The Pakistan Business Council (PBC) has suggested to the government to roll out a pro-growth budget for the next fiscal year starting July 1, 2021 so that the country could return to industrialisation from a trading nation and people are able to get job opportunities.
“The major thrust of the PBC is the revival of manufacturing in Pakistan. Pakistan is de-industrialising at a rapid pace and the country, due to faulty policies of successive governments, is becoming a nation of traders,” read the council’s budget proposals for next fiscal year 2021-22.
It has prepared budget proposals by focusing on four major areas which include documenting the economy and providing a level playing field for domestic manufacturing, reducing the cost of doing business, consolidation of businesses to improve competitiveness and helping Pakistan meet its commitments under the UN Sustainable Development Goals (SDGs).
It suggested measures for re-energising the manufacturing sector to support import substitution and boost exports in order to reduce the reliance on imported goods, increase export earnings and strengthen the country’s capacity to pay for imports and repay foreign debt.
The council, which is an advocacy forum for the country’s largest private sector business groups including multinationals, underlined that transit trade via Pakistan to the landlocked Afghanistan had continued to hinder industrialisation in the country, as traders misused the transit trade to smuggle goods into the domestic market.
“Goods moving under ATT (Afghan Transit Trade) from Pakistan to Afghanistan should be charged with duties and taxes under Pakistani laws and the same should be transferred to the Afghan government. Secondly, the duties/taxes so paid should be deposited with the State Bank in US dollar. A quantitative restriction should be applied to goods moving under ATT on the basis of consumption,” the PBC said.
“At present, new local/foreign investors are reluctant to invest in the manufacturing sector of Pakistan due to various impediments including the collection of sales tax (10% upfront plus 3% minimum value addition plus 7% post-dated cheques) and income tax of 5.5% on the import of plant and machinery/ spare parts in addition to various other taxes and levies thereafter,” it said and suggested changes to the relevant income tax laws.
Import of plant and machinery by companies should be exempt from withholding tax at the import stage. Moreover, for raw material, preferably corporate manufacturers should be excluded from the ambit of withholding income tax at the import stage, it suggested.
Massive under-invoicing, especially by commercial importers, was destroying the domestic industry. “The government of Pakistan must insist on Electronic Data Interchange (EDI), for both FTA and non-FTA imports from China and other major trading partners. In future, the requirement of EDI should be made compulsory for imports from FTA/ PTA and major trading partner countries.”
In order to promote industrialisation, the minimum tax should be abolished for all listed companies as these companies are subject to stringent regulations and audit.
“For other companies, the rate of minimum tax be reduced gradually by 0.2% on an annual basis so that by tax year 2025 the rate is 0.5%.”
In order to encourage companies to invest in plant and machinery, either for import substitution or export growth, all tax credits on investments should be immediately revived.
Exemption from income tax to Greenfield industries should be restored. The tax credit should at least be extended till five years.
The number of taxpayers needs to be significantly increased - the narrow taxpayer base is leading to greater pressure on the existing taxpayers. The FBR has got access to financial data in various forms including the monthly statements submitted by withholding tax/collecting agents as per various sections.
“This can be a start to bringing new taxpayers in the net. In addition, the FBR has also collected data about tax paid by non-filers on property and on gains made in the stock market.”
Published in The Express Tribune, May 20th, 2021.