FEDERAL BUDGET PROPOSALS 2023-24:
KARACHI: The Karachi Chamber of Commerce & Industry (KCCI) firmly believes that that out-of-the-box solutions were needed to avoid further downslide of economy while the decision-makers must have a better perception of ground realities of Pakistan’s economic landscape and business dynamics.
“The Ministries of Finance, Commerce and the Federal Board of Revenue (FBR) will have to look beyond the traditional approach to deal with present situation and come up with out-of-the-box solutions to put the economy back on track”, KCCI stressed in its Federal Budget Proposals 2023-24.
Identifying some of the key economic issues, KCCI pointed out that depleting forex reserves, curtailing imports of raw materials and essential goods, cap on opening LCs for industrial raw materials, declining inflows of foreign exchange, significant decline expected in revenue collection due to reduced imports, descending exports caused by high cost of energy, inputs and shortage of raw materials, inefficient collection and narrow tax base, tax evasion and tax avoidance by affluent individuals, low productivity of agricultural sector and stagnation in real estate market causing severe liquidity crisis were some of the major economic issues in the current scenario which need special attention.
According to KCCI’s Proposals, as a result of sharp decline in forex reserves, steep devaluation of Pak Rupee against major currencies and restriction on opening of LCs, the trade and industry across the entire spectrum of economy were finding it extremely difficult to survive. “Industries are running out of raw materials while many SMEs have already shut down their operations because they are dependent on commercial importers for supply of raw materials.”, KCCI said, adding that high rate of inflation has pushed prices of consumer goods and commodities to a level where these were beyond the reach of poor and lower middle class. As a consequence of these factors, demand for various goods has been suppressed and the country was facing an economic slowdown.
To overcome the unavailability of foreign exchange and decline in inflows, KCCI proposed that importers may be allowed to arrange payment/remittance of foreign exchange through their own sources including outside of Pakistan and directly receive their import documents from suppliers without involvement of domestic commercial banks. “The role of commercial banks in last few months has been questionable as vastly differing rates of US Dollar have been charged by banks keeping a high profit margin while preferential treatment is given to clients with high trade volume and the SMEs are generally ignored.”
To comply with IMF conditionalities, the policy makers should explore other avenues to enhance revenues such as withdrawal of exemptions from PATA, FATA and Azad Kashmir, reduce government’s administrative expenditure and size of the cabinet and perks, retirement benefits of officers in grade 17 to 22 in addition to reducing the size of PSDP, KCCI demanded.
KCCI also underscored that all audit functions should be brought under one provision of Income Tax Ordinance rather than various over-lapping provisions with clear and well-defined parameters. Audit Parameters should be transparent and open to taxpayers. “Sub-Section 7 may be deleted and Powers of the Commissioner and sub-ordinate officials should be curtailed to restore the trust of Taxpayers and encourage broadening of tax-base.”, KCCI said, adding that such audits should be restricted to specific queries or objections and call for relevant document only rather than opening and re-opening a comprehensive audit every time.
KCCI also proposed that CNIC number of Unregistered buyers provided by registered seller/supplier must be treated at par with STRN. 3 percent Further Tax on supplies to unregistered buyer should not be charged, if CNIC number was provided by Registered seller in Sales Tax Return. In case CNIC number of unregistered buyers of Raw Materials is not provided, VAT may be charged at 1.7 percent on Sales of Raw Material.
KCCI also proposed that Sales Tax Invoices issued by Sellers for goods sold to buyers in various other parts of the country should be treated as a valid document for clearance of all such goods. WHT may be revised to 2 percent on import of essential food items and be equal on all importers without distinction of commercial or industrial importer.
KCCI suggested that Withholding Income Tax at import stage on raw materials should treated as Advance Tax and be adjustable against actual liability. Concept of Minimum WHT on import of Raw Materials may be phased out and treated in normal tax regime. Distinction should be made between Importers of Finished Goods and Raw Materials who mainly cater to the industry and are fully documented.
KCCI also recommended that as the tax on reactive dyes was quite exorbitant, the Customs Duty on reactive dyes should be rationalized to a maximum of 3 percent and Additional Customs Duty may also be abolished by considering the fact that it was a basic raw material required for textile industry which was an export-oriented sector and this item cannot be used as finished end product.
KCCI also proposed to reduce the rates of Customs Duty to 2 percent, Sales Tax to 12 percent and WHT to 1 percent for both industrial and commercial importers of Polymers. “Value Addition Sales Tax of 3 percent on Commercial importers be waived in order provide a level playing field. Commercial Importers do not add any value to raw material and sell it to Small Industries in the original form. Hence, the 3 percent VAT is unjustified in any case.”