Export-oriented sectors: KCCI underscores need for reintroduction of scheme

ISLAMABAD: The Federal Board of Revenue (FBR) has received budget proposals from the Karachi Chamber of Commerce and Industry (KCCI), which envisage reintroduction of ‘no payment and no refund’ of sales tax scheme for the five export-oriented sectors, abolishment of the requirement of making payments through digital means, and reduction in penalty regime for un-registered Tier-I retailers.

The FBR is reviewing the budget proposals submitted by the KCCI for the next fiscal year.

In its budget proposals for fiscal year 2022-23, the KCCI has recommended that the condition of CNIC should not be required when further tax of 3 percent is being paid by registered supplier, which should be brought down to 1 percent to discourage flying invoices; whereas 3 percent value addition sales tax on commercial importers must also be withdrawn and the pending refunds of Drawback of Local Taxes and Levies (DLTL) of more than Rs 50 billion that remained unpaid since many months must also be released.

According to the KCCI’s budget proposals, although the government has streamlined a faster system, yet the exporters are facing liquidity crunch amid the condition of filing claims only after dispatch of shipment, which takes at least three months.

To further enhance exports, it was imperative to revive SRO 1125 in its true spirit and reintroduce system of no payment and no refund of Sales Tax for the five export-oriented sectors, KCCI said.

The chamber pointed out that indenting commission should be treated as export proceeds and taken out of the purview of provincial service taxes. Indenting agents serve all of Pakistan; hence, they should remain in the export regime like IT and other service providers.

Highlighting the “unjust turnover tax” on traders of cotton yarn, KCCI said that traders/ brokers of cotton yarn were subjected to turnover tax at concessional rate of 0.1 percent which constitutes about 10 percent of their margin. However, demands were issued under Section 113 of Income Tax Ordinance to pay turnover tax at the rate of 1.5 percent, which was more than the meagre commission of 1 percent received by traders from spinning mills for their sales to weaving industry.

Hence, the correct approach for levying of concessional rate on yarn traders is by inserting provision of Minimum Turnover Tax at the rate of 0.1 percent in the First Schedule Part-I, Division IX, exempting yarn traders from minimum 1.5 percent.

KCCI recommended that access to bank accounts should only be limited to accounts of unregistered persons with unusually high amounts of transactions. Commissioner should only be authorised to obtain information about the funds in accounts and to seek clarification on nature of transactions and sources of funds and all such unregistered people must be brought into the tax net.

Through the Finance Act 2019, powers of Commissioners and Boards were restored to select cases for audit every year which further creates difficulties for registered persons. Therefore, audits under Section 177 and 214C should be carried out once in every three years through restoration of Clause 105, omitted in Finance Act’ 2019, KCCI suggested and added that even with this restriction the Commissioner can carry out assessment u/s. 122(1)/(5) or 122(5A) on the definite information or where declaration of taxpayer is erroneous and prejudicial to the interest of revenue.

KCCI stressed that powers of the Commissioner and subordinate officials should be curtailed to restore the trust of taxpayers and encourage broadening of tax base. Such audits should be restricted to specific queries or objections and call for relevant documents only rather than opening and reopening of a comprehensive audit every time.

Despite being allowed to modify return within 60 days under Clause 26(3), Sales Tax Return Revision – Rule – 14A and Section 26(3), taxpayers were still required to obtain approval from Commissioners IR for return revision. Hence, Sec 26(3) should be applied in letter and spirit and e-filing system should be updated to automatically reopen the return revision within 60 days of return filing.

KCCI has also suggested that the requirement of making payments of expenses through digital means should be abolished or at least the threshold should be increased significantly, while on non-filing of return the department should only exercise power to suspend registration of taxpayer who fails to file return for six consecutive tax periods and issue show cause notice to such individuals.

Similarly, builders who have availed the scheme stated in Section 100D are provided the benefit of a fixed tax regime. However, those builders who had failed to avail this scheme due to delay in NOCs or inability to meet the criteria are subject to a higher rate of tax. Therefore, a fixed tax regime for those builders who had failed to avail the scheme under Section 100D should also be introduced.

KCCI further proposed that all kinds of industrial machineries used in the production of goods may be exempted from Sales Tax if imported by manufacturers and if such machinery is not manufactured locally.

Machinery imported by commercial importers may be released on payment of Sales Tax at the rate of 10 percent.

While referring to excessive penalties in case of non-integration with POS system, KCCI suggested that the government should look into the possibility of reducing penalties to not more than Rs 500,000 and this penalty procedure should be divided into four stages wherein penalty of Rs 50,000 shall be fixed at first stage, Rs 150,000 at second, Rs 300,000 at third and Rs 500,000 at the fourth stage.

“Moreover, the definition of Tier-I retailers should be amended as the size of a retailer should not be measured by the fact that it has air conditioning facility and credit card machines or not. This provision is illogical and is placing unnecessary burden on small-scale retailers who have committed the mistake of being in an air-conditioned mall.

The yardsticks to measure whether a person is a Tier-I retailer should be based on turnover and the size of the shop.

KCCI also proposed that zero rating on supply of raw material and plant and machinery to Export Processing Zone (EPZ) industries should be restored, which would encourage economic activity and expansion.

KCCI’s proposals for budget 2022-23 carry great importance, as they focus on the macro-economic issues, taxation policy and administration, which have a profound impact on the business and investment environment. In addition to highlighting the problems faced by SMEs, which are a major contributor to GDP, the proposals also suggest measures to deal with Fiscal and Current Account deficits.

KCCI’s proposals emphasise that tax administration, laws and provisions with discretionary powers need reforms and most importantly the mindset of tax hierarchy needs to have a positive outlook to achieve the goal of broadening the tax base and create a civilised tax culture.

“This will only happen when taxpayer gets the respect he deserves, taxpayer is treated as partner in revenue generation, and growth and accountability is ensured at both ends,” the chamber said.

Copyright Business Recorder, 2022