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KARACHI: The Karachi Chamber of Commerce and Industry (KCCI) has said that the outdated economic policies, a stifling taxation regime and antiquated and obstructionist administrative structure of Federal Board of Revenue (FBR) and its subordinate departments will only be counterproductive for the economy if some drastic measures are not taken in the budget to rectify the flaws and discard the outdated revenue models.

In its budget proposal for the year 2021-22, the chamber noted that the year 2020 has been a watershed for economy and business not only in Pakistan but all over the world.

Mankind is facing a seismic change in how the global economy and international financial system will change fundamentally and adapt to new realities. Covid-19 pandemic has affected every country and every human being in a way that was never anticipated.

Many businesses and industries which flourished prior to pandemic have failed and shut down while new businesses and industries have emerged which have taken advantage of changing dynamics and needs of mankind in view of the need to adapt to new realities. E-Commerce, healthcare and pharma sectors are the greatest beneficiaries of Covid-19.

The country and its economy need out-of-the-box solutions and not a budget in the usual age-old template which we see year after year, followed by a plethora of SROs, amendments, rules, notifications and clarifications.

Such practices over the years have hampered growth and capped the true potential of entrepreneurs in Pakistan and resulted in rapid growth of undocumented economy having a size larger than the documented economy.

In this perspective, the KCCI has compiled proposals for the Federal Budget 2021-2022 based on recommendations and feedback from its members, representatives of major business sectors and senior advisers.

The KCCI is acutely aware of ground realities of trade and industry and well-acquainted with both micro and macro issues faced by business community.

Therefore its proposals presented here for the upcoming budget carry pivotal importance.

CNIC ISSUE: The chamber noted that by amendment to Section 8 (Sub-Sec.1, Clause M) of Sales Tax Act, and addition of 10th Schedule, it is mandatory to provide CNIC number of unregistered person in the invoice. Similar statute has been added U/S.19A of Federal Excise Act, Sec.216A to ITO and Sec.156A of Customs Act. Moreover 3% further tax is also charged on sales to unregistered buyers even if the CNIC number is provided, which is totally unjust and tantamount to penalizing the registered people who have to bear the burden of 3% further tax.

Rather than generating more revenue, this provision has resulted in proliferation of undocumented cash transactions. With hardly 45000 registered entities in Sales Tax Regime, it is very hard to find a registered buyer. This has affected the entire supply chain including manufacturers, importers and traders in documented sector and has led to greater advantage for smugglers and undocumented sectors as they do not have to face any such condition. Many registered people are now forced to issue flying invoices to registered people to overcome the CNIC condition and avoid the 3% further tax.

PROPOSALS: Require-ment of CNIC should not be mandatory until the number of registered people in Sales Tax regime has substantially increased. Providing CNIC number should be optional and may be treated at par with STRN if provided in the Sales Tax Return.

Further Tax on supplies to unregistered buyer should not be charged if CNIC number is provided in Sales Tax Return. In case CNIC number of unregistered buyer of raw materials is not provided, VAT may be charged at 1.7% on sellers of raw material.

3% FURTHER TAX ISSUE: Further Tax of 3% is charged on sales of raw material by commercial importers to unregistered buyers. Since a large number of small industries are unregistered, it is not possible to issue Sales Tax Invoice to them.

PROPOSALS: Further Tax of 3% may be withdrawn on sale of raw material by commercial importers to unregistered buyers. Commercial importers may be charged 1.7% value addition tax on sale of raw material to unregistered units, instead of charging 3% Further Tax.

HIGH RATE OF SALES TAX: Rate of sales tax at 17% in Pakistan is among the highest in the region. Such high rate of sales tax is in fact a disincentive to documentation and compliance.

Mostly indirect taxes at such high rate at source encourage smuggling, evasion, under-invoicing and mis-declaration.

Rate of sales tax may therefore be reduced to single digit on all sectors to reduce cost of inputs and provide support to reduce prices of consumer goods as well as the cost of exports.

FURNITURE INDUSTRY: Furniture industry in Pakistan mainly comprises work-shops employing artisans and manual labor. Tax authorities and field officers in many parts of Pakistan are issuing notices to the furniture shops and workshops to register as Tier 1 retailers, which is unjust and not practicable for this trade.

Furniture shops do not fulfill the criteria defined under Sec.2, Sub-Sec.43A of Sales Tax Act’ 1990 because furniture does not fall in category of fast moving consumer goods (FMCG). Furniture shops/showrooms are only for the purpose of display of bulky pieces of furniture and to get orders from customers, rather than retail sale.

The display requires area larger than 1000 feet and an anomaly is created under Sub-Section 43A which wrongly classifies such shops/showrooms as tier 1 retailer.

Furniture shops/showrooms and workshops which are not part of national or international chain of stores and not located in an air-conditioned mall should be excluded from the scope of Sec.2 (Sub.Sec.43A). All such furniture shops and workshops may be included in cottage industry or treated as SMEs.

Copyright Business Recorder, 2021


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