value-addition from raw-material (grey cloth) to that of the finished goods (finished fabrics) is normally to the tune of 1:6. It is, however, a matter of grave concern that this sector is infested with a host of problems and irritants, especially in the realm of tariff and taxation, which have not only retarded its progress, but have virtually jeopardized the very existence of the member units.
We are, therefore, spelling out these problems in some depth and detail for rectification and rationalisation thereof:
Thanks to the earnest endeavours of Prime Minister Shaukat Aziz, under the able guidance and dynamic leadership of President Musharraf, Pakistan's economy has become much more vibrant and viable. With the advent of the World Trade Order, however, we have been constrained to remain watchful and vigilant for compliance with the tenets of the WTO. In our capacity as one of the signatories of the Marrakesh Declaration of April 1994, we have been constrained to bear the brunt of its impact, and to act upon its rules and regulations.
No wonder then if we have, perforce, to stay competitive in the international export market quality-wise and pricewise in order to meet the challenges of the forthcoming free trade regime of the Global Village during the WTO Regime.
In a bid to encourage "Free Trade", the then Government of Pakistan immediately took up the hasty decision to allow textile goods to freely enter into the country and compete with the local products. This unprecedented and somewhat injudicious-decision, undertaken without consulting the stake-holders concerned, resulted in a scenario of "free for all" wherein this facility was criminally and viciously misused. No wonder then if under-invoiced and mis-declared textile products flowed into the country, very much to the detriment of the local textile industry, and the national economy at-large.
The prospect of dumping unwanted commodities, smuggling, under-invoicing and loss of revenue through the evasion of taxes and duties cannot be ruled out. The positive impact of WTO is that it aims at encouraging standardisation, quality control, economic production, healthy competition and free access to the international market.
How far the desired objectives been achieved so far has yet to be seen. The most outstanding negative impact manifest so far is in the form of subsidies, dumping of unwanted commodities and discrimination through the imposition of the anti dumping Duty.
In order to guard against the negative impact of the WTO, we wish to give hereunder a few suggestions for the sympathetic consideration of the government prior to the formulation of the forthcoming Trade Policy.
(i) In order to create an awareness among the exporters and potential exporters of Pakistan, a series of Seminars and Training Workshops about the WTO may be organised in all parts of the country by govt and semi-govt Agencies.
(ii) Market-oriented and export-friendly policies must be introduced by the govt and implemented expeditiously in letter and spirit.
(iii) Irritants and impediments like withholding of sales tax refunds, erratic inspections and audits and checkings, political instability, poor law-and-order situation, lack of a level playing field and an unpredictable price increase frequently announced by the NEPRA, OGRA and OCAC, may be guarded against.
(iv) As per govt decisions proclaimed in last year's Trade Policy, the proposed Regional Trade Commissioners may be appointed in six regions of the world and the establishment of the Joint Ministerial Committee for monitoring the implementation of WTO strategy may be expedited.
TAXATION: INCOME TAX:
(I) RATIONALIZATION OF INCOME TAX SLABS: The present rate of Income Tax in Pakistan is far too high which is in dire need for rationalisation to enhance the number of taxpayers, and to augment revenue. It is also the desired aim of the government to encourage the documentation of the economy, and towards this end the Corporate Sector needs to be encouraged and incentivated. It is therefore proposed that the exemption limit should be increased from Rs 100,000/- per annum to Rs 200,000/-, and this exemption should apply to all assessees, ie, individuals and corporate. The maximum rate of income tax should not exceed 25%. Hopefully, rationalisation of Income Tax Tariff would broadbase the purview of the income tax and augment revenue.
(II) UNIVERSAL SELF ASSESSMENT SCHEME: Self Assessment Scheme (SAS) is said to have been simplified and streamlined, but not so in reality. It therefore needs to be further simplified in order to restore the confidence of taxpayers and save them from undue hardship.
THE FOLLOWING PROBLEMS HAVE, HERETOFORE, BEEN CAUSING A LOT OF IRRITATION, AS EXPLAINED HEREUNDER:
(a) With the passage of time, Section 65 of the Income Tax Ordinance 1979 was clarified by decisions of the Higher Courts and various amendments in the said section.
For the issuance of notice under section 65, therefore, certain conditions had to be fulfilled by the department, whereas, under sec 122, sub-section (4) of the Income Tax Ordinance 2001 it has been provided that the Commissioner may further amend the orders completed under sub-section 1 or 3 of the said section as many times as may be necessary.
This has given unlimited powers to the Commissioner. It is therefore proposed that the settled conditions u/s 65 of the old Ordinance and settled law by decisions of Higher Courts may be restored for making any further amendment in any assessment order.
