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Compiled by R&D Department and Budget Working Group FPCCI Page 1

PROPOSALS ON CUSTOMS, SALES TAX,

DIRECT TAXES AND TRIBAL AREAS

(FPCCI BUDGET PROPOSALS FOR 2011-2012)

Presented by

SENATOR GHULAM ALI

PRESIDENT

FEDERATION OF PAKISTAN CHAMBERS OF COMMERCE & INDUSTRY (FPCCI)

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Customs and Valuation(3-11)

1. SOLITARY POINT OF IMPORTANCE 3

2. TARIFF ON CAPITAL GOODS 3

3. SMUGGLING 3

4. FTA WITH CHINA 3

5. DUTY ON TEXTILE MACHINERY 36. DUTY ON SHUTTLE LESS LOOMS PARTS 4

7. PROVISIONAL ASSESSMENT U/S 81 4

8. CASCADING SLABS 4

9. DAILY CUSTOMS DATA OF IMPORTS 4

10. DUTY ON LUXURY ITEMS 4

11. DUTY ON DRY FRUITS 4

12. DTRE SCHEME for MANUFACTURER CUM EXPORTER 4

13. MISDECLARATION OF FLAT PRODUCT (CHAPTER 72): 5

14. CLEARANCE OF GOODS UNDER ATTA 5

15. FBR PRE-BUDGET ANOMALY COMMITTEE 5

16. TARIFFS / CLEARANCES 5

17. MISDECLARATION, UNDER INVOICING 5

18. FAILURE OF ABOVE SHOULD BE PENALIZED 5% OF INVOICE VALUE 6

19. ELECTRONIC RECONCILIATION / UNDER INVOICING 7

20. CROSS VERIFICATION OF INVOICES BY BANKS 7

21. EXPORT DEVELOPMENT SURCHARGE (EDS): 7

22. DUTY AND TAX REMISSION FOR EXPORT (DTRE) 7

23. DUTY ON TYRE AND TUBE 8

24. CERAMIC TILES INDUSTRY 8

25. BICYCLE CHAIN INDUSTRY 9

26. GEMS & JEWELLERY SECTOR 9

27. R&D TYPE INCENTIVE TO GOLD AND JEWELRY SECTOR 9

28. VALUE ADDITION NORMS FOR GOLD AND JEWELRY SECTOR 1029. 1% PENALTY FOR NON REALIZATION OF EXPORTS PROCEED

OF GOLD JEWELRY 10

30. SALES TAX ON GOLD AND JEWELRY SECTOR 11

31. WHT AND EDS ON GOLD JEWELRY SECTOR 11

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SOLITARY POINT OF IMPORTANCE

No customs duty on all basic industrial raw materials.

Measures to provide a competitive and level playing field by removing anomalies and

exemptions.

To provide a boost to the export led growth by providing more incentives to the export oriented

textile industry which has heavily invested in machinery, equipments and infrastructure in the last

two to three years.

TARIFF ON CAPITAL GOODS

Currently duty on import of machinery ranges between 5% to 35%, while on the other side, competing

nations allow duty free import of plant and machinery. This increases cost of production and makes

locally manufactured products uncompetitive in the international market. Unnecessary formalities results

in corruption. It is proposed that all machinery and equipment, not manufactured locally, should be

allowed to be imported at zero duty / sales tax with no additional duties. This will encourage investment in

manufacturing sector, and improve competitive advantage, resulting in increased exports.

SMUGGLING

Smuggling particularly through ATT and SOST (KKH) border continues unabated, resulting colossal loss

to trade, industry and GOP revenue. Since total elimination of smuggling only through administrative

measure at the borders is difficult remedy lies in reducing incentives for smuggling by reduction in tariffrates to the lowest possible level on smuggling prone items. It will be resulted in higher government

revenues, provide impetus to local trade/industry and generate employment opportunities.

FTA WITH CHINA

Import of Machinery from China under FTA is zero rated therefore it is proposed that spare parts should

also be allowed to import at Zero percent under the FTA

DUTY ON TEXTILE MACHINERY

Textile machinery imported by the units registered with Ministry of Textile Industry is allowed at zero

percent duty. Therefore, textile machinery not registered with the Textile Ministry should also be allowed

at zero percent Duty.

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DUTY ON SHUTTLE LESS LOOMS PARTS

Spare parts for shuttle less looms imported by the Industrial units should also be allowed at zero percent

Duty.

PROVISIONAL ASSESSMENT U/S 81

It was approved by the then Minister of Finance, Chairman Planning and Chairman FBR that the

consignments realized provisionally under Section 81 should be finalized within 90 days. In case

department fails to finalize it within 90 days, the declared value should be accepted.

CASCADING SLABS

The duty on primary raw materials, intermediate goods, semi-finished goods and finished goods shouldbe levied on the basis of cascading duty structure. We proposed to constitute and anomaly committee

comprising of representatives of FBR and FPCCI to look into the anomaly prior to announcement of

budget.

DAILY CUSTOMS DATA OF IMPORTS

Daily custom data of imports i-e items, HS Code, rate, quantity and origin should be provided to FPCCI to

enable it to give suggestions on valuation in the larger interest of revenue to the government exchequer.

DUTY ON LUXURY ITEMS

FPCCI point of view is that duty on all the luxury items (397) should be maintained at 35% and not be

reduced.

DUTY ON DRY FRUITS

Dry fruits are not produced locally. It is imported for Afghanistan and re-exported to foreign countries as

Pakistan Origin, and earns precious foreign exchange for the country. Keeping in view of its heavy global

trade, the Indian Government has abolished imports duties on dry fruits. As a result Indian traders are

rapidly replacing Pakistani importers of this product. It is therefore, proposed that customs duty on import

of dry fruits from Afghanistan be abolished.

DTRE SCHEME for MANUFACTURER CUM EXPORTER

Previously manufacturer cum exporter were enjoying the facility of vending of their semi finished goods

under the DTRE rules because there was the under mention clause written in rules.

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(An exporter may get his goods finished from any person registered under the sales tax from any

where in Pakistan)

But since previous budget this facility curtailed and above mention clause is omitted so the concerned

authority is not approving the application of those exporter to import the raw material under DTRE

scheme, on the objection that they do not hold complete plant such as Doubling Twisting, Warping,

Sizing, Weaving, Embroidery, Stitching. Department is not entertaining the application of those exporters

cum manufactures who do not hold even one of the above facility. It is proposed to enhanced to raise the

export such kind of hurdles may be removed to facilitate the small unit to export maximum of their

capacity.

MISDECLARATION OF FLAT PRODUCT (CHAPTER 72):

Duty on all other flat product is 20% on secondary and 10% on Primary. Therefore duty on alloy sheet

and silicon sheet should also be on the same pattern to avoid misdeclaration.

CLEARANCE OF GOODS UNDER ATTA:

All the provisions of ATTA, such as bank guaranty, tracking, sealing etc. should be strictly follows in letter

and spirit for clearance of goods under ATTA.

FBR PRE-BUDGET ANOMALY COMMITTEE:

In order to avoid post budget anomaly it is proposed that a FBR Pre-Budget Anomaly Committee,

consisting of FPCCI and FBR representatives be constituted under the chairmanship of Member Custom

FBR.

TARIFFS / CLEARANCES

Introduction of PACCS by the government is in the right direction, however it has been misused. Major

area of weakness is misdeclaration and under Invoicing, our recommendations in this direction are stated

further in the section of Tax Evasion.

It is recommended that it should continue for only industrial sector established for over two years and

have filed Sales Tax, Excise Duty and all other Tax returns regularly and their tax assessments have

been finalized. Post clearance audit may be carried out by internal and or external auditors.

MISDECLARATION, UNDER INVOICING

To discourage misdeclaration all invoice must be attested by relevant authorities of exporters countries,

and Custom should cross check the same Banks where relevant L/C was opened.

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In case if scan or exchange prices are available, formula for calculating CFR Prices based on these scan

prices should be notified and prices should be issued on periodic basis. However, in other cases Customs

should prescribe to such scans thus getting first hand information for timely issuance of valuations.

Necessary amendments should be made in Customs Act to make it mandatory for Customs Valuation

Department to hold meaningful consultations with FPCCI and relevant trade bodies before issuing any

price ruling u/s 25 A

In case of consumer products, committees for different types of products, comprising of custom officials,

nominees of FPCCI and relevant trade bodies, importers and local manufacturers of competing products,

should be formed. These committees should evolve formula, criteria and mechanism, for filing of

valuations for such products and decide valuations on sufficiently broad basis to remove chances of

evading price rulings by variation of name, origin, description, weight of packaging etc.

PACCs and One-Customs assessing officials should accept trade bodies price recommendations and incase of difference of opinion, they should give reasons and evidences to substantiate their higher or lower

assessments. In case of difference of more the 10% (lower or higher) the assessing officer should

consult trade bodies prior to finalization of their assessment. Monitoring committees should be formed

with representatives of trade bodies to check compliance.

Exporter countrys custom house attested shipment invoice should be attached with each and every

cargo, as it is general practice that exporter attach wrong (under value) invoice with cargo and submit

original value invoice to their custom house for export rebate. State Bank may also restrict all importers

to add above clause in their LCs.

