Senate panel backs corporate guarantees

ISLAMABAD:

A Senate panel has backed the government’s move to allow companies to provide corporate guarantees against disputed import duties, but it strongly opposed changes introduced in income tax and sales tax laws.

The Senate Standing Committee on Finance has endorsed the proposal of adding a new legal provision of corporate guarantees to be given by companies against any disputed import duty, according to the committee report.

The panel has sent its report to the Senate for onward submission in the National Assembly. The assembly has the right to accept or reject Senate recommendations in case of the Finance Bill.

The new amendment has been introduced in the Customs Act of 1969 through the Third Tax Laws Amendment Ordinance that has been in force since September 16.

Where the standing committee has largely endorsed all the changes made in the Customs Act, it has rejected almost all the amendments made in the income tax law and the sales tax law.

The committee report showed that it rejected many changes in the income tax and sales tax laws with consensus, indicating the support provided by treasury members of the committee belonging to the Pakistan Tehreek-e-Insaf (PTI) and the Pakistan Muslim League-Quaid-e-Azam (PML-Q).

The committee unanimously rejected the changes related to disconnection of gas and electricity supplies to the non-filers of sales tax and income tax returns.

It also rejected the proposal that sought to give discretionary powers to the Federal Board of Revenue (FBR) to declare the filing of tax returns mandatory for any citizen or a business.

The FBR’s decision to accept corporate guarantees is expected to lower the cost of doing business following a big shock to businesses in the shape of 1.5-percentage-point increase in interest rate in one go.

The SBP on Friday increased the key policy rate by 1.5 percentage point to 8.75%, which according to analysts appeared to be a condition of the International Monetary Fund (IMF) loan programme.

The central bank is again expected to raise the interest rate after three weeks to comply with the IMF’s condition. The central bank has announced that it will hold the next Monetary Policy Committee (MPC) meeting on December 14.

Before the corporate guarantee amendment, the importers were required to submit a pay order or bank guarantee from a scheduled bank for the release of goods, for the duration when the assessment is finalised.

The need for guarantees arises when the tax collector and the importer are locked into a dispute over the tax assessment of imported goods.

The facility has been offered to the industrial sector only under Pakistan’s commitment to the World Trade Organisation (WTO) and the Kyoto Protocol, said Saeed Jadoon, Member Customs Policy of the FBR.

He said that the corporate guarantee provision would also help ease pressure on the cash flow of firms, whose capital remained stuck in bank guarantees due to delay in the settlement of a dispute.

Commercial importers would still be required to submit bank guarantees, he added.

Earlier, the option of post-dated cheques was available along with the pay order or bank guarantee for the disputed amount in case of provisional assessment to both the commercial and industrial importers.

However, the post-dated cheque option was withdrawn in 2013, which caused burden on the corporate sector in the event of valuation disputes, said Jadoon.

There was realisation in the FBR that commercial importers and the corporate sector should be distinguished, as the companies were facing liquidity crunch due to the stuck pay orders and bank guarantees, said the member policy.

The Kyoto Convention says if Customs officials are satisfied that the declarant will subsequently accomplish all formalities in respect of clearance, they will release the goods, provided that the declarant produces a commercial or official document giving the main particulars of the consignment concerned and acceptable to the Customs, and that security, where required, has been furnished to ensure collection of any applicable duties and taxes.

The format of corporate guarantee is already available under the government’s duty drawback scheme.

The FBR informed the Senate committee that Pakistan had given a commitment to provide the option of corporate guarantee under the Authorised Economic Operator Programme of the WTO Trade Facilitation Agreement.

Published in The Express Tribune, November 21^st, 2021.

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