(B) SECTION 66-A OF THE REPEALED ORDINANCE 1979: contained certain conditions for revising any assessment order completed by the Deputy Commissioner/Assistant Commissioner. The IAC was authorised to revise such an assessment order on the basis of certain conditionalities. On the other hand the same Commissioner who has completed the original assessment, has been authorised to make amendments therein on certain conditions.
This is tantamount to high handedness because the same officer will complete the assessment and then declare that the assessment is erroneous in so far as it is prejudicial to the interest of revenue. It is, therefore, requested that in such a case only a Regional Commissioner of Income Tax (RCIT) should have the overriding authority to revise such an assessment.
(III) UNLIMITED POWERS OF ASSESSING OFFICERS: The basic idea underlying the promulgation of Self Assessment Schemes has all along been to curtail the unlimited powers of assessing officers and save the taxpayers from undue hardship. But the schemes have not been able to attain the desired results as the element of retribution and reprimand for erroneous or inflated assessment is almost non-existent.
We would therefore suggest that a foolproof system be devised to take suitable punitive action against tax officials found guilty of repeated erroneous assessment.
(IV) SEARCH AND SEIZURE: Sec 175(2) regarding power to enter and search premises has been amended whereby the scope and powers of Valuers or Experts have been enhanced to perform any task assigned to them by the Commissioner. Previously, such powers were restricted to the inspection of accounts and documents by the valuer to evaluate an asset for the purpose of Income Tax Ordinance 2001. These unfettered powers would subject the taxpayers to the undue harassment and humiliation. The proposed amendment is in gross contravention of the acclaimed policy of the successive governments to reduce discretionary powers of Revenue Board officials.
(V) PENALTY U/S 182: The scope of the penalty under this clause is proposed to be enlarged by including within its ambit statements required to be submitted by taxpayers deriving income under the presumptive tax regime as well as the wealth statement. Prior to the amendment, no penalty was prescribed for non-filing of such documents. The amendment would act as a deterrent against non-compliance with furnishing of requisite documents within the prescribed time frame, and is too harsh. So it should either be withdrawn or converted into a simple token penalty.
(VI) LARGE TAXPAYER UNIT AND MTU ETC: A lot of changes are being made in the procedural laws of Central Taxes. We are expecting a lot of improvement as a result of these unprecedented changes. We also hope that the income tax and sales tax would ultimately come under one roof and, besides other benefits through the rationalisation of the taxation structure, this major step would help in saving the precious time of the taxpayers.
At the same time, however, it has created a lot of chaos and confusion as the amendments in this regard are being made without taking into confidence the professionals as well as the stake-holders. It is therefore suggested that all such information may be made available on the website of the CBR well in time. Proposed amendments in the procedure should also appear on the website and such an arrangement may be made that the concerned quarters may be able to give their suggestions readily on the same website. It would certainly go a long way towards restoring the confidence of the professionals and the stake-holders. It would also improve the future system which is being devised/implemented.
(VI) TAX DEDUCTION U/S 153: The deduction of income tax u/s 153 on supplies is being made on the sale value inclusive of sales tax. But in fact the tax is payable on the amount of goods supplied, and not on the sales tax. So the tax deducted on the amount of sales tax is not refunded to the assessee, nor such a column has been given in the statement u/s 115(4). It is therefore suggested that the tax should be deducted on the amount of supplies, excluding sales tax, for the registered persons.
The assessee who is not registered for Sales tax, may be made to pay his tax on the amount of supplies exclusive of sales tax amount so that the registered persons may not be taxed more heavily than the non-registered persons.
(vii) The travel agents fall under the presumptive tax regime w.e.f. tax year 2005 and the tax collected/deducted by the airlines is deemed final discharge of liability. But different companies, while making the payment to travel agents, make a deduction of tax u/s 153.
Therefore it is suggested that either an exemption clause may be prescribed in the Second Schedule to the Income Tax Ordinance 2001, or a circular may be issued to that effect.
(VIII) ISSUE OF GP RATE: Ever since the promulgation of the Sales Tax Act 1990, the purchases and sales from registered to registered persons is 100% verifiable as all the transactions are fully vouched and all the payments are being made/received through crossed cheques. The Taxation Officers should therefore be advised not to estimate the sales on the basis of G.P.Rate.
(IX) THRESHOLD OF TAX DEDUCTION: Presently, the threshold of tax deduction from one party during the one tax year is Rs 25,000/-. It is hereby suggested that this limit may be enhanced to Rs 50,000/-.
(X) PENALTY U/U 165: Currently, the rate of penalty for non-filing of the statement u/s 165 in vogue is Rs 2,000/- and Rs 200/- for each day of default which is very much on the higher side. We would therefore recommend that the said rate of penalty may please be reduced in such a manner that the maximum penalty should not exceed Rs 5,000/-.
