To increase revenue earning in a spirit of reducing cost of doing business and have positive impact on the ease of doing business, Pakistan exports need to maximize selling on C&F basis and imports to maximize buying on FOB basis, Chairman Pakistan Ships' Agents Association (PSAA), Tariq Haleem suggested.
In a letter to adviser commerce, textile, industry, production and investment, Abdul Razzak Dawood, Chairman PSAA said that this will ensure direct exports to end users and imports direct from producers and will cut out third party intervention.
One of the steps which is a major hurdle creating extra costs is freight tax, Income Tax Ordinance, 2001 (page 29), section 7, sub-section (1), Para (a) &(b) and urged to revisit and deleted in total.
This will result in zero tax freight in Pakistan and eradicate time wasting red tapism. Giving example of export cargoes, he said that cargoes like cement clinker, rice etc, in shiploads which were being sold on C&F basis are now mostly sold on FOB basis. One of the reasons is freight tax which is applicable as per Income Tax Ordinance 2001.
Only a few shipping agents/ship owners have the connections/papers work to get waiver of freight tax (Maximum freight tax is 8 percent on freight earned). Therefore, third parties are involved which buys FOB from Pakistan exports, arrange/charter ships, get freight tax waiver and sell to end users or actual buyers on C&F basis.
Giving example of import cargoes, he said when an importer wants to buy on FOB basis and arrange charter ship himself to save overall C&F cost then even on import cargo 8 percent tax on freight is attracted as per Income Tax Ordinance 2001. Also, State Bank of Pakistan does not permit/delay in opening FOB letters of credit.
This again opens the door for third party intervention, they step in, receive the C&F letter of credit (thereby avoid freight tax) by FOB from suppliers, arranges/charter ships and sell C&F to Pakistani importers.
Therefore, in actual fact negligible "if any" freight tax is earned but it has negative impact for both imports and exports of cargoes in shiploads/chartered vessels.
As far as containerized cargoes are concerned, most of the shipping lines to get freight tax waivers as per existing bilateral trade agreements between Pakistan and other countries. Therefore, in actual fact, there is no major earning of freight tax.