PBF Recommends To Simplify Tax System, Make Businesses Easier

Pakistan Business Forum (PBF) has recommended the federal government to simplify the tax system to reduce complexity and make it easier for businesses to comply, especially the newly introduced “Tajir Dost Scheme” for traders, along with rationalizing tax rates

KARACHI, (UrduPoint / Pakistan Point News - 18th May, 2024) Pakistan business Forum (PBF) has recommended the federal government to simplify the tax system to reduce complexity and make it easier for businesses to comply, especially the newly introduced “Tajir Dost Scheme” for traders, along with rationalizing tax rates.

These proposals were presented by Pakistan Business Forum Vice President Ahmad Jawad while briefing the media about tax reforms in coming budget.

He suggested the elimination of distortive tax exemptions to create a fair and equitable tax system including automating the tax processes to reduce human interaction and minimize the risk of corruption.

Further eliminating withholding taxes to reduce the burden on businesses and individuals included Withholding tax on cash withdrawal may be abolished in the Federal Budget.

Ahmad Jawad said that in custom duties we suggested the tariff reduction on raw materials and machinery to 0-5% could encourage industrial growth and exports. The removal of additional customs duty (ACD) and regulatory duty (RD) on imported raw materials and machinery and Rationalization of customs tariff structure to eliminate anomalies and disparities with the alignment of customs tariff according to international best practices to enhance competitiveness.

The PBF has also put forth certain legislative measures concerning FBR in order to modify sections 25(A) and 25(D) of the Custom Act 1969 and grant permission to domestic manufacturers. Likewise, the misuse of the Afghan Transit Trade (ATT) poses a significant problem for formal sector companies, whether they are engaged in manufacturing or imports. Furthermore, the illicit smuggling from Iran is inflicting irreversible damage on both the industry and FBR revenues. In light of this, goods transported under ATT from Pakistan to Afghanistan should be subject to duties and taxes in accordance with Pakistani laws, with the resulting revenue being transferred to the Afghan Government.

Jawad viewed a quantitative restriction should be applied on goods moving under ATT on the basis of consumption.

He said the government of Pakistan should take up the issue of smuggling from Iran. Similarly rate of minimum tax of 1.25% under section113 is extremely high and unrealistic, he said and added that to promote industrialization, the minimum tax should be abolished for all listed companies as these companies were subject to stringent regulations and audit. For other companies, rate of minimum tax be reduced gradually by 0.

25% on an annual basis so that by Tax Year 2027 the rate would be 0.5%.

Jawad said since exports do not contribute towards Output tax, therefore, the condition of 50% should be amended to 10% on monthly basis for all exports irrespective of any sector otherwise it would not be possible for registered person to absorb the amount of input tax paid for the purposes of manufacturing of items for local and export sales and consequently, the same would discourage export of goods.

This amendment is necessary to encourage local manufacturers with excess production capacity to look for export opportunities for unutilized capacity, he added.

At present, due to restriction under section 8 B, manufacturers are reluctant to venture into export markets.

PBF also urged to re-evaluate on the Super Tax as it was imposed on the documented sector retrospectively through the Finance Act, 2022. This is a penalty on the well- organized documented sector that creates jobs and disposable incomes for millions and also generates substantial tax revenues for the country.

Moreover, under section 4C, super tax is not progressive in nature and is applied on the entire profit once a threshold is crossed. This is contrary to the concept of marginal tax rates under the progressive basis of computing tax liabilities. Further under the Sales Tax Act, Section 8 B, a company is not allowed to adjust input tax in excess of 90% of the output tax for that period.

Considering the recent unprecedented increases in Gas / Electricity prices coupled with extraordinary depreciation of PKR, cost of manufacturing has increased exponentially. As a result, it has become almost impossible to absorb the amount of input tax.

The Corporate services sector and limited companies and their subsidiaries should be taxed under the normal tax regime instead of the minimum tax regime and rate of WHT under section 153(1)(b) for the aforesaid companies may be reduced to 3% in the federal budget.

PBF also stated that on massive under- invoicing especially by Commercial Importers is destroying domestic industry in this regard special measures should be taken seriously in the budget.

Including value addition to increase the share of horticulture and agriculture exports, PBF suggested and demanded that a tax holiday of three (03) years may be considered in the budget for the setup of machinery, including Control Atmosphere (CA) stores.