The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) suggested that all the segments of the society, including agriculturists should be brought in to the tax net. In its budget proposal for the year 2005-06, the federation pleaded that the rule of law should be equal for everybody and not for the weaker ones. A very big segment of the high placed people is owning enormous wealth, lucrative occupations and enjoying highly luxurious living. The worst aspect of our tax system is its inequality, the FPCCI added.
The Income Tax Ordinance, 2001 has not been able to remove this mockery of the law. It is an admitted fact that agriculture is by far the largest sector of the national economy. It is a major hurdle in widening the tax net and in ensuring equity, as almost entire income tax collection of billion of rupees is shared by trade, industry and the salaried classes, sectors other than agriculture.
Whereas industrial sector is contributing 18 percent of the GDP in comparison to agriculture, which shares 25 percent of the GDP.
The FPCCI believes that assessing the income from four main crops; cotton, rice, sugarcane and wheat - may not be that difficult because these are generally sold to registered dealers whether they are ginners, millers, crushers or arthis.
Their receipts should be considered authentic documents and taxpayers should be encouraged to obtain them and submit them with their returns.
The FPCCI proposed that plant and machinery not manufactured locally may be allowed to import at zero rate of customs duty. The list of locally manufactured goods and machinery should be updated.
The FPCCI suggested that the rate of duty on spare parts/ accessories be reduced to 5 percent.
The federation noted that plastic raw material is a petroleum by-product. Prices of crude oil in the international market have soared unrealistically in recent months, which has been acknowledged by our Prime Minister Shaukat Aziz that "era of cheap oil is over".
Presently, all plastic raw materials are subject to 10 percent Customs Duty, 15 percent Sales Tax and 6 percent Income Tax. It is burden on the plastic industry, which finds it difficult to compete in the domestic as well as international market.
The FPCCI recommended that the plastic industry be given immediate relief by reducing the rate of duty on plastic raw materials (Polyethylene and Polypropylene - 3901.1000, 3901.2000 and 3901.3000) to 5 percent.
The federation suggested that the Custom duty and Advance Income Tax on smuggling prone items should not be more than 5 percent and 2 percent respectively in total.
As the expenses incurred by the smugglers through illegal imports do not exceed 15 percent to 20 percent. A vigorous anti-smuggling drive is the need of hour.
The FPCCI noted that the old fashioned fiscal theory that tax rates must be high to provide larger revenue for the State has long ago exploded.
The modern fiscal policy pursued by the most progressive countries is to make revenue grow, not by increasing the tax rates but by enlarging the tax base.
The major impediment for expansion of tax base in the country is high rates of taxes whether direct or indirect.
Imposing average rate of direct tax on corporate sector at 40 percent and on non-corporate sector ranging from 5 percent to 35 percent on net earnings creates psychological barrier in the minds of business community and also results in lower amounts to be set-apart for expansion and modernisation.
The FPCCI pointed out that in most of the countries of the world, like Hong Kong, Malaysia, Singapore, etc the rate of tax on corporate sector is 16 percent to 28 percent, whereas, on the non-corporate sector it ranges between 1 percent to 28 percent.
On 28th April, 2003 the Saudi Shura Consultative Council slashed the rate of tax from 45 percent to 25 percent on foreign companies' profit to attract more foreign investment.
President George W. Bush is pressing the Congress to approve the new tax cuts.
The rate of withholding tax has been rising progressively. In 1995, the rate of withholding of tax at the time of import of goods was raised from 2 percent to 4 percent of import value and currently it is 6 percent of the import value.
The rate of sales tax, which is in the region of 15 percent is also considered very high, which results in mis-declaration of actual turnover for Sales Tax as well as for Income Tax purposes. This in turn results in loss of revenue for exchequer.
From time and again it has been promised that with the increase in the number of sales tax registered persons and increase in revenue under the head of sales tax government will go for reduction in the rate of GST.
The reduced rates of GST will motivate taxpayers for correct declaration of the tax liabilities. The high rate of GST is regressive and we are of the view that country cannot go for voluntary corrections, the FPCCI added.
It is also desire and wish that all relevant laws applicable for the Income Tax, Sales Tax, Customs, Central Excise Duty Intellectual Property Rights Infringement, Trade Mark, Merchandising Mark Act etc should be enforced en-block on all the citizens of Pakistan, including Federally & Provincially administered Tribal Areas (Fata).
Therefor, in the overall interest of the country and to continue the journey of economic progress in the country, the FPCCI has strongly recommended to reduce the tax rates as follows:
The rate of Income Tax for the corporate and non-corporate sectors be reduced by 10 percent;
The rate of Sales Tax be gradually reduced by 5 percent in two years ie in the first year 3 percent and in the second year 2 percent;
The rate of withholding tax on supplies to be reduced to 2 percent and the sub-section 2 of section 153 be substituted with the following:-
"the gross amount payable for sale of goods shall exclude the sales tax if any payable in respect of the sale."
The payment of excise duty applicable to certain Industrial Sector be allowed to adjust;
The rate of withholding tax on import stage be reduced to a reasonable and bearable limit and should be charged on C & F value instead of landed cost; and
The present statutory limit of exemption under the Income Tax Law be increased from Rs 100,000/- to Rs 200,000/-
The FPCCI pointed out that the bicycle chain manufacturing industry in Pakistan has been totally closed down for the last 10 years. It used to comprise of 6 units, and today not a single unit is in operation.
The increase in duty structure of the sub-component of bicycle (Chain) from 5 percent to 10 percent is an anomaly and should be reduced from 10 percent to 0 percent and raw material for making sub-components also be reduced from 5 percent to 0 percent.
It is to be noted that the demand of bicycle chain in Pakistan is being met by smuggling, as there is no significant imports and no manufacturing unit in Pakistan.
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