Importers, exporters and traders: Corporate regulator suggests tax increase
Says govt should do away with presumptive tax that reduces revenues.
Importers, exporters and traders are not subject to tax on net incomes and the presumptive tax is discouraging both corporatisation and manufacturing activities. PHOTO: KPT
ISLAMABAD:
The corporate sector watchdog has suggested an increase in tax rates for exporters, importers and traders in the range of 43% to 100% in the upcoming budget aimed at ending the benefits of reduced income tax being currently enjoyed by these wealthy people.
The proposal will make the tax regime more equitable by bringing these sectors into the normal tax net, according to sources in the Federal Board of Revenue (FBR).
Efforts to drive these sectors away from the presumptive tax regime where taxes are charged by presuming incomes, would also enhance government’s revenues, said the Securities and Exchange Commission of Pakistan (SECP) in its budget proposals.
“The presumptive tax regime is not only reducing tax revenues but is also distorting allocation of investments across sectors and assets,” the SECP argued.
The proposals have been submitted to the FBR for fiscal year 2014-15, commencing from July. FBR officials say they are reviewing the suggestions.
Any move to enhance tax rates for exporters, importers and traders may pitch what is called a pro-business government against businessmen who have long been enjoying special benefits.
Owing to distortions in the tax system, the FBR has failed to broaden the tax base and is now heavily banking on indirect taxes to achieve its annual tax target, says tax experts.
The SECP said importers, exporters and traders were not subject to tax on net incomes and the presumptive tax was discouraging both corporatisation and manufacturing activities.
According to sources, the SECP has proposed an increase of 60% in the standard tax rate for importers. The government may gradually make the increase over a period of three years.
At present, goods’ importers are taxed at the rate of 5% of the value of goods, which the SECP suggested should be increased to 8%.
Even in the presumptive tax regime, successive governments have created distortions. Against the standard rate of 5%, the government has been applying varying rates, ranging from 0.5% to 6%, which is adversely affecting its revenues.
In the last fiscal year ended June 2013, the government collected Rs103.3 billion in taxes from importers. Of these, Rs97.5 billion was received against the standard rate, highlighting the loss the state is bearing due to reduced rates.
The SECP has proposed to the government to increase the presumptive income tax for suppliers from 3.5% of the value of supplies to 5%, a rise of 43%. Last year, the FBR had collected Rs32 billion in taxes on sales of goods.
For exporters, who are currently taxed at the rate of 1% of the value of exports, the SECP has suggested a 100% increase, asking the government to take the standard rate to 2%. Like importers, there are many slabs for the exporters ranging from 0.75% to 1.5%.
In the last fiscal year, the exporters paid Rs23.2 billion in taxes including Rs19 billion against the standard rate of 1%. The meagre collection shows the benefits the exporters are enjoying.
According to a study conducted by the Institute for Policy Reforms, in upcoming fiscal year 2014-15 the government can raise a minimum of Rs21.5 billion by rationalising income tax rates for exporters of goods and services.
“The proposals are workable only when every container is scanned at the import stage,” said Dr Ikramul Haq, a Lahore-based leading tax expert and lawyer.
In the absence of enforcement measures by the FBR, higher tax rates under the presumptive tax regime would encourage taxpayers to under-declare the volume and value of their goods, he said.
Published in The Express Tribune, May 13th, 2014.
The corporate sector watchdog has suggested an increase in tax rates for exporters, importers and traders in the range of 43% to 100% in the upcoming budget aimed at ending the benefits of reduced income tax being currently enjoyed by these wealthy people.
The proposal will make the tax regime more equitable by bringing these sectors into the normal tax net, according to sources in the Federal Board of Revenue (FBR).
Efforts to drive these sectors away from the presumptive tax regime where taxes are charged by presuming incomes, would also enhance government’s revenues, said the Securities and Exchange Commission of Pakistan (SECP) in its budget proposals.
“The presumptive tax regime is not only reducing tax revenues but is also distorting allocation of investments across sectors and assets,” the SECP argued.
The proposals have been submitted to the FBR for fiscal year 2014-15, commencing from July. FBR officials say they are reviewing the suggestions.
Any move to enhance tax rates for exporters, importers and traders may pitch what is called a pro-business government against businessmen who have long been enjoying special benefits.
Owing to distortions in the tax system, the FBR has failed to broaden the tax base and is now heavily banking on indirect taxes to achieve its annual tax target, says tax experts.
The SECP said importers, exporters and traders were not subject to tax on net incomes and the presumptive tax was discouraging both corporatisation and manufacturing activities.
According to sources, the SECP has proposed an increase of 60% in the standard tax rate for importers. The government may gradually make the increase over a period of three years.
At present, goods’ importers are taxed at the rate of 5% of the value of goods, which the SECP suggested should be increased to 8%.
Even in the presumptive tax regime, successive governments have created distortions. Against the standard rate of 5%, the government has been applying varying rates, ranging from 0.5% to 6%, which is adversely affecting its revenues.
In the last fiscal year ended June 2013, the government collected Rs103.3 billion in taxes from importers. Of these, Rs97.5 billion was received against the standard rate, highlighting the loss the state is bearing due to reduced rates.
The SECP has proposed to the government to increase the presumptive income tax for suppliers from 3.5% of the value of supplies to 5%, a rise of 43%. