ISLAMABAD: Overseas Investors Chamber of Commerce and Industry (OICCI) has submitted its budget 2022-23 proposals to Punjab government with concern that its taxation proposals submitted in the past two years have not been given due consideration due to which its members, representing top 200 foreign investors, are showing reluctance to engage with the provincial authorities in working towards improving the taxation regime, ease of doing business and investment climate.
OICCI members submitted the following taxation recommendations for FY 2022-23: (i) simplified procedures and forms for filing the sales tax return; (ii) single Sales Tax return launched by FBR in December 2021 for filing of single return.
The same is required to be implemented in true spirit as currently sales tax returns of each province is required to be filed separately. The provincial taxes should be consolidated specially the labour levies. e.g., EOBI/ SESSI/ WPPF/ WWF; (iii) integration of revenue collection as currently there are three entities, i.e., Punjab Revenue Authority (PRA), Excise & Taxation Department and Board of Revenue (Punjab); and (iv) Tax policies should be predictable, transparent, and consistent.
The policies should be implemented for long term to facilitate and protect longer term investment plans of local and foreign investors. Moreover, no new taxes be levied during the fiscal year except removing harsh levies and anomalies.
OICCI has also proposed the following other tax broadening measures: (i) tax authorities should use technology, data analytics including Artificial intelligence tools and make better/ effective utilization of NADRA database and other documented sources to ensure that all income earners from services are included in the provincial taxpayers list; (ii) preferential treatment to active filers like fast-tracks utility connections; (iii) expand the ambit of income from services by requiring marriage halls, art exhibition halls, and other public places holding large receptions to provide names and addresses of the respective persons involved in these business activities to the provincial tax authorities on a quarterly basis.
OICCI further stated that it will continue to emphasize value creation through transparent and strong enforcement measures designed to facilitate compliant taxpayers and punish tax evaders. Furthermore, the value addition of its members should not only be measured on tax collection basis but also on the basis of creating livelihoods, promoting sustainable business model and supporting a tax compliant eco system.
The Chamber proposed that a policy board be formed to ensure synchronization of the policies, standard taxable services, basis of apportionment of revenues and removal of all anomalies/ conflicts between the laws of different revenue boards. The proposed body must decide on matters including, but not limited to: (i) basis of levy of indirect tax, which can be origination or termination, to establish jurisdiction of taxation of services; (ii) standard schedule for taxable services’ to promote transparency and uniform interpretation across the provinces; (iii) harmonization/ integration of provincial laws, portals and tax data through one return including Federal and Provincial to remove undue compliance hardships faced by taxpayers; (iv) proper mechanism for adjustment of input tax on franchise service fee payable in reverse charge mode should be established. Moreover, circular no 02 of 2013 be abolished by virtue of which payment of sales tax on franchise services should be in line with other jurisdictions (like SRB, FBR and KPK) instead of turnover percentage basis; (v) to avoid double taxation “toll manufacturing” should be deleted from the list of services, as it is taxable under the Federal Sales tax.
(vi) Withholding Sales Tax Rules should be amended by virtue of which withholding among registered service providers and registered service recipient should be in line with FBR; and (vi) circular no 01 of 2013 be abolished by virtue of which payment of sales tax on electronic media advertisement services should be in line with other jurisdictions (like SRB, KPK, BRA and FBR) instead of turnover or population percentage basis.
OICCI contends that PRA sales tax rates on services should be aligned with Sindh sales tax rate, which is 13% and this rate should be consistent for all services except those services which are currently subject to reduced rates. The current rate should be maintained for unregistered entities.
The rate gap will encourage registration of unregistered taxpayers to avail the benefits of input adjustment which will enhance documentation.
Admissibility of Input under Reverse Charge mechanism: (i) Provincial statute provides that service provided by non-residents (a person who is not registered with the relevant provincial statute) service provider is liable to tax under reverse charge mechanism. Reverse charge should be restricted to such cases where service provider is located outside Pakistan; and (ii) further, input tax adjustment as per Rule 61 of Punjab Sales Tax on Services (Adjustment of Tax) Rules 2012, should be allowed in PRA as it is allowed in SRB for input tax paid in reverse charge mode where services have been acquired to be utilized in furtherance of taxable services.
Necessary amendments should be made in section 70, chapter X of Punjab Sales Tax on Services Act 2012, regarding recovery of tax demand from running finance facility of the taxpayers, which is inconsistent and against the principles of natural justice and detrimental to the business operations of the taxpayers as no tax demands can be recovered from the liabilities of the taxpayer.
Currently, sales tax rate on telecommunication services is 19.5%. This should be brought at par with other services - sales tax on telecom services should be equivalent to general sales tax rate on services, in order to harmonize all sales tax on services rates. This will increase the tax collections by helping telecom operators tap lower income population of Pakistan.
Admissibility of Input Sales Tax on Advertisement- Rule 13(2) should be abolished from the withholding rules being contradictory to the relevant provisions of the PSTS Act, 2012.
Necessary amendments should be made to allow registered persons to claim input tax related to procured goods/services taxable at whatever rate (lower, standard or higher).
Under the powers delegated through Section 9A of Stamp Act 1899 and Section 7(10) of the Finance Act, 1989, the provincial government may issue following SRO/ notification and publish in their respective official gazette: “The registration of sale or purchase of immovable property by banks or financial institutions under any Islamic mode of financing arrangement approved by State Bank of Pakistan or Securities and Exchange Commission of Pakistan shall be exempt from the levy of registration fee, stamp duty, district, municipal/ town taxes, capital value tax or any other related taxes.”
OICCI maintained that special procedure should be introduced for chargeability of sales tax on the services of ‘labour and manpower’.
These services are highly essential for conducting business and very strong support for enhancing employment opportunity in the province. It be clarified that reimbursement is not revenue for service provider in any manner.
It also recommended that both, life insurance and health insurance, which do not fall within the scope of definition of service, should be permanently included in the list of exempted services.
Copyright Business Recorder, 2022