FAILURE OF ABOVE SHOULD BE PENALIZED 5% OF INVOICE VALUE.

It is also suggested that if any importer found to involve in under invoicing then importer andexporter should black listed. Action to be taken against Government Officials if found involved

Custom official signing the import document and assessing the duty of mis-declared goods,caught subsequently should be also be penalized and punished.

The information which used to come from CARE and from the FPCCI standing committee onstatistics should be revived to maintain transparency in valuation at custom level.

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ELECTRONIC RECONCILIATION / UNDER INVOICING

NTN number is used in forms as well as Custom GDs. Hence by merging both data automatic

reconciliation can be performed and in case of large difference, detailed analysis may be performed. This

shall reduce the chances of under invoicing and excess remittances thus saving precious foreign

exchange.

CROSS VERIFICATION OF INVOICES BY BANKS

Under chapter XIII, item no 16 SBP instruction procedures has been stated regarding imports on the

basis of registration of contracts. In this section there is a sub clause IV which states that remittance shall

be made in accordance with instructions contained in PARA 23 (ii) of this chapter.

In Para 23 it states that if the shipping documents are received directly the n the invoices and

documents as accepted by customs should be submitted for remittances.

Recommendation: This should be amended to include that all such invoices must be cross verified by

the banks so as to match them with the ones submitted at the time of opening L/Cs.

EXPORT DEVELOPMENT SURCHARGE (EDS):

EDS @ 0.25% levied on exports of products serves as disincentive for export and reduced competitive

edge of our products in global market. Therefore 0.25% EDS be abolished.

DUTY AND TAX REMISSION FOR EXPORT (DTRE)

DTRE is an excellent scheme and has the potential to generate incremental exports of $ 1 billion plus

annually. However, vested interests are busy in sabotaging its smooth implementation for obvious

reasons.

Therefore, it is proposed that government should streamline DTRE procedures in consultation with

stakeholder. In the mean time following suggestion may be considered to make it exports friendly:

Audit: There is no need to conduct physical audit of record of a DTRE approved person once the

information of his purchases/imports is matched with the goods exported through computer softwaremaintained by DSAO office.

Value Chain: The supplier of indirect exporter should also have the facility of getting himself registered

under DTRE scheme to buy the duty and tax free inputs.

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Rules for Regional Collectorates: The Collectorates should give special consideration while processing

the refund or other matters of DTRE approved registered person as it has been experienced that DSAO

demands NOC from the concerned collectorate, which is never provided in time. A provisional approval

should be granted on undertaking of exporter and the department may complete its formalities later on.

Excessive Penalties: Monthlypenalties ranging from 1-3 % of FOB value of unutilized input goods as

prescribed under rule 299 (3) are too high and may be reduced to the level of current banking interest.

Propotionate Adjustment of ST paid on Electricity: Since sales adjustment on electricity is admissible

in either case whether used in making zero rated or local supplies, as such the word Proportionate be

deleted from Rule 302-A.

Simultaneous Adjustment /Refund of input: It should be clarified that exporters may claim refund of

input tax paid on goods used in manufacturing and exports of goods under DTRE scheme to remove

contradiction and confusion and to encourage exporters to adopt DTRE scheme.

Uniformity of Procedures: The buyers, particularly DTRE approved persons should not suffer on

account of unavoidable mistakes committed by the suppliers. Minor omissions like wrong PTC heading be

ignored.

Transshipments: Allow transshipment to companies in the scheme.

Export from EPZ and Manufacturing Bonds: Facility of zero rating of sales tax and Duty Draw Back of

Custom Duties is not allowed on exports made through the land route form EPZ & Manufacturing Bond.

This illogical condition makes these export friendly schemes of EPZ and Manufacturing Bond ineffective.

Surprisingly the goods of International Security Assistance Forces (ISSAF) are allowed without this

condition. Therefore, in order to boost the exports to Afghanistan and minimize the refund of duty

drawback claims, a no-duty-no-refund based scheme has to be encouraged. For this purpose the

unnecessary regulations has to be removed from these schemes. In SRO 1021(I)/2007, dated October 8,

2007 Para 8(d) issued by Ministry of Commerce, the facility of zero rating of sales tax and duty draw back

of custom duties is not allowed on exports made through the land route from EPZ and manufacturing

bonds. It is proposed that all regular exports to Afghanistan should be allowed without this conditionality.

Customs Tariff Rate on Tube and Tyre

Annexure 1

PCT Code Description

Rate of

Duty

2010-11

Proposed

Rate of duty

2011-12

Brief Justification/ rationale for

proposed change

Suggested to be

changed through

SRO or in tariff

40.1100

New Pneumatic Tyre of

Rubber 25% 5%

Currently, 64% of Pakistan Tyres

demands are met by smugglingThrough Tariff

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4011.1000

of a kind used on motor

cars 20% 5%

4011.2010

oaf a kind used in Light

Trucks 20% 5%

4011.6100

of a kind used on

Agricultural or forestry

vehicles 20% 5%

4011.9200

of a kind used on

Agricultural or forestry

vehicles 20% 5%

4011.9900 others0 10% 5%

4011.4000 Of a kind - motorcycle 25% 5%

either through ATT route or

decade old but effective route of

Bander Abbas Iran - Islam Qila

Afghanistan to Pakistan. The

massive smuggling cant addressed

due to the long border between

Pakistan and Afghanistan, Which is

virtually impossible to control andsmuggling will continue until and

unless, fiscal measures are taken

by the government

CERAMIC TILES INDUSTRY

At present the customs duty on ceramic tiles (HS Code: 6907 & 6908) is 35% which should be retained to

protect the local Ceramic Industry which is going through one of its worst times. The local Ceramic

Industry is continuously fighting against the menace of massive mist

-declaration and under-invoicing on import of tiles especially from China as practically the containers can

not be examined. If the duty is reduced further it will only be a matter of time that the survival of the

Ceramic Manufacturing Industry in Pakistan will become difficult.

BICYCLE CHAIN INDUSTRY

At present the customs duty on Bicycle Chains (HS Code 7315.1120) is 35% which should be retained in

the forth coming Budget. If the duty in the fiscal Budget as mentioned in the news paper is reduced from

35% then the impact of lower duty will hit the local industry. The local Bicycle Industry is continuously

fighting against the menace of massive mis-declaration and under-invoicing on import of Bicycle chains

especially from China as practically the containers can not be examined. If the duty is reduced further it

will only be a matter of time that the survival of the Bicycle Manufacturing Industry in Pakistan will become

difficult.

GEMS & JEWELLERY SECTOR

It is an export Oriented Industry. Keeping its ever increasing global market in view, India and Sir Lanka,

our main competitors, have timely given several fiscal and administrative incentives for the development

of the industry in their respective countries. Resultantly, exports of gems and jewellery from these

countries witnessed manifold increase.

Indias exports of Gems and Jewellery products in 2009 was US$ 32.6 Trillion, whereas Pakistan earned

foreign exchange of US$ 0.46 Trillion, from export of these products in the same year, i-e Indias exports

is about 7087% more than the Pakistans exports. This clearly shows that India, soon after independence

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in 1947, took effective measures for promotion and development of this sector. This also underscores the

need to develop this industry in Pakistan on war footings.

Given below are the proposals for the promotion and improvement of competitiveness of the indigenous

gem and jewellery industry;

Import duty on tools, machinery and equipment for gem and jewellery manufacturers should be

lifted.

Precious metal imports be liberalized

Tax exemption on all export earnings for gem & jewellery industry be allowed.

Fiscal and financial incentives should be given to companies investing in gems and jewellery

manufacturing industry.

All imports of precious metal and gems (diamond etc) should be exempted form duty and taxes.

To protect gemstone reserves, mechanized tools based on latest technology should be used to

exploit the reserves, and heavy machinery like bulldozers and excavators be banned.

To establish a world class, internationally affiliated Gemstone Testing Laboratory for certification

and research.

To establish a regionally recognized free-standing Gem & Jewellery Training Institute, which

should be affiliated to a leading international training institute.

Export of gems & jewellery in raw or semi finished form should be banned and its export should

only be allowed after achieving a certain level of value addition.

Tax holiday against exports be allowed to the industry.

R&D TYPE INCENTIVE TO GOLD AND JEWELRY SECTOR

Pakistan exporters face cut throat competition with other countries particularly Malaysia and India where

cost of production is less and indirect facilities are provided. It is therefore proposed that 3% incentive

may be provided to this sector to boost the export.

VALUE ADDITION NORMS FOR GOLD AND JEWELRY SECTOR

While the ministry appreciating there genuine request revised the norms vide SRO 837 (I)/2007 as

follows:

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4% of Gold price for bangle and chain.

6% of Gold price for other plain jewelry

9% of Gold price for studded or embedded Jewelry.

Recently Gold price touched peak of US$ 1440 i.e. US$ 46.29 an increase of 139% from the date the

value addition norms were revised in 2007.

It is therefore proposed that Value addition norms with grammage favourably instead of value of gold

which is totally unfair and inhabiting promotion of gold jewelry. The proposed value addition norms per

gram are given as fallows.