SALES TAX:
(I) RATE OF GST: The standard rate of General Sales Tax at 15% is far too high.
Lower rate of GST would go a long way in increasing the demand and the higher the demand, the higher would be the production level in the country which would result in accelerating the pace of industrial growth. It is therefore proposed that the standard rate of GST may be fixed at 5 to 7%.
(II) NO SALES TAX, NO REFUND: Whereas it has been decided by the CBR on principle that Exporters should neither pay any sales tax, nor claim any refund, it is the considered opinion of the department, as well as the stake-holders, that the issue of refund has given rise to iniquities like corruption, flying invoices and the blocking of the working capital of genuine exporters.
It is therefore requested that there should be no refund, whatsoever, in future while on the other hand all exporters, whether industrial or commercial, should be allowed to purchase/import their merchandise free of GST.
In this regard, it may be clarified that the exporter will have to apply for an Exemption Certificate in order to make his purchase free of sales tax. For this purpose, he will have to declare one bank account through which he will make all the purchases.
He will also receive the exports proceeds through the same bank. At the end of the year, the Bank will provide him the Bank Statement, as well as the details of the purchases and exports made through the said bank. In case the purchases are higher than the export receipts, the said exporter shall have to make payment of sales tax relating to the excess amount.
However, the Collector of Sales Tax authorised to issue the Exemption Certificate, may allow him to carry forward the said difference to the next year, if required in such exceptional circumstances pertaining to his case.
(III) POWERS OF CBR TO SUMMON RECORDS: Sec 45-A has been amended to provide powers of review/reopening of cases to the Collector (Adjudication). Before the proposed amendment, only the Collector could call for, and examine, the record of a case decided by an officer subordinate to him.
Sec 45-A should therefore be reviewed so as to restore its original spirit and significance.
(IV) AMENDMENT IN FORMAT: In order to improve the format of sales tax, it is hereby suggested that the Sales Tax Invoice may be so amended that the NTN of the taxpayer should appear on the face of the invoice. The proceedings u/s 161/205 should not be initiated where a taxpayer has provided the NTN of the supplier.
CUSTOMS, DTRE AND IMPORT:
(I) DUTY ON IMPORTED MACHINERY & RMR: In view of the tough competition likely to be faced by Textile Exporters during the WTO regime, it is hereby suggested that Machinery and raw-material imported for the production of exportable products should be exempt from customs duty in order to make the policy export-friendly.
(II) DUTY/TAX EXEMPTION ON IMPORT OF SPARE PARTS: Import of machinery and maintenance spares was exempted from customs duty under the SRO 554(I)/98 dated 12th June 1998. Exemption of duty on maintenance spares was, however, withdrawn on 07th June 2003 under SRO 479(I)/2003. Sudden withdrawal of this facility has seriously affected export industries. It is therefore suggested that the amendment in SRO 554(I)/98 may be withdrawn on a priority basis to allow the duty free import of maintenance spares for export-oriented textile industries.
(III) ZERO-RATED CUSTOMS DUTY ON IMPORT OF RAW-MATERIALS FOR EXPORTS: It is hereby suggested that raw-materials which are not manufactured locally may be allowed to be imported at zero-rated customs duty for the manufacture of finished goods for export. Two such items are Indigo Dyes (HSS.Code 3204.1510 and Hydro Solohite (Code 2831:1010)
(IV) IMPORT OF TEXTILE CHEMICALS: Imported Textile Chemicals which are commonly used by the Textile Processing Sector include:
1. Acetic Acid
2 Acetone
3.Agro Print
4.Disizer Enzymate
5.Formic Acid
6.Hydrogen Peroxide
7.Magnasoft
8.Magnesium Chloride
9.Sulphur Black
10.Sodium Hydrosulphide
11.Sodium Sulphide
12.Sodium Sulphite
13.Titanium Dioxide Vinarol Pva
Besides these common ingredients, there is yet another item of daily use, ie, CAUSTIC SODA, (Liquid, Flakes, and Solid) which is manufactured in Pakistan and also imported from world sources.
In order to maintain a high standard of production during the forthcoming WTO Regime and to infuse a spirit of healthy competition, we would suggest that duty-free import of Caustic Soda, and all other textile chemicals listed above, may be allowed.
(V) LOCAL SUPPLIERS DEEMED AS EXPORTS: Income Tax law recognises the supplies of input goods by an indirect exporter to manufacturers-cum-exporter as "export" under Duty and Tax Remission for Export Rules (DTRER). It is therefore suggested that the local taxable supplies of goods by a manufacturer operating under SRO 554(I)/98 to direct exporters may also be deemed as export.
