KARACHI - The Small & Medium Enterprises Development Authority (SMEDA) has prepared a set of proposals for upcoming budget FY2009-10 to provide facilities to SME sector. SMEDA, in its budget recommendations, emphasized that Withholding Tax on imports must be brought down to 1 per cent, while this tax on all export proceeds ought to be reduced from 12.5pc to 0.75pc of C&F value. Suggesting abolishment of withholding tax on utility bills, SMEDA proposed that the minimum base limit for levying withholding tax on bank withdrawal might be enhanced to Rs50,000. It was suggested that tax holidays for new industrial units set up in under developed areas are to encourage investment in these areas. In other proposals, to exempt the 15pc withholding tax on payment of technical fee to improve the inflow of foreign investment, the criteria for income tax audit may be streamlined. While in this regard, the period of five years may be brought down to 2 years. Regarding Sales tax, SMEDA suggested that full refund of import duty must be allowed if items are re-exported with value addition. The small-scale industry may be exempted from levy of sales tax on utility bills; otherwise at least manufacturing which is exporting over 60pc of their products must be exempted of it. It proposed that the current rate of 16pc must be reduced to 12pc. Keeping in view that hardships are being faced to business community, SMEDA recommended that sales tax registration process may be streamlined to facilitate them. Furthermore, the sales tax on input of pharmaceutical packing material may be abolished, while late payment surcharge on sales tax may be reduced from 1.5pc to one percent. The penalty of non-filing of sales tax returns which is currently Rs5,000 must be reduced to Rs1000 on paid sales tax returns and Rs500 on non-filing of nil sales tax. About Custom tax, SMEDA proposed that all types of raw materials, stainless steel and other components, all types of machinery and their parts, used in surgical instruments manufacturing should also be allowed in duty free imports. Similarly, duty free import of raw material for footwear industry also be allowed, while custom duty on wood related materials, tools and components, products used in finishing/polishing/packaging, and machinery not manufactured locally may be zero rated, SMEDA suggested. Adding that custom duties on imported raw material of pharmaceutical industry, not manufactured locally must be reduced to 5pc. The 5pc rebate must be given to increase the local export of precious and semi precious stones. As medium to long term policy measures for SME development, SMEDA proposed incentives to start-ups in pioneer industries for their development and growth and said at least 20pc of taxes due may be deferred up to 3 years without interest when R&D expenditures of equivalent amount are made, while the business startups may be allowed a tax reduction amounting to 40 to 60pc. SMEDA also proposed measures for tax collection process and said that before embarking on the detailed scrutiny or audit, the Income Department must make offer to taxpayers to revise their returns voluntarily to avoid audit (like pre-bargain of NAB). This strategy will help to increase the tax collection significantly without actually going into audits and should be cost effective as well. In order to gain taxpayers trust, to conduct audit of businesses by involving trade associations, SMEDA proposed. SMEDA also proposed financial support for Research & Development for technological up-gradation of the SME sector and said R&D grant of 6pc of FOB value on leather footwear should be continued for at least five more years. Moreover, this grant should be extended to other SME sectors-marble and granite, furniture, dairy, gems and jewelry, canvas and tents, surgical instruments, sports goods, garments, cutlery, footwear etc to promote invention and innovation through research and development. To reduce the cost of doing business, SMEDA suggested that export re-financing scheme should be simplified by formulating uniform collateral and credit policy that must be adopted by all commercial banks.