Lahore Chamber Releases Proposals For Budget 2021-22

Lahore Chamber of Commerce & Industry (LCCI) on Wednesday released its proposals for Federal Budget 2021-22 and hoped that these would be made part of the policies for the upcoming financial year

LAHORE, (UrduPoint / Pakistan Point News - 31st Mar, 2021 ):Lahore Chamber of Commerce & Industry (LCCI) on Wednesday released its proposals for Federal Budget 2021-22 and hoped that these would be made part of the policies for the upcoming financial year.

The proposals have been forwarded to the Finance Minister Hammad Azher, PM's Advisor to Commerce Abdul Razak Dawood, Chairman FBR and other concerned departments.

The LCCI budget proposals, which have been compiled under the guidance of LCCI President Mian Tariq Misbah and consultation with Senior Vice President Nasir Hameed Khan and Vice President Tahir Manzoor Chaudhry, have said that Pakistan's economy is going through a challenging phase due to the outbreak of COVID-19 pandemic as the growth rate slumped to negative 0.4 per cent in 2019-20 compared to 1.91 per cent in 2018-19.

The LCCI suggested that the incentives which are currently provided to the five zero rated sectors should also be provided to other important export sectors of the economy e.g. Engineering, Pharmaceutical, Rice and Halal Meat etc.

Engineering sector holds great importance in the world economy as its share in global trade is around 52%. In Pakistan, however, no tax incentives are given to the engineering sector. Pharmaceutical sector also holds great importance in the world economy as its global trade is in excess of 600 Billion dollars (3 per cent of global trade).

Majority of the tax incentives in Pakistan are given to the Textile sector whose share in world trade is just around 4 per cent.

Tariff Rationalization: The government has reduced import duties on many Raw Materials lines in the last couple of years. We hope that this process would continue and all remaining raw materials which are not manufactured locally would be declared zero rated (elimination of Custom Duties, Additional Custom Duties and Regulatory Duties).

As an example, Molded Glass Vials and Wire-Rods (HS Code: 7227.9090) are not manufactured locally but Regulatory Duty is being charged on them that should be removed.

Refunds: The Government should focus on fixing the technical problems in the Sales Tax e-Refund system (Faster Plus) so that swift and transparent issuance of refunds to the exporters can be assured. Recently due to a technical error in the Refunds system which resulted in erroneous issuance of Refunds, notices were issued to the members of the business community and false cases were registered.

In addition to Sales Tax, the Income Tax Refunds should also be paid on an urgent basis through the Faster Plus system.

Sales Tax: The rate of 17 per cent sales tax on the inputs of various export oriented industries is extremely high and needs to be brought down.

Sales Tax should not be taken at the import stage. It should be applied after the actual sale of the respective products as in many cases, 10 per cent to 20 per cent products get wasted/damaged/discarded while loading & offloading or transporting from warehouse to sale points etc.

Reduction in Withholding Tax: To reduce the cost of doing business, Government should reduce the rate of Withholding Tax. Since most of the Businesses operate on very low profit margins, this rate of 4.5 per cent should be brought down between zero per cent and one per cent to make sure that businesses do not face liquidity problems.

Elimination of advance Income Tax at import stage and implementation of Final Tax Regime: For the facilitation of commercial importers and making sure that imports of vital raw materials are not affected, the advance Income Tax at import stage (Withholding Tax) should be eliminated and the Final Tax Regime should be implemented. It will help to curtail smuggling, reduce the cost of doing business, enhance Tax Revenues and increase the Exports.

CNIC Condition: The condition of disclosing CNIC for sale to unregistered person should be abolished in the larger interest of small businesses in the country in these challenging economic times.

Further Tax: The 3 per cent Further Tax chargeable on all supplies made to unregistered persons should be abolished.

Turnover Tax: The rate of Turnover Tax should be reduced from the current 1.5 per cent for the retail sector. Moreover for capital intensive sectors like Steel where the profit margins are low, the rate should be reduced from 1.5 per cent to 0.75 per cent.

Exemption from Audits for the Next 2 Years: In these extra-ordinary economic circumstances caused by the COVID-19 outbreak when the businesses are already struggling for financial space, no Audits should be conducted for the next two years. This will help to improve the Business Climate.

Tax Incentives for New Companies: There should be a holiday for all taxes and levies (Federal and Provincial) for 3 years for the newly registered companies, especially SMEs.

There should also be exemption from Audit for 3 to 4 years for the newly registered businesses.

Simplification of Taxation System: One page return form should be introduced.

There should be a single Audit for Sales Tax, Income Tax and Withholding Tax. The frequency of this single Audit should be reduced to once in 3 years.

There should be exemption from Audit for Taxpayers who deposit 20% more tax over the last year.

Discretionary Powers/Audits: Discretionary powers under Section 177, 214C, 138, 175 of (Income Tax) and 40B, 25 37, 38A, 40 and 48 of (Sales Tax) should be minimized in consultation with stakeholders.

There should be risk-based Audits (with one month prior notice) rather than random Audits to stop harassment. The frequency of Risk-Based Audits should be once in 3 years.