US$ 0.8 per gram for Bangle and Chain.

US$ 0.90 per gram for other plain jewelry

US$ 1.75 per gram for studded or embedded jewelry.

1% PENALTY FOR NON REALIZATION OF EXPORTS PROCEED OF GOLD JEWELRY

1% penalty has been introduced for non realization of export proceed within prescribed time period which

is discriminatory as no other sector is subject to be penalty. SBP has its own mechanism to penalize the

defaulter therefore 1% penalty be waived off.

SALES TAX ON GOLD AND JEWELRY SECTOR

Exporter are not subjected to sales tax however in SRO it is prescribed to pay sales tax and go for refund

which is cumber sum and expensive process. It is propose that in serial no 9 para 1 after free of

custom duty should be added and sales tax.

WHT AND EDS ON GOLD JEWELRY SECTOR

It is an unorganized sector. However 1% WHT and 0.25% EDS is charged like organized sector. The cost

analysis of this sector consist 95% Gold component and 5% value added. Out of 5% gross profit,

overhead, WHT, EDS and banking expenses are charged which left very little profit to induce the

exporters to export Gold Jewelry. It is proposed that the WHT and EDF should be waved off.

SOYA BEAN INDUSTRY

Rationalization of Import Duty on Soya Products

Tariff Structure levied on Soy Protein Products import in Pakistan is irrational as compared to other

countries-not producing soybeans and its products domestically but import .Soy products are a rich

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source of protein which can help substitute the ensuring shortage of milk, meat etc, through a wide range

of diversified products. However, irrational duty structure on Soya Products is the major obstacle in

introducing the technologies for economic and viable production of value added Soy Products in the

country.

It is proposed that:

1- Duty and Sales Tax @10% and 17%, respectively on Soy Flour (1208.1000) be reduced to 0%.

2- Import duty @ 35%, Regulatory Duty @ 15% and Sales Tax @ 17% on Textured Vegetable

(2106.1010) be reduced to 0%.

3- Import duty @ 35%; Regulatory Duty @ 15% and Sales Tax @ 17% on protein concentrate (H.S.

2106.1090) be reduced to 0%.

4- Import duty @ 5% and Sales Tax @ 17% on Protein Isolate (H.S 3504.0000) be reduced to 0%.

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SALES TAX, FEDERAL EXCISE AND SPECIAL EXCISE DUTY(13-18)

1. 17% SALES TAX ON PLANT, MACHINERY & EQUIPMENT-SRO 230(I)/2011 13

2. MULTIPLE SALES TAX RATES 14

3. E-FILING 14

4. JOINT AND SEVERAL LIABILITY OF RP IN SUPPLY CHAIN (U/S 8-A) 14

5. REVISED RETURN SECTION 26(3) 14

6. ALTERNATIVE DISPUTE RESOLUTION COMMITTEE 14

7. AUDIT PARAMETERS: 15

8. RETENTION OF RECORD U/S 24 15

9. ACCOUNTABILITY OF TAX COLLECTOR 15

10. PROCEDURAL MISTAKES 15

11. VERIFICATION OF TRANSACTIONS U/S 73 15

12. RECOVERY OF TAX U/S 36 16

13. SPECIAL EXCISE DUTY ON PLANT & MACHINERY 16

14. CORRECTION OF ERROR U/S 57 16

15. SALES TAX EXEMPTION ON IMPORT OF TEXTILE MACHINERY, EQUIPMENT

CAPITAL GOODS SRO 549(I)/2008 DATED: 11-06-2008 16

16. LIMIT OF COTTAGE INDUSTRY U/S 2 (5)(AB) 17

17. SALES TAX ON SLIDE FASTENER AND PARTS THEREOF 17


19. ISSUES RELATED TO SPECIAL EXCISE DUTY 17

20. SALES TAX ON SURGICAL AND MEDICAL PRODUCTS 18


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17% Sales Tax on plant, machinery & equipment-SRO 230(I)/2011 dated 15-03-2011

BACK GROUND

The Government vide SRO 230(I)/2011 dated 15-03-2011 has withdrawn Sales Tax exemptionon import of machinery, plant & other capital goods

The plant and machinery was zero rated/ exempted since more than a decade, the different

modalities were placed by the FBR to ensure its appropriate application. However it was declared

straight away zero rated for its commercial or industrial use since 2004 considering the fact that in

both the ways ultimately it promotes industrialization.

The Federal Board of Revenue recently issued notification 230(I)/2011 wherein serial # 3 and

entries related there on of notification 549(i)/2008 was omitted. Deletion of these entries resulted

in discontinuation of zero rating facility from plant, machinery and equipment and these items

have become chargeable to 17% sales tax on its purchase and sales.

CRITICS VIEW

The notification is largely criticized by the business community on the grounds that it does not

make any sense by first omitting zero rating and then allowing its refund, further import and local

assembling of plant and machinery basically promote industrialization in any country and taxing

such items definitely is not justified by any means.

It will discourage industrial investment and increase unemployment rate in the country.

In the past the benefit of zero rated sales tax was available for industrial and commercial

importers. Commercial importers are engaged in import and supply of parts of machines to small

and medium enterprises and also supply machine on credit which saves such units from blocking

their investment and enable them to secure export order within short delivery period. Commercial

importers invest their money to keep a wide variety of latest/high value machine parts in their

ready stock to cater the urgent need of small and medium units.

CONFUSIONS / ANOMALIES

It is observed that though the Federal Board of Revenue has discontinued zero rate facility on

plant, machinery and spare parts by omitting serial # 3 of the notification 549(I)/2008, however

the corresponding entry at serial # 7 of the same notification pertaining to raw material,

component, sub component and parts for plants and machinery attracts zero percent Tax.

Likewise import of machinery still attracts nil rate of sales at import stage vide customs

notification 575(I)/2008 at serial # 23.

PROPOSALS: The Chairman FBR, during his visit to FPCCI on 17-18 March 2011, has agreed

to withdraw the SRO 230(I)2011 dated 15-03-2011, however it is still enforced. Therefore, it is

proposed that SRO 230(I)/2011 dated 15-03-2011 may be withdrawn.

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MULTIPLE SALES TAX RATES:

Existing 17% rate of sales tax along with other multiple rates of 19.5% and 22% are far higher

in the region. It is going to be growing concern under the current economic condition. The

higher rate of sales tax also attracts tax evasion and corruption. We therefore suggest

immediate reduction of standard sales tax rate of 15% which should gradually be lowered to

10% in next 5 years, to boost the revenue through business growth and broadening the tax net.

E-FILING

Heavy internet traffic towards the deadline for filing returns and other statements lead to intermittent

connectivity issues while accessing the portal. It is therefore proposed that the capacity be increased and

bottle necks be removed.

JOINT AND SEVERAL LIABILITY OF RP IN SUPPLY CHAIN (U/S 8-A):

Issue: U/S 3(3)(a) supplier is supposed to collect and deposit tax, whereas after introduction of provision

in section 8-A joint and several tax liability was placed under law for both buyer and seller for not

payment of output tax. This is unjustified and also clashes with section 3(3)(a).

Proposal: In circumstance where buyer has proved his transaction through cheque U/S 73 he should not

be held responsible for default. It should be made applicable to the extent where one party has not been

paid through banking instrument. Moreover this section is also against the law of justice where a person

is punished for an offence which he has not committed.

REVISED RETURN SECTION 26(3)

It is suggested that necessary amendments may be made and reference of section 27 may also be

incorporated in section 26(3) of the Act so as to enable the taxpayer to rectify any omission in the special

return without seeking prior approval from the collector or a time limit be prescribed within which the

collector will allow the RP to revise his return.

ALTERNATIVE DISPUTE RESOLUTION COMMITTEE

Issue: Keeping in view the flaws in the adjudication process of Inland Revenue Department the

government introduced the concept of Alternative Dispute Resolution Committee (ADRC) where a

taxpayer may apply to Board for appointment of ADRC to resolve any dispute pending before any

appellate forum.

Although in theory the concept is very good, however, as the Board has been empowered to pass any

order which it deems appropriate which can also be against the recommendations of the ADRC,

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therefore, the taxpayers are not getting any relief and will still get harassed and black mailed by the

officers of inland revenue.

Proposal: It is, therefore, proposed that:-

a) The taxpayer may be allowed to apply for ADRC at the time of adjudication after receipt of showcause notice instead of waiting for the case to be decided against him at the departmental forum.

b) If the ADRC unanimously sends a recommendation then it may be made mandatory for the Board

to accept the recommendation and pass orders for its implementation accordingly. Moreover the time for

disposal of recommendation should be fixed.

C) ADRC should have two members from private sector and one from public sector.

AUDIT PARAMETERS:

It seems that there is no standard selection criteria placed under the law therefore it is suggested that

selection of audit criteria based on risk parameters, in line with income tax audit, should be devised in

consultation with FPCCI and trade bodies.

The recovery identified by the auditor should be made after the decision of the Tribunal.

RETENTION OF RECORD U/S 24:

In past retention of record was required to be caped for the last five years which has now been extended

to 6 year in the last finance bill with the further provision that in case of litigation the time period is

extended till finalization of the legal proceeding. It is therefore suggested that the time limit of 6 years for

keeping record be reduced to 5 years.

