KARACHI - Expressing serious dismay over several announcements made in the Federal Budget 2016-17, Businessmen Group (BMG) Chairman and former president of the Karachi Chamber of Commerce and Industry (KCCI) Siraj Kassam Teli has underscored the need for removing numerous irritants from the budget document, particularly those pertaining to new taxes.
Speaking at a post-budget meeting held at KCCI here on Saturday to review the impact of many decisions taken in the federal budget, the BMG chairmancriticised enhancing the existing tax rates and granting more discretionary powers to the FBR. He pointed out that the last three budgets, announced by the government, had already granted massive discretionary powers to the FBR, which created immense problems for the business and industrial community of Karachi.
“This year’s budget is worst as compared to what we have seen during the last three years. It has been prepared to largely please the feudal lords only, as announced by Ishaq Dar himself during the budget speech, whereas no relief was given to the common man and no announcement was made in it to revive the economic activities and provide a level-playing field to all,” he added.
The participants pointed out that the budget had entirely focused on tariff and tax concessions granted to feudal lords and landed gentry. “Thus, the loss of revenue is likely to be recovered from the industrialists and traders based in urban areas through additional taxation amounting to Rs204 billion,” they expressed the apprehension. They opined that the recently announced budget had not focused on dealing with falling exports.
“Pakistan needs to expand export markets to regional countries, particularly to countries with whom FTAs (Free Trade Agreements) and PTAs (Preferential Trade Agreements) have been inked,” they asserted.The participants also expressed deep concern over the government’s neglect of KCCI’s proposals despite assurances given by the decision makers at numerous meetings held at the FBR prior to the budget presentation.
Terming finance minister’s budget speech as ‘election speech’, they said it was clearly an attempt to capture the vote bank of landed gentry. They said it seemed the government was not serious in broadening the tax base, and, instead, wanted to tax the existing taxpayers further, in order to bring more revenues.
“Moreover, there was no effort to include the income generated from agriculture in the definition of the term ‘income’, which is to be taxed,” they added.
According to participants, the concept of taxing the non-filers is faulty and must be protested. They opined that it was a matter of serious concern that out of a total population of 180 million, only around 1.1 million were tax filers which clearly indicated the failure of the FBR in bringing the prospective taxpayers into the tax net.
“The entire nation is made to bear the consequences of such failures,” they pointed out.
They said that contrary to KCCI’s proposals, all discretionary powers of the FBR and IR officers had been retained, which was a major deterrent in the way of broadening the tax base.
They said it was a matter of grave concern that the FBR had once again heavily relied on indirect taxes, including customs duties, sales tax, FED on beverages and cigarettes, and withholding income tax, while no road map had been provided for economic growth and diversion of capital from real estate to industry and trade.
“BMG and KCCI office-bearers strongly believe that by way of reduction in slabs of customs duty, a new pandora box has been opened. The changes in slabs has put many industrial raw materials and commodities under higher slabs of customs duty with an intention to increase revenues by Rs204 billion,” they added.
They further noted that various pressure groups had been able to obtain or retain the concessionary regime through intense lobbying prior to the budget.
“The Finance Ministry and the FBR succumbed to the pressure and therefore, failed to present a budget in the best national interests. Instead a significant amount of revenues was sacrificed,” they protested.
The participants said that no reduction had been made in the rate of WHT of 6.5 percent on commercial importers of raw materials, which would lead to misuse of exemption and most of the commercial importers would now switch to import under industrial category, resulting in the loss of revenues.
“In fact, the government has only been able to collect around Rs150 billion under the head of WHT from commercial importers at source,” they said.
They noted that against KCCI’s proposal, further Tax of 2 percent on sales to unregistered persons has been retained. There is no justification for retaining this tax after collection of 3 percent Value Addition Tax at Import stage.
They said that by virtue of retaining the exemption on import of raw materials by industry and subjecting it to 100 percent Audit, a floodgate of corruption has been opened for field formation and auditors. Instead a 2 percent WHT imposed on import of raw materials by industry and subject to adjustment would result in removal of disparity and increase in revenue, they opined.
Referring to the amendment proposed through Finance Bill 2016 in Section 68 of Income Tax Ordinance 2001 about Fair Market Value, BMG Leadership and KCCI Office Bearers stated that now the officials of Inland Revenue (IR) have been empowered to arbitrarily ascertain the market value of properties and disregard the value determined by provincial authorities.
They said that this particular amendment is a glaring example of granting more discretionary powers and promote corruption as the IR Officials may misuse this power to financially benefit by arm-twisting and black mailing the buyers and sellers of property. Instead of granting such powers to officials, the government should determine the realistic market value by raising it three to five times of the current value assessed by Collectors.
In the Financial measures for Budget 2016-17, the federal government has proposed to amend the Sales Tax Act 1990, whereby the adjustment of INPUT of Provincial Sales Tax on services will not be allowed against the Output of Federal GST. The implication of this measure is far reaching and covers the broad spectrum of services. This is tantamount to increase in costs and blockage of working capital for the services industry including Power, Utilities, Banking, Insurance, Security, Catering, Travel agencies, and many other segments. Such provisions are counter-productive to business activities and will also burden the end-consumers. The provision should therefore be restored to allow adjustment of Input of Provincial GST on services against the Federal GST wherever applicable.
The importers of Dairy Products present at the meeting expressed deep concern over imposition of 25 percent Regulatory Duty on Powdered Milk and Whey, which are essential consumer products. Increase in cost of Milk and Whey powder will directly impact the common man.
The importers have therefore demanded the immediate withdrawal of 25% regulatory duty in the Finance Bill 2016-17 and retain the Exemption Status of Powdered Milk & Whey from the Sales Tax
Representatives of the Marble Trade pointed out that Pakistan has been producing high quality of Marble and fine quality of Gypsum. Marble products and Gypsum products need incentives to lower cost of production and increase exports. Furnished Gypsum Products are importable at 6.25 percent Customs Duty whereas its raw materials are importable at 20 percent Customs Duty. Customs Duty on raw materials may be reduced and Regulatory Duty may be imposed on finished products. These anomalies may be removed for survival of Gypsum Board Industry.
While imposing the Regulatory Duty of 25% on MDF board to protect the domestic Industry, an inadvertent error has been made and the HDF (High Density Fiber Board) which is not manufactured in Pakistan has also been subjected to Regulatory duty. This anomaly has to be rectified prior to approval of budgetary measures.
The meeting participants strongly felt that Export Development Surcharge on export proceeds increases the cost of exports which should be withdrawn as other countries give incentives on exports.
After lengthy deliberations with the stakeholders of different sectors and noting their concerns, Siraj Teli advised the office bearers to fully utilize all available resources and every single platform to bring these issues and anomalies to the notice of decision makers in Islamabad with a view to get them amicably resolved which would not only go in favor of the country’s economy but will also ensure an enabling business environment.