The criteria for conducting Audits (Income Tax, Sales Tax and Withholding Tax) should be published.

Notice for Recovery of Taxes: Many members of the Business Community have reported that they receive notices of Custom Duty, Sales Tax and Income Tax from the concerned departments for recovery of such taxes which got due some years ago. It is causing serious problems for the business community. This practice should be stopped immediately.

Advance Payment for Commercial Importers: The ban on the Advance Payments for Commercial Importers is making it very difficult for them to import vital raw materials and other essential components (spare parts and machinery). We recommend that Commercial Importers should be allowed to import against Advance Payments up to US $ 20,000.

Valuation Issues: The Lahore Directorate of valuation should be empowered like the Karachi Office to hold meetings of valuation committees since a heavy percentage of importers are from Lahore and up-country areas.

Misuse of Tax Exemptions by Industries in FATA/PATA: FBR has granted 17% Sales Tax exemption and two per cent Withholding Tax exemption to industries based in Federal/Provincial Administered Tribal Areas (FATA/PATA) on imports of certain raw materials. These raw materials are imported and sold in other parts of country at cheaper rates. It is seriously hurting the regular industries in other parts of the country. This matter requires immediate attention.

Testing Laboratories and Standard Certification: The government should utilize EDF Funding and also allocate sizable funds in the Public Sector Development Programme (PSDP) in the Federal budget 2021-22 to improve our infrastructure in Testing Laboratories and Standard Certification. State of the art Testing Laboratories on the outskirts of Lahore and other major cities across the country should be established.

Furthermore, up-gradation of existing Testing Laboratories should also be done through EDF Funding and the Public Sector Development Programme (PSDP) to bring them at par with international standards for serving the export needs of industries like Pharmaceuticals, Halal Food, Leather and Rice etc.

The facility of Testing Laboratories and Standard Certification should be provided, especially in the Special Economic Zones (SEZs), Export Processing Zones (EPZs) and Industrial Estates.

Access to Finance for SMEs Sector: The development of SMEs remains a consistent challenge and no major steps are being taken to enhance the growth rate of SMEs. The access to Credit for SMEs remains limited as they get only 6.2 per cent of the private sector credit and the number of SME borrowers are just around 179,000.

The government should introduce soft policies for SMEs including special financing schemes where they can get credit at low markup rates with NO collateral requirement. This will help the SMEs, especially in the engineering sector to upgrade technologically and become an important driver of economic growth.

Increased use of Islamic finance should be made for enhancing the access to finance for SMEs.

Extension in Temporary Economic Refinance Facility (TERF): The government initiated the Temporary Economic Refinance Facility (TEFR) for provision of long term finance facility at concessionary rates for purchase of new imported/locally manufactured plant & machinery for setting up new projects.

Since this scheme is very important for industrialization and expiring on 31st March 2021, it should be extended by 3 months, till the 30th June 2021.

Extension in Refinance Scheme for Payment of Salaries: The State Bank Refinance Scheme for the payment of Salaries should be extended for one more year. This would ease the cash flow constraints of the employers and thereby prevent layoffs.

Interest Rate: The interest rate should be reduced further from 7% to 5% in line with the regional economies to reduce the cost of credit for the Businesses. The regional interest rates are (India 4 per cent, Bangladesh 4.75 per cent, China 3.85 per cent, and Sri Lanka 4.5 per cent).

Rationalization of the Cost of Industrial land: The cost of land for the business community in the Industrial Estates has reached to exorbitantly high levels. There is a need for a simple lease policy in the Federal Budget 2021-22 through which the land in the existing/new Industrial Estates can be acquired at reasonable rates on long term lease.

Energy Cost: The higher cost of energy in Pakistan as compared to regional economies has increased the cost of doing business for our industry. The Energy Mix should be made more sustainable and cost-effective by reducing the reliance on imported Oil for electricity production and increasing the share of Hydro Power and Renewable Energy (Wind, Solar, Biomass etc).

The Electricity tariff for all the sectors should be reduced to 7.5 cents/kwh through elimination of taxes. The Gas Tariff should also be reduced for the industry.

High Taxes on Local LPG: The local LPG production caters to 60-70% of demand but it is subjected to 17% Sales Tax as compared to only 10% on imported LPG. Furthermore, a Petroleum Development Levy of Rs 4,669 per MT is levied on local LPG production while no Regulatory Duty is imposed on imported LPG. These anomalies need to be rectified.

Facilitating Production of lithium-ion Batteries in Pakistan: The local assembling or manufacturing of Li-ion batteries requires the import of raw material Li-ion cells (HS code: 8507.6000) which is subjected to heavy duty and taxes. The Government is requested to eliminate duties on the raw materials to facilitate the production of lithium-ion batteries as not even a single lithium-ion battery pack unit exists in Pakistan.