ACCOUNTABILITY OF TAX COLLECTOR:

The taxpayer is subject to all sorts of penal actions by the authorities even in case of inadvertent error on

his part. However, the law does not provide for any penal action for the authorities when they resort to

arbitrary manner of assessments/collection of tax. There is a dire need for insertion of provision of law in

the Sales Tax Act, 1990.

PROCEDURAL MISTAKES:

Procedural mistakes in maintaining record, filing returns once in a year may be condoned rather than

imposing it with harsh penalty as provided U/S 33.

VERIFICATION OF TRANSACTIONS U/S 73

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The provision does not cater situations where payments become bad debts or eventually

turns irrecoverable for the supplier

The law does not take into account transactions where payments are made by creditors /

guarantors / 3rd parties on behalf of the buyer.

PROPOSAL: We understand that the basic intent of section 73 has been to document the economic and

business transactions. This objective may well be achieved after introduction of e-filing where transaction

can easily be cross matched electronically. It is therefore proposed that Section 33 be amended to cater

the inter company (book) transactions and the issue of bad debts and harsh penalties by way of

disallowing input adjustment and other penalties U/S 33 be removed.

RECOVERY OF TAX U/S 36:

Issue: If any tax has not been levied due to any reason the person liable to pay is served a notice within

5 years. Whereas if it has not been recovered or levied due to inadvertence, the period of serving the

notice is 3 years.

Proposal: In both the cases the period of serving a notice should be 3 years.

Refunds: As per Rule 28 of Sales Tax Rules 2006, the time of submission of refund claim is 160 days for

filing of return. It is proposed that the time limit be removed and no time frame be fixed.

SPECIAL EXCISE DUTY ON PLANT & MACHINERY

Import or acquisition of plant and machinery is zero rated for sales tax purposes. However, exemption

from Special Excise Duty (SED) is not extended to such plant and machinery. Moreover, due to lack of

carry forward facility in excise regime, the net excess input duty is not adjustable in subsequent tax

periods.

PROPOSAL: Capital items should also be exempted from SED. It is, therefore, proposed that

amendment may be made in SRO 655(I)/2007 dated 29 June 2007 and SRO 715(I)/2008 dated 03 July

2008 to provide SED exemption on acquisition / import of plant & machinery.

CORRECTION OF ERROR U/S 57:

Issue: Correction of a mistake is confined to clerical or arithmetical errors and for rectification, RP

needs to file an appeal, the procedure of which is cumbersome and lengthy. Whereas in income tax and

FED, a tax payer can rectify mistake.

Proposal: General mistake can be corrected at any time by the Collectorate on the application of RP.

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SALES TAX EXEMPTION ON IMPORT OF TEXTILE MACHINERY, EQUIPMENT AND CAPITAL

GOODS SRO 549(I)/2008 DATED: 11-06-2008:

The government has withdrawn sales tax exemption on import of machinery, equipment and other capital

goods vide SRO 230(I)/2011 dated: 15-03-2011. In the past the benefit of zero rated sales tax was

available for industrial and commercial importers. Commercial importers are engaged in import and

supply of parts of machines to small and medium enterprises and also supply machine on credit which

saves such units from blocking their investment and enable them to secure export order within short

delivery period. Commercial importers invest their money to keep a wide variety of latest/high value

machine parts in their ready stock to cater the urgent need of small and medium units.

It is therefore proposed that amendment may be made in SRO 575(I)/2006 dated: 05-06-2006 by adding

the words, other capital goods, in serial no 23 of table of the SRO to read as, Machine, equipment

and other capital goods imported by any other importer.

LIMIT OF COTTAGE INDUSTRY U/S 2 (5)(AB):

Limit of cottage industry, Rs. 5 million, with limit of utility, Rs. 0.6 million are out dated in view of inflation

and devaluation of Pak-Currency.

Proposal: Limits of Rs. 5 million and Rs. 0.6 million be increased to Rs. 10 million and Rs. 1.2 million for

cottage industry.

SALES TAX ON SLIDE FASTENER AND PARTS THEREOF

Sales tax on import and supply of finished slide fastener, fitted with chain scoops of base metal

(9607.1100) under SRO 538 (I)/2008 is 0% where as its parts 9607.2000 are not zero rated and

subjected to standard sales tax rate. It is therefore proposed the parts of slide fasteners (9607.2000) may

also be allowed to import @ 0%.



which is comber sum and expensive process.

Proposal: In serial no 9 para 1 after free of custom duty should be added and sales tax.

ISSUES RELATED TO SPECIAL EXCISE DUTY

Special Excise duty was levied vide notification 655(I)/ 2007 to get more revenue for filling up the gape

between expenditures and receipts on one time basis but the same continued till date, which has not only

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increased taxation burden on the consumers but also increased cost of doing business in Pakistan. In the

current Presidential ordinance the rate of SED is increased to 2.5%.

Since SED is charged on one time basis and not adjustable to entire chain hence it has more implications

than increasing rate of sales tax on such items. We therefore demand its removal from the statute.

The SED is refundable for exported goods but not a single penny was refunded since its

introduction. In fact no modality or procedure is placed under the law for its refund.

Under the sales tax return there is no column for carry forward of SED where as unlike FED and

sales tax it is adjustable on the basis of consumption which contradicts with the column given

under the return.

Though under SRO 230 (I)/2011 dated 15-03-2011, zero rating sales tax on machinery has been

withdrawn, we are of the view that not only zero rating sales tax on machinery be restored but

SED should also be excluded on import of machinery.

SALES TAX ON SURGICAL AND MEDICAL PRODUCTS (H.S CODE 90.18; 90.19; 90.20; 90.21)

Surgical and Medical Products under HS Code 90.18; 90.19; 90.20; 90.21 are life saving products

and used in post operation and other treatments of severe diseases. These products are also procured by

the Charitable Hospitals for the treatment of poor patients because these products are expensive and

beyond their power.

Therefore it is proposed that Surgical and Medical Products under H.S Codes: 90.18; 90.19; 90.20; 90.21

should be zero rated.



which is cumber sum and expensive process. It is propose that in serial no 9 para 1 after free of

custom duty should be added and sales tax.

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DIRECT TAXES(20-27)

1. SET OFF OF BUSINESS LOSS CONSEQUENT TO AMALGAMATION U/S 2(1A)

& 57A OF ITO 20

2. NON-PROFIT ORGANIZATION U/S 2(36) 20

3. TAX ON DIVIDENDS U/S 5 & 8 20

4. INCOME FROM PROPERTY U/S 15 21

5. DEDUCTIONS NOT ALLOWED U/S 21 21

6. CARRIED FORWARD OF BUSINESS LOSSES U/S 57 21

7. WITHHOLDING TAX ON PAYMENTS FOR GOODS AND SERVICES U/S 153 21

8. MONITORING OF WITHHOLDING TAX U/S 161 22

9. REFUNDS U/S 170 22

10. AUDIT U/S 177 23

11. TAX ON TAX AT IMPORT STAGE AND SUPPLY STAGE U/S 152 23

12. DIFFICULTIES IN GETTING NTN IN KPK 23

13. TAX PAYER CARD: 23

14. MANDATORY E-FILING OF INCOME TAX RETURN BY AOPS & SPECIFIED INDIVIDUALS: 24

15. REDUCTION IN RATES OF CORPORATE TAX /WPPF 24

16. WPPF SHOULD BE FULLY DISTRIBUTED & UTILIZED FOR WORKERS THROUGH

17. CORPORATE SECTOR 24

18. LIMITATION PERIOD OF ASSESSMENT 24

19. WHT ON SUPPLY OF RICE 24

20. WHT AND EXPORT DEVELOPMENT SURCHARGE ON GOLD JEWELRY SECTOR 24

21. ONE WINDOW FACILITY FOR RICE EXPORTER 25

22. LIMIT OF MEDICAL EXPENSES: 25

23. TURN OVER TAX FOR LUBRICANT MANUFACTURERS 25

24. PAYMENTS FOR GOODS AND SERVICES [SECTION 153(9)] 25

25. MINIMUM TAX 25

26. REMOVAL OF SLAB RATES FOR AOP [FIRST SCHEDULE- DIVISION 1B OF PART 1] 25

27. ADVANCE TAX ON ELECTRICITY [SECTION 235] 26

28. DISCRETIONARY POWERS-OFFENCES AND PENALTIES [SECTION 182] 26

29. EXPENSES NOT ALLOWED AS A DEDUCTION U/S US 21(L) 26

30. FINAL TAX REGIME: 26

31. WITH HOLDING TAX RATES ON IMPORTERS [U/S 148] 26

32. WEALTH STATEMENT IN FTR CASES [SECTION 115 (4B), 116(2A) & (4)] 27

33. WWF 27

34. TAX CREDIT FOR INVESTMENT [SECTION 65B] 27

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SET OFF OF BUSINESS LOSS CONSEQUENT TO AMALGAMATION U/S 2(1A) & 57A OF ITO, 2001

Section 57A was inserted by Finance Ordinance 2002 to provide incentive for merger of sick companies.

