Engineering industry: government urged to abolish withholding tax on exports

Chairman Pakistan Auto-parts Manufacturers and Exporters Association, Tahir Javaid Malik has urged the government to abolish withholding tax on exports of engineering industry, as the industry has the potential to bring the country out of the economic mire.
In a statement on Monday, Malik said section 154 of Income Tax Ordinance, 2001 deals with withholding income tax on exports. This tax is to be deducted by authorised dealers in foreign exchange at the time of realisation of foreign exchange proceeds on account of export of goods at the rates specified in Division IV of Part III of 'First Schedule to the Ordinance'.
As per the schedule, the rate at which tax so deducted is one percent of export proceeds. This deduction is considered payment towards final liability of income tax. Since this deduction is mandatory and considered final payment, exporters of engineering products have to bear it even if they are exporting on marginal profits or making a loss, he elaborated.
Malik further said that such situation of marginal profits or making loss arises especially in cases where market entry barriers are to be overcome through reduced first cost offers as a marketing tool or through sunk investments in marketing and creating after sale service set-ups. Even otherwise, if exports of products of engineering industry are to be encouraged and promoted, government needs to extend all possible fiscal incentives in this regard, he maintained.
In this regard, he suggested that withdrawal of withholding income tax out of realisation of foreign exchange proceeds of engineering industry exports would be a desirable step. He further suggested that Division IV of Part III of the First Schedule to Income Tax Ordinance, 2001 may be suitably amended to withdraw the withholding tax on exports of engineering industry.
Chairman Pakistan Auto-parts Manufacturers Association also demanded government to allocate funds for the engineering industry out of Export Development Fund as the industry is in dire need of a special package to get a boost and help the exporters explore new markets for Pakistan. He was of the view that timely release and proper use of Export Development Fund could ensure more exports, besides completing a number of projects undertaken by the trade bodies for providing the business community required infrastructure.