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April 11, 2021

A virtual session was held between FBR members Ch. Muhammad Tarique, (Member IR-Policy) and Dr. Muhammad Ashfaq Ahmed (Member IR- Operations) and OICCI members on April 13, 2021 to discuss the key highlights of the OICCI Taxation Proposals submitted to the Chairman FBR, for incorporation in the upcoming Finance Bill 2021-22.

Amir Paracha, MC member and Chairman of OICCI Taxation Subcommittee, thanked the FBR team for the timely virtual meeting to discuss the OICCI Taxation Proposals and highlighted the effort put in by the OICCI in compiling the focused proposals, taking into account the current pandemic environment and government budget constraints.

OICCI CE/Secretary General, M Abdul Aleem, on behalf of the members of OICCI, presented the highlights of the OICCI Taxation Proposals, submitted to FBR on March 29, 2021, as mentioned below:

Key Highlights of the OICCI Taxation Proposals 2021-2022

  1. Minimum Tax/ Alternate Corporate Tax
    • The general rate of MTR under section 113 of ITO 2001 should be 0.5% only.
      • The general rate should be further reduced to 0.2% for businesses dealing in sectors with high turnover and low margins.
    • ACT under section 113C of ITO 2001 should be abolished.
    • To promote investment in SEZ, minimum tax regime should not be applicable on companies operating in these zones.
  2. Revamping of Withholding Tax Regime (WHT)
    • WHT regime should be revamped and reduced from existing over forty-five to five rates only for filers.
    • Final Tax Regime should be abolished, and all withholding taxes made adjustable.
      • FBR to ensure persons whose taxes have been deducted file tax returns.
  3. Single Sales tax return/ rate across all jurisdictions
        1. There should be one Sales tax return and rates rationalized on goods and services, throughout the country and aligned to 13% charged in Sindh.
  4. Promotion of Shariah Compliance
      1. IT rebate of 2% for Shariah Compliance under clause 18B, Part-II of 2nd Schedule and rule 231H of IT Rules, 2002 are impractical to implement.
        • FBR laws be aligned with SECP Shariah regulations.
  5. Section 8B in STA 1990 should be abolished for registered taxpayers
        • Input adjustment to sales tax currently restricted to 90% only, should be allowed 100% for registered taxpayers.
  6. Ease of Doing Business / Promotion of Investment
    • Pending tax refunds be cleared within six months in an orderly/prearranged manner. All subsequent tax refunds be cleared within 45 days.
      • Inter-adjustment of Income/Sales tax refunds should be part of law.
    • Frequency of payments and return filings should be reduced.
      • Large number of payments/filing of various returns cause of hardship to taxpayers: one of the key factors for tax evasion/non-registration as taxpayer.
    • The gradual decrease in corporate tax rate, as earlier announced by the GOP, to 25%, should be continued and aligned with the average Regional Corporate rate.
      • One Corporate tax rate only, for all sectors including the banking sector.
    • Give attractive incentives to promote digitization of business and economy – including for service providers who coordinate between supplier abroad and buyer in Pakistan.
  1. Anomalies should be Streamlined
    • Zero rating for Milk & Milk Based Products: Re-transpose the dairy products to the fifth schedule of the STA 1990 & resume the Zero-Rating facility for dairy sector.
    • Tax rate on dividend from IPPs and Coal suppliers (having non-pass-through agreements with CPPA) increased from 7.5% to 25%, be restored to pre–Finance Act 2019 position.
    • Mismatch in GST on supply of natural gas as feed stock to Fertilizer sector (5%) and fuel stock (17%) against the output tax (2%) on sale of finished goods. This mismatch results in excessive input tax refundable build-up.
      • GST rate on supply of natural gas to fertilizers manufacturers be reduced to zero percent.
  1. Illicit trade
There is a lot of Illicit trade in the country. As an example illicit trade of tobacco has 37% market share with estimated annual loss to Government 70 billion. Only two companies take excise led price increases, but 30+ manufacturers do not take price increases. The illicit manufacturers capitalize on cheap brands, selling below mandated minimum price per pack set by Government of Pakistan.
  • Higher adjustable levy on un-manufactured tobacco will increase cost of business for tax evading brands. This will lead to a reduction in price difference between legitimate and illicit packs.
  • OICCI team also highlighted the abuse of Afghan Transit Trade facility with serious loss of revenue the FBR/GOP and loss to OICCI members.

Ch. Muhammad Tarique, Member (IR – Policy) and Dr. Muhammad Ashfaq Ahmed, Member (IR- Operations), responded to most of OICCI key proposals, as mentioned below:

FBR Comments:

Member FBR assured maximum tax relief and incentives in the upcoming federal budget (2021-22) including some reduction of withholding taxes, reduction in sales tax on the import of raw materials/inputs and procedural and legal changes in the sales tax and income tax regime to facilitate investment.

The following key points were mentioned by FBR during the discussion:

  • Minimum Tax regime will be reviewed.
  • 9-10 withholding taxes would be abolished in the budget.
  • Sales tax on imported raw materials and some other inputs, will in principle be reduced and aligned with the reduced rates introduced in the IT amendment last year
  • FBR working hard to build a single Sales tax portal, for all tax jurisdictions w.e.f. July 1, 2021.
  • On tobacco tax evasion, Member IR Operation highlighted that the proposed Track and Trace system will be implemented for tobacco products which is expected to substantially deter the massive duty evasion currently taking place.
Members Concerns Some of the participants also raised their concerns relating to their business sector, in addition to those taken up above and requested for the FBR support, which included:
  • FMCG: Include the term “Distributors” in clause 24C of Part II of Second Schedule to the Income Tax Ordinance, 2001.
  • Banking: Super Tax relief and Corporate tax rates to be aligned with other sectors, as the dynamics of the banks requires high equity investment (Rs 20 Billion), which will in turn result in higher absolute amount of profitability.
  • Pharma: Prices are government regulated, hence allow Zero Rating on Sales Tax for Pharmaceutical Input, the taxable raw materials and packing materials, whether imported or locally procured may be notified as exempt from sales tax, if purchased by a pharma manufacturer.

Conclusion

In general, the FBR were very receptive to all OICCI proposals and promised to take these up with Ministry of Finance. It was also mentioned that FBR understands the difficulties of businesses and industries, due to the disruption of their operation, during Covid-19, lockdown. Covid-19, is a global issue and all stakeholders need to work together, as a nation to face this pandemic and support each other.