Originally accumulated loss under the head income from business of the amalgamating company or

companies was allowed to be set off or carried forward against the business profits and gains of the

amalgamated company and vice versa upto a period of six tax years immediately succeeding the tax year

in which the loss was first computed in case of amalgamating company or amalgamated company or

companies. This section was substituted by Finance Act, 2007 and the incentive was restricted to set off

of loss for the year of amalgamation. The brought forward losses of amalgamating companies were

excluded from the scope of this section.

In view of current business crises there is a need to enlarge the scope of this section to give incentive for

merger of companies running sick units with the companies having adequate financial resources to revive

these sick units. It is therefore proposed that the incentive for merger provided at the time of insertion of

section 57A be restored and definition of amalgamation" under Section 2(1A) be enlarged to include allcompanies incorporated under the Companies Ordinance, 1984.

NON-PROFIT ORGANIZATION U/S 2(36)

The Cambers of Commerce and Industry, Dry Port Trust and Trade Associations used to enjoy income

tax exemptions since inception of Pakistan because of their nature of non-profit operations. A

cumbersome procedure is being followed by Income Tax Authorities, such as formation of committees, for

approval of trade organization under Section 2(36) and clause 58 to the 2nd

Schedule of the Income Tax

Ordinance, 2001 which is resulting in delay and hardship.

It is suggested that trade organizations approved by the Directorate of Trade Organization (DTO) and

Competent Authorities should be granted automatic approval under Section 2(36) of the Income Tax

Ordinance, 2001. In the meantime, time period for allowing exemption may be prescribed.

TAX ON DIVIDENDS U/S 5 & 8

Inter corporate dividends were excluded from the purview of final tax by insertion of proviso in Section 8

through Finance Act, 2007. Consequent amendment has not been made in Section 5 to exclude the

companies from the purview of Section 5. This has created an ambiguity regarding tax on dividendincome. It is proposed tax on inter corporate dividends may be withdrawn as an investment incentive. Or

reduced rate of 5% be announced for inter corporate dividend.

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INCOME FROM PROPERTY U/S 15

The rent received or receivable by a person for a tax year is subjected to tax under this section under the

head income from property. Since the income from property covered under section 155 is subject to final

taxation, therefore, provisions of Section 15 should be appropriately amended to allow declaration of such

income on receipt basis.

DEDUCTIONS NOT ALLOWED U/S 21

Section 21(l) provide that expenditure exceeding Rs. 10,000/- if not paid by a crossed cheque shall not be

allowed as deduction in computing the income from business. Applicability of section 21(l) was restricted

to profit and loss expenses as explained by CBR vide Circular No. 6 of 1990 dated July 15, 1990 and

Circular No. 11 of 1998 date July 25, 1998. These circulars were superseded by issuing a fresh

explanation vides Circular No. 01 of 2006 dated July 01, 2006. The scope of this section was enlarged to

include every expenditure debit-able to trading or manufacturing accounts or profit and loss account in thepurview of this section.

The new circular created hardship for the taxpayers and also in contradiction to Section 73 of the Sales

Tax Act, 1990 wherein the limit for purchase through crossed cheque is Rs. 50,000/-. It is therefore

suggested that appropriate steps be taken to remove this anomaly by not conserving purchases as

expenditure, because sales are already taxed.

CARRIED FORWARD OF BUSINESS LOSSES U/S 57

A restriction has been imposed on the private limited companies under Section 208 of the Companies

Ordinance, 1984 that the loans and advances to associated companies can only be granted at the

prevailing bank rate. Interest received by the lender companies are subject to tax at normal rate even if

the company has carried forward business losses.

It is suggested that in order to over come the current liquidity problems of the business community

appropriate amendments be made in Section 208 of the Companies Ordinance, 1984 to exclude the

private limited companies from the ambit of Section 208. Moreover the interest income on loans arranged

for associated undertaking may be allowed to be off set against carried forward losses and the borrowing

cost of the current year if the loan is granted out of the borrowed fund.

WITHHOLDING TAX ON PAYMENTS FOR GOODS AND SERVICES U/S 153

The concept of small company was introduced through Finance Act, 2005. Such companies were given

certain incentives to encourage the corporate sector. One of the incentives was that small company was

not required to withhold tax on payment made for goods and services. This incentive was suddenly

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withdrawn through Finance Act, 2008. This action of FBR has shattered the taxpayers confidence. In

order to restore the confidence of taxpayers the incentives provided to the small companies at the time of

introduction of this concept are required to be restored.

MONITORING OF WITHHOLDING TAX U/S 161

The cases of taxpayers are being selected for monitoring of withholding tax under Section 161

simultaneously for month one year. In most of the notices figures are taken from the financial statements

and assessee is requested to reconcile those figures with the payments. This lengthy exercise takes lot of

time and resources of the taxpayers. Since the taxpayers are filing monthly and annual withholding tax

statements; it is suggested that this data should be used from monitoring and only notices in case of any

material difference should be issued. Moreover monitoring of one year should be carried out at one time.

REFUNDS U/S 170

Under Section 170(4) of the Income Tax Ordinance, 2001 the Commissioner shall within 45 days of

receipt of refund application serve on the person applying for the refund, an order in writing of the

decision after providing the taxpayer an opportunity of being heard. A large number of refunds are

pending due to pending verification of payments made by the taxpayers. It is suggested that a 30 days

limit be fixed to complete the process of verification of tax payment challans by amending Section 170 of

the Income Tax Ordinance, 2001.

AUDIT U/S 177

The cases of taxpayers are being selected for audit under Section 177 simultaneously for

more than one tax years. Subsequent tax years are being selected without first finalizing the

earlier tax years already selected. This practice is creating hardship to the taxpayers and

badly affecting the day to day business activities as the taxpayers are required to divert lot of

resources to comply with the audit proceedings.

It is suggested that audit proceedings for one tax year should be initiated at one time and

should be finalized before selection of other tax year. The selection of subsequent tax year

should be made, if necessitated by the audit findings of audit finalized.

The audit parameters may be prescribed in consultation with FPCCI. The selection of audit

cases may be made on risk basis, within one year from the filing of tax return. The time

limitation should be provided in the law. As the selection of audit after expiry of 4 to 5 year is

creating hardship to the taxpayers.

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The multiplicity of Audit be done away with, and there should be maximum one audit in a

year.

In order to broaden the tax based and encourage the new taxpayers, it is suggested that an

incentive scheme should be announced wherein the new business enterprises should be

exempted from selection for audit for the first three years of operations. This will encourage

the new taxpayers to enter into the tax net.

TAX ON TAX AT IMPORT STAGE AND SUPPLY STAGE U/S 152

Income tax is charged at both the above stage after including sales tax in the value on which the

withholding tax in charged. It is clear tax on tax and defeats the rationale of good taxation. Hence we

suggest that Withholding Tax should be charged on value excluding Sales Tax at both Import and Supply

Stage.

DIFFICULTIES IN GETTING NTN IN KPK:

The commencement of the centralized system for issuance of NTN has worsened the process instead of

facilitating the tax payers. Though the FBR has provided a facility to apply for getting NTN electronically

or manually, but both the procedures do not help taxpayers in getting the number within the prescribed

period of 48 hours. The registration process, which is supposed to be done in hours, has been halted for

months because of the applications galore. The situation is so much deplorable that even for a minor

alteration or change in the existing NTN certificates, taxpayers have to undergo immense hardships and

difficulties. Delays in the issuance of NTNs and lack of coordination between the FBR, Islamabad and

field offices, like Regional Tax Offices and Large Taxpayers Units, are not only depriving taxpayer from

getting the tax number within the prescribed time but is also deprives the national exchequer form billions

of rupees in revenue along with tax returns. Under the laid down conditions by the FBR no taxpayer could

get sales tax registration without NTN registration. This means that no business establishment could start

functioning till it gets NTN and thereafter sales tax registration. This pathetic condition of the FBR and its

field offices at the 1st

step (i.e. issuance of NTN), also raises concerns regarding the smooth

functioning/handling of detailed assessment procedures.

TAX PAYER CARD:

Tax payer card is proposed to be introduced to all tax payers who have filed and completed tax return for

last 3 fiscal years and a mechanism may be established to monitor these tax payers on annual basis to

facilitate the process, with clear benefits such as 50% discount on government fees like passport fee,

driving license fee, waiver on loan processing fee and any other one time charges taken by banks for

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loan/finance processing, reduced markup rates, exemption in withholding tax charged against other

banking services etc.

MANDATORY E-FILING OF INCOME TAX RETURN BY AOPS & SPECIFIED INDIVIDUALS:

With the e-filing of income tax returns being made mandatory, especially for AOPs and specified

individuals, their problems have actually been increased. Most of the traders are computer illiterate and

are facing extreme problems in e-filing their income tax returns; therefore, the condition of e-filing of

income tax returns should be optional, particularly for small traders.

REDUCTION IN RATES OF CORPORATE TAX /WPPF

Presently the rate of Corporate Tax is 35% which is very high. In addition 5% Workers Profit Participation

Fund (WPPF) and 2% Workers Welfare Fund (WWF) are payable. These high rates hamper investment

and growth in the industrial sector as less funds are available for expansion. Hence it is suggested that

the rate of Corporate Tax on pharmaceutical sector be reduced to 10%.