Ban on the Export of Copper: The SMEs involved in the engineering sector (electric cables, motors/pumps, control panels etc.) use local copper produced from plants/furnaces as a raw material since most of these SMEs cannot directly import copper due to minimum shipment size and other constraints. The local copper metal plants/furnaces however prefer to export the copper due to export and tax benefits. Keeping in view this scenario, the Government should ban the export of copper which is an essential raw material for our Engineering industry SMEs. Furthermore, the export of other raw materials whose value addition is done locally should also be banned.

Recommendations regarding Information Technology (I.T) Sector: The current taxes on computer hardware components, printers and networking equipment etc. accumulate to approximately 36% which should be reduced to 5%. This will help to prevent under invoicing and the use of grey channel.

The current Tax exemptions for the companies engaged in IT business (both local and exports) should be extended for next Five years.

The Sales Tax on IT services (infrastructure installation, support and services) must be reduced by 50 per cent.

To develop the E-Commerce business, an Electronic Payment gateway should be operationalized in the country.

To make the Banking system secure for Businesses, IT Security & Audit systems of the Banks must be upgraded according to international standards.

Government must establish its own payment platform where there should be no charges on remittances to make our I.T houses competitive in the international market.

E-commerce merchants like Paypal, Stripe, Paytime, Paya and others must be brought to Pakistan to promote e-commerce & online IT businesses.

To curtail the import bill of computer storage devices such as memory cards, SSDs, RAMs and embedded storage chips, the government should bring reputable storage chip manufacturing companies to Pakistan for Joint Ventures (JVs).

To curtail our software imports, the use of high quality open source software, especially in Government departments must be promoted.

To promote IT startups, Government should set up free technology parks for new startups in major cities, providing them with shared Infrastructure such as Internet, printing, office space and free web hosting.

Incubation Centres should also be set up in all the major universities across the country to promote the start-ups and provide on-job training to IT graduates.

Exemption from Total Income for LCCI: The Lahore Chamber of Commerce and Industry (LCCI) is registered as a company under Company Act 1913 since May 12, 1959. LCCI is also registered with Director General Trade Organization, Ministry of Commerce Government of Pakistan vide License no. 13. It is the premier and the oldest business support Organization of Pakistan, serving business community from last many decades. Appellate forums have held LCCI as charitable institution in the judgments 2009 PTD (Tribunal) 820 and ITA No. 3818/1b/2018. In the judgments of the appellate forums of Pakistan as well as courts from Indian jurisdiction have held that objects set out to protect the commerce, trade and industry would always be considered as charitable.

M/s. Lahore Chamber of Commerce and Industry, fulfills all the conditions laid down under rule 213 of Income Tax Rules, 2002 for approval under section 2(36) of the Ordinance. Moreover, LCCI also fulfills the conditions laid down under section 100C of the Ordinance for hundred percent tax credit.

FBR is requested that Income of LCCI be included in under Sub clause (1) of Clause 66 of part I of Second Schedule of Income Tax Ordinance, 2001 for Exemption from Total Income.

Consistency in Macro-Economic and Sector-Specific Policies: To remove uncertainty among businesses and to letting our industry grow to fetch export revenues, there should be consistency in economic policies (both Macro-economic and Sector Specific).

Value addition through export-oriented SEZs and EPZs: To capture a larger share in the world trade, Pakistan has to make a strategic shift in the composition of its exports which requires promoting exports of medium/high technology products. Pakistan's exports are highly concentrated in few items like Textile goods, Leather and Rice.

There should be special focus on developing Export Processing Zones (EPZs) and Export Oriented Special Economic Zones (SEZs) for technology intensive products like Engineering goods, Pharmaceutical, Value Added Textiles, Surgical Instruments and Sports Goods etc.

The EPZs and Export Oriented Special Economic Zones should be equipped with latest facilities like Water Treatment Plants, Certification Labs, One Window Facilitation and Solid Waste Management.

Land in the Export Oriented SEZs and EPZs should be provided on lease to private sector on concessional rates.

New Markets: There is a dire need to diversify our exports in terms of markets as about 60 percent of Pakistan's exports go to just ten countries. The major destinations for our exports are USA (17.3 per cent), China (8 per cent), Afghanistan (4.2 per cent), United Kingdom (7.1 per cent), Germany (5.9 per cent), UAE (5.2 per cent), Bangladesh (3.4 per cent), Italy (3.4 per cent), Spain (4 per cent) and France (1.6 per cent).

There is an ample potential of increasing exports to the other world markets where Pakistan is an under achiever South America, Africa, Central Asian Republics (CARs) and Russia where the combined share of Pakistan's exports is less than 10 per cent of its total exports. This can be done by organizing roadshows, single country exhibitions, export oriented delegations and exchange of information between the trade bodies of Pakistan and these countries.

The Banking Channels should also be established for enhancing our exports to the aforementioned potential markets like Africa, Central Asian Republics and Russia etc.

Ease of Doing Business: The total number of taxes should be reduced to five byClubbing Labour related taxes e.g. (EOBI, PESSI, WPPF, WWF) into one tax; clubbing (Professional and Property Tax) into one tax; clubbing (Federal and Provincial Sales Tax) into one tax.

The frequency of tax payments should be reduced by reducing the frequency of the tax payments of EOBI, PESSI and Sales Tax.