LAHORE: The Lahore Chamber of Commerce & Industry on Wednesday released its proposals for federal budget 2021-22 and hoped that these would be made part of the policies for the upcoming financial year.
The proposals have been forwarded to Finance Minister Hammad Azher, Minister for Industries, PM Advisor to Commerce Abdul Razak Dawood, Chairman FBR and other concerned departments. The proposals forwarded by LCCI President Mian Tariq Misbah, he said the incentives provided to the five zero-rated sectors should also be extended to other important export sectors of the economy - engineering, pharmaceuticals, rice and Halal meat. Engineering sector holds great importance in the world economy as its share in global trade is around 52 percent. In Pakistan, however, no tax incentives are given to the engineering sector. The pharmaceutical sector also holds great importance in the world economy as its global trade is in excess of US$600 billion which is 3 percent of the global trade.
Majority of the tax incentives in Pakistan are given to the textile sector whose share in world trade is just around 4 percent. The government has reduced import duties on many raw materials during last couple of years. The raw materials which are not manufactured locally should be declared zero rated (elimination of custom duties, additional custom duties and regulatory duties).
The focus should be on fixing the technical problems in the sales tax e-refund system (faster plus) so that swift and transparent issuance of refunds to the exporters can be assured. Recently, due to a technical error in the refunds system which resulted in erroneous issuance of refunds, notices were issued to the members of the business community and false cases were registered.
In addition to sales tax, the income tax refunds should also be paid on an urgent basis through the faster plus system. The rate of 17 percent sales tax on the inputs of various export-oriented industries is extremely high and needs to be brought down and should not be taken at the import stage. It should be applied after the actual sale of the respective products as in many cases, 10-20 percent products get wasted/damaged/discarded while loading & offloading or transporting from warehouse to sale points.
The 3 percent further tax chargeable on all supplies made to unregistered persons should be abolished. The rate of turnover tax should be reduced from the current 1.5 percent for the retail sector. Moreover for capital intensive sectors like steel where the profit margins are low, the rate should be reduced from 1.5 percent to 0.75 percent.
There should be a holiday for all taxes and levies (federal and provincial) for three years for the newly registered companies, especially SMEs. There should also be exemption from audit for 3 to 4 years for the newly registered businesses.
The LCCI suggests a single audit for sales tax, income tax and withholding tax. The frequency of this single audit should be reduced to once in 3 years. There should be exemption from audit for taxpayers who deposit 20 percent more tax over the last year.
Discretionary powers under Section 177, 214C, 138, 175 of (Income Tax) and 40B, 25 37, 38A, 40 and 48 of (sales tax) should be minimized in consultation with stakeholders. There should be risk-based audits (with one month prior notice) rather than random audits to stop harassment. The frequency of risk-based audits should be once in 3 years. The criteria for conducting audits (income tax, sales tax and withholding tax) should be published.
The ban on the advance payments for commercial importers is making it very difficult for them to import vital raw materials and other essential components (spare parts and machinery). We recommend that commercial importers should be allowed to import against advance payments up to US$20,000. The Lahore directorate of valuation should be empowered like the Karachi Office to hold meetings of valuation committees since a heavy percentage of importers are from Lahore and up-country areas.
The industries based in Federal /Provincial Admini-stered Tribal Areas (FATA / PATA) are provided 17 percent sales tax exemption and 2 percent withholding tax exemption on imports of certain raw materials which are sold in other parts of country at cheaper rates. It is seriously hurting the regular industries in other parts of the country.
The EDF (Export Development Fund) should be utilized to improve infrastructure in testing laboratories and standard certification. The facility of testing laboratories and standard certification should be provided in the Special Economic Zones (SEZs), Export Processing Zones (EPZs) and Industrial Estates.
The access to credit for SMEs remains limited as they get only 6.2 percent of the private sector credit and the number of SME borrowers are just around 179,000. The government should introduce soft policies for SMEs including special financing schemes where they can get credit at low markup rates with no collateral requirement.
The Temporary Economic Refinance Facility (TEFR) for provision of long-term finance facility is being expired on March 31, 2021, therefore it should be extended till the 30th June 2021. The State Bank refinance scheme for the payment of salaries should be extended for one more year. This would ease the cash flow constraints of the employers and thereby prevent layoffs.
The interest rate should be reduced further from 7 percent to 5 percent in line with the regional economies to reduce the cost of credit for the businesses. The regional interest rates are (India 4 percent, Bangladesh 4.75 percent, China 3.85 percent, and Sri Lanka 4.5 percent).
The higher cost of energy in Pakistan as compared to regional economies has increased the cost of doing business for our industry which is already competing with smuggled goods, under-invoicing, high rate of taxes/duties and low tariff FTA with China.
Copyright Business Recorder, 2021
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