(VI) WITHHOLDING TAX: Import of Raw-material, Machinery and Equipment should be exempted from Withholding Tax. This would go a long way towards industrialisation. It is further suggested that the Withholding Tax on import of goods may be reduced from 6% to 3.5%. Likewise, the withholding tax on payment of royalty/technical fee may be reduced from 15% to 5%.
(VII) IMPORT SURCHARGE: Under DTRE Rue 208, no surcharge is payable on the unutilised inputs of less than 10%, if such inputs are sold in the local market. We suggest that this facility may be also made available for all utilised inputs of less than 10% and carried forward by the manufacturer for consumption in the next period instead of selling them in the local market. Further suggested that the renewal period of DTRE may be extended to allow the utilisation period viz-a-viz procurement of goods in order to meet export orders.
(VIII) DUTY-FREE IMPORT OF TEXTILE MACHINERY: Textile Processing is that sector of the industry which makes most of the value-addition and accounts for more than 65% of our total export earnings. We have the requisite raw-material and skilled manpower for value-addition. All that we need now is proper facilitation for the import of sophisticated machinery.
It is therefore suggested that the import of Textile Spare-parts may be exempted from the payment of customs duty in order to make our products competitive in the international export market, especially during the post WTO Regime.
MISCELLANEOUS SUGGESTIONS:
(I) EXPORT RE-FINANCE: Mark-up rates on Export Re-Finance have been recently enhanced by the SBP from 3 to 5% which is likely to discourage exports. It is therefore suggested that the previous rates of mark-up may be restored.
(II) EXEMPTION FROM LOCAL TAXES: In order to encourage a free flow of export trade, and to reduce undue delay in clearance of export consignments, it is hereby suggested that local taxes, eg, Export Tax, Social Scrutiny, EOBI, Machinery Tax and Professional Tax, may be done away with. Even previously, these taxes were subject to refund. So their withdrawal is not likely to affect the revenue.
(III) SUI GAS PROBLEMS:
a) Sui gas connections to newly installed industrial units are provided on a nine-months conditional basis which are disconnected during the "peak months" of December to February. During this period, they are constrained to run their factories on Furnace Oil which, besides damaging the quality of exportable finished products, plays havoc with our sophisticated machinery plant. It is therefore suggested that Sui gas connections to export-oriented industries, especially the Textile Processing Sector, may be provided on round-the-year basis.
b) According to recent press reports, SNGPL and SSGC have been authorised by OGRA to enhance their prices for all categories of consumers by 8.25 per cent, while another enhancement of 5 % is in the offing. Besides causing undue hardship to the domestic consumers, this enhancement would tend to escalate the cost of production for the Textile Processing Sector and render our products uncompetitive in the international export market. OGRA should therefore, be advised to refrain from the proposed enhancement.
(IV) ENVIRONMENTAL PROTECTION: Environmental Protection Act, which was passed by the Parliament way back in December 1997, has been kept in abeyance because several clauses of the Act are too harsh and impracticable. It is therefore suggested that the Act be repealed. Furthermore, substantial funds should be allocated for holding of Seminars and Training Workshops for creating awareness among all the stakeholders, and construction of Water Treatment Plants and Solid Waste Disposal Centers suited to local conditions.
(V) REVIVAL OF "SICK UNITS": During the previous decades, a large number of industrial units, whose number runs into thousands, have gone "sick" due to faulty planning, erroneous government policies, or mismanagement. This has tied down capital worth billions of rupees, including bank loans. The "Sick Units Revival Committee" has been doing a commendable job, but the end results are not commensurate with the requirement. It is therefore requested that the efforts may be augmented, and the work of revival may be done pragmatically on a case-to-case basis by involving the regional Trade Bodies and Industrial Associations concerned.
(VI) SMUGGLING: Indiscriminate import of unwanted commodities into Pakistan, especially that of textile fabrics, made-ups and garments, has subjected the local textile units to untold hardship by way of unhealthy competition. Smuggling has assumed the shape of a parallel economy and "Baara Markets" are rampant in every nook and corner of the country. The scourge of smuggling is a two-pronged "cancer". On the one side it subjects the indigenous industry to unhealthy competition, and, on the other, it deprives the Exchequer of valuable revenue by way of import duty to the tune of billions of rupees. It is therefore suggested that suitable remedial measures may be adopted to curb smuggling with a stern hand, eg, imposition of protective duty and strict administrative measures.
Hopefully, the above cited production-friendly, investment friendly and export-oriented proposals and suggestions, if implemented through the forthcoming Budget, our coveted dream of meeting the massive challenges of WTO and obtaining a place of respect and dignity among the Comity of Nations would InshaAllah come true. Pakistan: Zindah Baad!
(The author is Chairman of APTPMA.)
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