Furthermore the 5% WPPF of profit is payable to the industrys workers according to their entitlement and

the balance amount, if any, has to be surrendered to WWF. It is suggested that if the industry makes a

charitable donation to a tax approved project then such payment be deductible from the balance amount

payable to WWF, if any.

WPPF SHOULD BE FULLY DISTRIBUTED & UTILIZED FOR WORKERS THROUGH CORPORATE

SECTOR:

Currently the industry has been paying 5% on profit before interest and taxes on account of WPPF. It is

suggested that the contribution of this fund should be fully available for the welfare projects of the workers

and the corporate entities should be allowed to initialize housing, educational and welfare related projects

for workers on account of this fund.

LIMITATION PERIOD OF ASSESSMENT

Limitation period of assessment be reduced to 3 years as against 5 years.

WHT ON SUPPLY OF RICE

Clouse 45 provides that all manufacturers cum- exporters are not required to withhold tax U/S 153. It is

proposed that words manufacturer- cum exporters be replaced with the world exporters only.

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WHT AND EXPORT DEVELOPMENT SURCHARGE ON GOLD JEWELRY SECTOR

It is an unorganized sector. However 1% WHT and 0.25% EDS is charged like organized sector. The cost

analysis of this sector consist 95% Gold component and 5% value added. Out of 5% gross profit

overhead, WHT, EDS and banking expenses are charged which left very little profit to induce the

exporters to export Gold Jewelry. Proposal: WHT and EDF should be waived off.

ONE WINDOW FACILITY FOR RICE EXPORTER

Rice exporters have to pay several type of taxes such as withholding tax on purchase of rice, WWF,

market committee fee, EOBI, sales tax on packing material used for export etc. it is therefore proposed

that there should be One Window to pay all the taxes to save time or to merge all types of taxes in one

tax and the same may be deducted at source like 1 % withholding tax which is being deducted by banks,

which should be their full and final liability.

LIMIT OF MEDICAL EXPENSES:

The existing limit allowed to tax payer for medical expenses is Rs. 30000 which is very negligible keeping

in view of the high cost of medicine and hospitalization. Therefore there should be no limit and it should

be allowed on actual payment basis.

TURN OVER TAX FOR LUBRICANT MANUFACTURERS

Oil marketing companies have been subject to 0.5% turn over tax therefore, lubricant manufacturers

should also be subject to the same rate to provide level playing field and enable them to compete with oil

marketing companies.

PAYMENTS FOR GOODS AND SERVICES [Section 153(9)]

ISSUE: The individuals having turnover of Rs. 50M and above have now been made a withholding agent,

and are being required to deduct tax on payments to persons for the sale of goods at the rate of 3.5%.

PROPOSAL: Individuals and AOPs should not be made withholding agent to avoid complications.

MINIMUM TAX

ISSUE: The Finance Act, 2010 enlarged the scope of minimum tax to the following taxpayers:-

(i) Association of Persons having annual turnover of Rs. 50 Million in tax year 2007 or in any

subsequent year; and

(ii) Individuals having annual turnover of Rs.50 Million in tax year 2009 or in any subsequent year.

Moreover, the Finance Act has also increased the rate of minimum tax from 0.5% to 1% of

turnover.

PROPOSAL: Minimum Tax should not be more than 0.25%

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REMOVAL OF SLAB RATES FOR AOP [FIRST SCHEDULE- DIVISION 1B OF PART 1]

ISSUE: Previously AOPs were taxed at the slab rate in which their income falls along with individuals

(other than salary) i-e 357,000 Rs was taxed @ 7.5% amounts to Rs 26,775 tax, but now the tax will be

@ 25 % which amounts to 93750.

PROPOSAL: It is proposed that the tax rates should be restored to previous years position.

ADVANCE TAX ON ELECTRICITY [Section 235]

ISSUE:

In the case of a taxpayer other than a company, tax collected up to bill amount of thirty thousand

rupees per month shall be treated as minimum tax and no refund shall be allowed, however in

the Case of a taxpayer other than a company, tax collected on monthly bill over thirty thousand

rupees per month shall be adjustable and in the case of a company, tax collected shall be

adjustable against tax liability.

The rates for commercial consumers of electricity is 10% while Industrial Consumers is 5 %

PROPOSAL: The rates should be reduced to 5% for commercial consumers as well.

DISCRETIONARY POWERS-OFFENCES AND PENALTIES [Section 182]

Issue: There is a long list of penalties and offences which have added to the burden of taxpayer and

impose additional tax on non compliance but there is no recourse or procedure available for the taxpayer

if he has become the victim of any undue notices or is facing any grievance. This section gives undue

favor and biasness to tax authorities.

PROPOSALS: There should be some recourse available to the taxpayer against the discretionary

powers of the tax collector.

EXPENSES NOT ALLOWED AS A DEDUCTION U/S US 21(L)

Issue: The limit of Rs. 50000 as an expense in single head is not workable, as industry could not afford to

run due to quantum of business and increasing pressure of inflation.

Proposal: The provision should be completely removed.

FINAL TAX REGIME:

Issue: Presently corporate tax under FTR is collected on companys revenue this is illogical and not

fair. Today all import/trading businesses pay taxes whether they make profit or not. Further there are

certain businesses which have high turnover but at the same time have low margin. This regime is

adversely affecting big contributor of the economy taking their effective tax rate well in excess of theofficial rate of 35% and positioning the Pakistan manufacturing and corporate sector further away from

their competitors in the region.

Proposal: Manufacturer/Importers assessed under NTN, meeting a certain preset criteria, should be

given the option to merge their manufacturing and trading profits for the purpose of their final tax

calculation. This will limit possible abuse and simplicity of tax regime will make taxation more transparent

and in line with global standards of investors.

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WITH HOLDING TAX RATES ON IMPORTERS [U/S 148]

Issue: Withholding tax rate on importer is increased to 5%. To put up with such high tax rate in current

economy is unfeasible. Besides the incidence of such taxes at import stage allows to sell the goods

especially raw material into the commercial market by the industrial importer.

Proposal: Withholding tax on import stage should not be more than 4%.

WEALTH STATEMENT IN FTR CASES [Section 115 (4B), 116(2A) & (4)]

ISSUE: Under final taxation regime the tax deducted is considered to be the full and final discharge of tax

liability. Further, the threshold of income, Rs 500,000 that translates to only Rs 41,666/month is too low,

considering the high inflation in economy.

PROPOSAL: Therefore, for taxpayer under FTR, filing of wealth statement and wealth reconciliation

statement should be waived off.

WWF

ISSUE: Tax deducted from manufacturers and exporters are deemed to be the final discharge of taxliability but unfortunately notice of demand is served by tax authorities to taxpayers u/s 4(4) of the WWF

Ordinance which is quite illogical. Judgment passed reported as 2002 PTD 14 states, WWF cannot be

charged on the income declared under PTR.

PROPOSAL: WWF should be only limited to private and public limited companies not falling under FTR.

TAX CREDIT FOR INVESTMENT [SECTION 65B]

ISSUE: A tax credit at the rate of 10 percent of tax payable is being re-introduced for companies

investing in the purchase of plant and machinery for the purpose of Balancing, Modernization and

Replacement in an industrial undertaking set up in Pakistan by such companies. PROPOSAL: Tax

credit should also be allowed in cases where investment is made for purposes other than BMR.

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Proposal for Redevelopment of Tribal Areas

(29-30)

1. Tribal Area FATA and PATA 29

2. Short Term Relief Measures 29

3. Special Relief Package 29

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Tribal Area FATA and PATA:

It is known fact that the NWFP in general and the Tribal Areas of PATA and FATA are worst affected

areas of the country devastated by the terrorism in the region. the entire Businesses and Industries have

been wiped out.

To curb the terrorism it is deemed necessary to embark upon an intensive and extensive revival and

development project.

In order to revive and Rehabilitate the collapsed commercial structure, we propose that a team of

professional capable personnel be formed to assess the damages, to propose remedial measures in all

private sector enterprises and indicate remedial strategies to make good the losses in the shortest

possible time. You would appreciate that terrorism has destroyed the complete social structure, be it

Agriculture, Livestock, Horticulture, Fruit Farms, Grading, Packing, to Trade, Transport, Godowns,

Warehouses, Food Supplies, Stores, Industries (Cottage Small Medium or Large what so ever).

Short Term Relief Measures:

All the loans granted by the ZTBL, HBFC or other financial institutions are waived off.

All utility dues be waived off. It is reported that though the public had moved out for security to

other area, the PESCO/ TESCO, has continued billing, without any consumer or consumption in

the region.

All outstanding taxes and duties should be waived off.

In view of the fact that the Banks/DFIs are not extending credit facilities in the Tribal Areas and

all business are dependent upon credits from informal sources at exorbitant financial costs, it is

proposed that a Revolving fund be created to grant soft loans to the affected genuine stake

holders.

FATA development bank with a specific mandate for the FATA Development be setup.

