LAHORE – The auto parts manufacturers have conveyed their serious concerns on phenomenal increases in withholding taxes (through SRO 98 (I) 2013 & SRO 140(I)/2013) and urged the Federal Board of Revenue (FBR) to withdraw both SROs immediately.

They stated that, on the one hand, SRO 98(I) 2013 subjects industries to withholding tax of 20% of sales tax payable on  purchases, and on the other hand, SRO 140(I)/2013 increases withholding income-tax from 3% to 5% on imports of industrial raw materials.

They observed that auto parts manufacturers’ SMEs were already facing severe cash flow problems due to deduction of 3.5% withholding Income-tax on supplies to customers as well as 3% withholding Income-tax at imports (for which exemption certificate has already been withdrawn even for assesses who pay full advance taxes).

PAAPAM Chairman, Munir Bana, in a letter to FBR Chairman, Ali Arshad Hakeem, has pointed out that increasing withholding taxes at all levels would be the last nail in the industry’s coffin, as it would siphon away substantial liquidity and increase financial costs. He said that the local auto industry is already at its lowest web as car sector’s production has declined by 30% in first half of the current fiscal year, while tractor industry is still trying to recover from last year’s recession. In this scenario, these new withholding taxes will leave no working capital for carrying on routine

industrial operations. Vice Chairman, Usman Malik, added that these SROs would also come in the way of documentation of the economy because either the manufacturers or importers would start making supplies to unregistered persons or to such registered persons who are not withholding agents. He said that withholding agents would also be facing great difficulties in getting raw materials from registered persons. He stated that the SRO would be a blow to the economic activities that were facing an inertia-like situation because of unavailability of gas, electricity and law and order situation in parts of the country. He added that we need business-friendly policies to boost our businesses but it is unfortunate the authorities on the helm of affairs are creating more irritants to retard the economy.

They asked the FBR to concentrate on expansion of tax base by bringing the undocumented sectors into the tax net, rather than squeezing the sectors which were already documented.