Tax Relief, be granted and demurrage, wharf age, penalties for any default what so ever may be

waived off.

Though the Tribal Areas are exempted from sales tax and income tax, the taxes also need to be

exempted on import of raw materials, machinery and spares.

The duties and tax remission for export (DTRE) facility should be put in place in FATA.

Special Relief Package:

The grounds for special relief package and incentives are submitted as under to alleviate the constraints

for the development and reduce the production cost of industrial products.

1. The Tribal Areas of Pakistan are situated at the tail end from the seaport; the transportation

charges incurred are almost 40% to 80% on the higher side as compared to other areas. The

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freight-cost component on imported raw materials is at minimum as such freight subsidy on

imported raw materials is necessary.

2. The additional freight cost on finished goods is another unavoidable element and is at the highest

rate as compared to any other location for the reason that the goods has to be transported to the

markets.

3. The cost of repairs and maintenance of industrial machinery is highest, as the repair centers and

workshops far away.

4. The cost of procurement of spares and raw materials with additional handling and transportation

are very high and supplies are not willing to extend credit as well as procurement staff has to

personally visit the suppliers.

5. Stores Inventor has to be maintained at a higher level, due to excessive time lag due to distances

which adds to unnecessary capital tie up and higher carrying costs.

6. Non availability of banking facility and credit end up in heavy finance/ debt servicing costs and

due to utilization of informal credit as such special credit lines and systems should ne provided.

7. Non availability of gas, the replacement fuel i.e. furnace oil costs almost 100% higher, due to its

price, shortage, pumping , par heating, transportation, losses/leakage in transit, plus its lower

calorific value as such special subsidy on fuel oil is necessary to match the costs.

8. Non availability of water is an other cost center, as at many occasions, it has to be transported in

tank lorries from far off locations which needs assistance in the cost of water supply.

9. Though unskilled and semi skilled labour is available in plenty and surplus to requirements, the

highly skilled labour and foremen have to hired from other areas and have to be paid 150 to

170% higher wages plus accommodation, security, generous holidays etc. which adds to the

labour and the over all production costs. Special relief in social security workers welfare is the

dire need to match the cost of production.

10. The unavoidable additional security costs contribute to the higher cost of production as such the

additional cost should be paid by the political agents..

It appears necessary that for the revival, survival, subsistence of industrial and business infra

structure, the facilities and relief be augmented to the extent that the extra cost of production

could be defrayed and to provide a level business environment with the developed areas of the

country.

The government envisages for attraction of capital form abroad whereas in fact event the localcapital is not available, as non of the Banks, extends credit in the tribal areas and all efforts with

the existing banks and the State Bank of Pakistan have not materialized. If special purpose banks

like NDFC, PICIC, IDBP, ZTBL, SME Bank can be incorporated, there is ample reason to

propose and float a special purpose Bank for the Tribal Areas Development and till such time

that adequate investment is choked plans for capital generation though generous rebates and

exemptions be put in place to accelerate reinvestment of capital in the new industries

development of linkages, infra structure and gradual development of labour intensive high tech

industries in the region.

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It is also proposed that tax relief and rebates incentives, be provided for a minimum period of 5

years and if necessary be withdrawn gradually over a period of 10 years after the sustainable

industrial structure and tax culture has been developed ensuring to avoid sudden & abrupt

decisions to throttle the whole industrial clusters.

The development of industries and business will not only contribute to socio economic

development by reducing un-employment and poverty alleviation.

We would appreciate if positive steps are taken to revive the economy alleviate poverty and

create employment opportunities through revival of closed industries and opening of new

opportunities though:

Exemption of import duties, surcharge, income tax and sales tax FED on raw material at import

as well as grant of easy loans/credit, special subsidies on power, special transportation rates and

priorities on rail transportation, development of industrial estates.

It is proposed that initially all taxes be exempted for 5 years and later on a gradual rate of duty be

introduced @ 1% over another 10 years to develop tax culture and the tax culture and the tax net

be gradually extended.

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INDEX

No DESCRIPTION PAGE #

1. CUSTOM AND VALUATION (3-11)

2. SALES TAX AND FEDERAL EXCISE DUTY (3-18)

3. DIRECT TAXES (20-27)

4. DEVELOPMENT OF TRIBAL AREAS (29-30)

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MACRO ECONOMIC PROPOSALS

(FPCCI BUDGET PROPOSALS FOR 2011-2012)

Presented by

SENATOR GHULAM ALI

PRESIDENT

FEDERATION OF PAKISTAN CHAMBERS OF COMMERCE & INDUSTRY (FPCCI)

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Prepared by

MR. KHALID TAWABVICE PRESIDENT FPCCI

CHAIRMAN, FPCCI WORKING GORUP ON FEDERAL BUDGETHEAD, FEDERAL BUDGET & DIRECT TAXES

R&D DEPARTMENTR&D DEPARTMENTR&D DEPARTMENTR&D DEPARTMENT

ANDANDANDAND

FPCCI WORKING GROUP ON FEDERAL BUDGETFPCCI WORKING GROUP ON FEDERAL BUDGETFPCCI WORKING GROUP ON FEDERAL BUDGETFPCCI WORKING GROUP ON FEDERAL BUDGET

DAWOOD USMANJHAKORA

Vice President

USMAN SHEIKHVICE PRESIDENT FPCCI ZAKARIA USMANSENIOR VICE CHAIRMAN OFWORKING GROUP ONBUDGET PROPOSALS

AND IMMEDIATE PAST VICEPRESIDENT FPCCI

MIAN ZAHID HUSSAIN, S.I.VICE CHAIRMAN, WORKING GROUPAND CHAIRMAN, STANDINGCOMMITTEE ON SALES TAX

MR. MOHAMMAD

MANSHA CHURRAIMMEDIATE VICE

PRESIDENT FPCCIMEMBER OF THEWORKING GROUP

DR. MIRZA IKHTIAR

BAIGCHAIRMAN, STANDING

COMMITTEE ON BANKING,CREDIT & FINANCE MEMBER

OF THE WORKING GROUP

MR. SHAUKAT

AHMEDMEMBER, STANDING

COMMITTEE ON CUSTOMSMEMBER OF THE WORKING

GROUP

SYED MAZHAR ALI NASIRCHAIRMAN, STANDING COMMITTEE

ON COMMERCEMEMBER OF THE WORKING GROUP

ENGR. M. A.

JABBARCHAIRMAN, STANDING

COMMITTEE WTO And R&DCELL MEMBER OF THEWORKING GROUP

SHEIKH SHAKIL A.

DHINGRACHAIRMAN, STANDING

COMMITTEE ON LIAISON WITHFBR MEMBER OF THEWORKING GROUP

MR. SHAHID AHMED

KHANCHAIRMAN, STANDING

COMMITTEE ON IT BUSINESSPROCESSES & UTSOURCINGMEMBER OF THE WORKING

GROUP

MR. ASHFAQ TOLA, FCA,

FCMAPRESIDENT, LASANI CONSULTING

(PVT) LIMITEDMEMBER OF THE WORKING GROUP

MR. NASIRUDDIN

SHEIKHCHAIRMAN, STANDING

COMMITTEE ON FAIR ANDEXEBITION & MEMBER OF

THE WORKING GROUP

MR. ABDUL HAFEEZ

MOHAMMEDCO-CHAIRMAN, STANDING

COMMITTEE ON VALUATIONMEMBER OF THE WORKING

GROUP

MR. ABDUL QADIR

MEMONPRESIDENT, PAKISTAN TAX

BAR ASSOCIATIONMEMBER OF THE WORKING

GROUP

MR. SAQUIB FAYYAZ

MAGOONVICE CHAIRMAN, STANDING

COMMITTEE ON ANTI SMUGGLINGMEMBER OF THE WORKING GROUP

MUHAMMAD

WASEEM VOHRACHAIRMAN STANDING

COMMITTEE ON FOREIGNINVESTMENT

SH. KHALID SHAFIMEMBER OF THE WORKING

GROUP

MR. S. SHABBAR

ZAIDI, FCAMEMBER OF THE WORKING

GROUP

MR. MUMTAZ ALI SHEIKHMEMBER OF THE WORKING GROUP

ARSHAD

SHAHZADMEMBER OF THEWORKING GROUP

MR. AMJAD RAFIMEMBER OF THE WORKING

GROUP

AFTAB KHALILIMEMBER OF THE WORKING

GROUP

MR. IMRAN

GHAYASUDDINMEMBER OF THE WORKING GROUP

MUHAMMAD QAMARMEMBER OF THE WORKING GROUP

MR. ATHER FEROZMEMBER OF THE WORKING GROUP

* * *

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MACRO PROPOSALS

PAGE (5-11)

1. SUMMARY 4

2. GENERAL 8

3. AUSTERITY MEASURES 10

4. LONG TERM DECISION MAKING 11

5. ONE WINDOW OPERATION FOR LABOR RELATED LEVIES AND EFFECTIVE

USE OF COLLECTED FUNDS 12

6. PRAL DATA 12

7. CURBING DISCRETIONARY POWERS OF OFFICIALS 12

8. PARALLEL ECONOMY 12

9. DISCOURAGING TAX EVASION, UNDER INVOICING & SMUGGLING 13

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Summary

17% Sales Tax leived vide SRO 230(I)/2011 dated 15-03-2011 may be withdrawn.

All machinery and equipments not produced locally should be allowed @ 0% import duty

Wherever income is generated, it should be taxed indiscriminately and with political will.

The tax base should be broadened and wherever income is generated, it should be taxed

indiscriminately.

Customs tariff structure should be rationalized on the basis of cascading duty structure i-e on raw

material; it should be minimum and maximum on finished goods.

Relief in duty and taxes should be given to Baluchistan and Tribal areas to the extent that the rest

of the Pakistan is not economically hurt.

Reduction in standard sales tax rate to the extent that the industries in KPK and FATA are able to

bear extra carriage expenses on transportation of goods and raw material.

Financial assistance on easy terms and conditions should be provided to the SMEs in KPK and

Baluchistan. This will help in curtailing suicide bomb attack and unemployment rate.

Unregistered retailers should be subject to 13% to 14% sales tax so that they may get them

selves registered.

Retailers should be given immunity from audit for the past 5 years and next 3 years. After 3 years

there will be no audit if the company shows increase in revenue.

Low rate (say 1.5 %) on registered retailers and a higher rate say (3%) for supply to an

unregistered retailer be levied to incentivize retailers for registration.

The stage and process of appeal, intra-departmental, should be eliminated and direct appellate

mechanism should be persuaded. No demand should be raised unless decision is made by

Appellate Forum Administration.

Loan on machinery should be given at lower interest (say 7%) for establishment of industries in

Federal and all four provinces to curtail the unemployment rate.

The consumers (masses) should be motivated to get receipt of all purchases through Lucky Draw

Scheme and discourage black economy ,smuggling and encourage documentation of economy.

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Tax base should be broadened by reducing tax rates.

Procedure of sales tax registration should be simplified. If a person is member of Chamber &

Trade body and holds NTN and bank account, he should be immediately registered.

Telephone and electricity bills should be used to identify the new taxpayers.

The condition of NTN should also be applied on a person who initiated construction of a house of

500 sq yards or more.

According to a an estimate there are approximately 100 million cellular phones in the country

which may be taxed @ Rs. 100 per phone per month. The measure will yield Rs. 10 billion

revenue per month or 120 billion per annum, which should be diverted to Benazir Income Support

Fund.

The work on maintenance of existing infrastructure and its further development and shortage of

electricity should be done on war footings, and in the meantime, industry be facilitated to import

tax and duty free generators.

The new tax payers should be given tax immunity for the past 5 years and their capital should be

considered as White.

Subsidy to loss making ventures should be reduced to save Rs. 320 billions losses and to

reorganize these entities by inducting professional management and Board of Directors.

We propose to merge all labor related departments like EOBI, Social Security (all provinces) into

one and funds collected for labor related levies shall be utilized through a professionally

constituted board.

In case of detecting wrong decisions or misdeclaration, fine is levied by customs official on

importers, therefore, justice and equity demand that it should be applicable to the concern

officials as well.

To reduce current rates of Stamp Duties on real estates to curb the parallel economy and NTN

holders should be exmepted from CVT.

To curb Parallel Economy and to promote tax culture, effective use of NADRA database by FBR

is indispensable to apprehend alleged tax evaders without discrimination.

Identification of NTN numbers must be done before executing major transactions including buying

and selling of properties, valuable assets of more than Rs 50, 000

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Instead of tax exemptions/concessions, tax credit be given to the taxpayers.

Higher rate of taxes encourage tax evasion, corruption, smuggling and black economy, therefore,

tax rates be reduced to incentivize a taxpayer to come in the tax net.

No customs duty on all basic industrial raw materials.

Measures to provide a competitive and level playing field by removing anomalies and

exemptions.

To provide a boost to the export led growth by providing more incentives to the export oriented

textile industry which has heavily invested in machinery, equipments and infrastructure in the last

two to three years.

Reduction in tariff rates to the lowest possible level on smuggling prone items.

Import of Machinery from China under FTA is zero rated therefore it is proposed that spare parts

should also be allowed to import at Zero percent under the FTA

Textile machinery not registered with the Textile Ministry should also be allowed at zero percent

Duty.

Consignments realized provisionally under Section 81 of Custom Act should be finalized within 90

days. In case department fails to finalize it within 90 days, the declared value should be accepted.

All the luxury items (397) should be maintained at 35% and not be reduced to protect local

industry.

Customs duty on import of dry fruits from Afghanistan be abolished.

All the provisions of ATTA, such as bank guaranty, tracking, sealing etc. should be strictly follows

in letter and spirit for clearance of goods under ATTA.

A FBR Pre-Budget Anomaly Committee, consisting of FPCCI and FBR representatives be

constituted under the Chairmanship of Member Custom FBR.

PaCCS should be continued for only industrial sector established for over two years and have

filed Sales Tax, Excise Duty and all other Tax returns regularly and their tax assessments have

been finalized. Post clearance audit may be carried out by internal and or external auditors.

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To discourage misdeclaration all invoice must be attested by relevant authorities of exporters

countries, and Custom should cross check the same Banks where relevant L/C was opened.

By merging both (NTN and GDs) data automatic reconciliation can be performed and in case of

large difference, detailed analysis may be performed to reduce the chances of under invoicing

Immediate reduction of standard sales tax rate to 15% which should gradually be

lowered to 10% in next 5 years.

Audit parameters be prescribed for selection of a case for Sales Tax Audit.

Procedural mistakes in maintaining Sales Tax record, filing returns once in a year may be

condoned rather than imposing it with harsh penalty as provided U/S 33.

Capital goods should also be exempted from SED.

Incentives provided to the small companies at the time of introduction of withholding Tax on

payments of goods and services U/S 153 of Income Tax Ordinance should be restored.

30 days limit be fixed to complete the process of verification of tax payment challans by amending

Section 170 of the Income Tax Ordinance, 2001.

The Income Tax Audit parameters may be prescribed U/S 177 of ITO in consultation with FPCCI.

The multiplicity of Audit be done away with, and there should be maximum one audit in a year.

The procedure for getting NTN in KPK be simplified.

Tax payer card is proposed to be introduced to all tax payers who have filed and completed tax

return for last 3 fiscal years .

Limitation period of assessment be reduced to 3 years as against 5 years.

Minimum Tax should not be more than 0.25%

There should be some recourse available to the taxpayer against the discretionary powers of the

tax collectors U/S 182.

Tax credit should also be allowed in cases where investment is made for purposes other than

BMR U/S 65 B of ITO.

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TRIBAL AREA FATA AND PATA:

All outstanding taxes and duties should be waived off.

A revolving fund be created to grant soft loans to the affected genuine stake holders.

FATA development bank with a specific mandate for the FATA Development be setup.

Tax Relief, be granted and demurrage, wharf age, penalties for any default what so ever may be

waived off.

The duties and tax remission for export (DTRE) facility should be put in place in FATA.

Freight subsidy on imported raw materials and finished goods should be granted.

Availbility of utilities in the area at reasonable cost should be ensure

The cost of repairs and maintenance of industrial machinery is highest, as the repair centers and

Tax relief and rebates incentives be provided for a minimum period of 5 years and if necessary

be withdrawn gradually over a period of 10 years.

Exemption of import duties, surcharge, income tax and sales tax, FED on raw material at import

as well as grant of easy loans/credit, special subsidies on power, special transportation rates and

priorities on rail transportation, development of industrial estates should be granted.

It is proposed that initially all taxes be exempted for 5 years and later on a gradual rate of duty be

introduced @ 1% over another 10 years to develop tax culture and the tax culture and the tax net

be gradually extended.

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GENERAL

The Chairman FBR, during his visit to FPCCI on 17-18 March 2011, has agreed to withdraw the

SRO 230(I)2011 dated 15-03-2011, regarding withdrawal of Sales Tax exemption on import of

plant , machinery and other capital goods. However it is still enforced. Therefore, it is proposed

that SRO 230(I)/2011 dated 15-03-2011 may be withdrawn.

The tax base should be broadened and wherever income is generated, it should be taxed

indiscriminately.

Customs tariff structure should be rationalized on the basis of cascading duty structure i-e on raw

material; it should be minimum and maximum on finished goods.

Relief in duty and taxes should be given to Baluchistan and Tribal areas to the extent that the rest

of the Pakistan is not economically hurt.

Reduction in standard sales tax rate to the extent that the industries in KPK and FATA are able to

bear extra carriage expenses on transportation of goods and raw material.

Financial assistance on easy terms and conditions should be provided to the SMEs in KPK and

Baluchistan. This will help in curtailing suicide bomb attack and unemployment rate.

At present only 133,000 tax payers mainly manufacturers and importers are registered in Sales

Tax, out of which only 90,000 file their return. However, without retailers registration, the chain of

GST is not complete.

Unregistered retailers should be subject to 13% to 14% sales tax so that they may get them

selves registered.

FBR should improve its image so that retailers should also voluntarily get themselves registered

in Sales Tax. For this purpose, they should be given immunity from audit for the past 5 years an

Documents

Subcat PDF 137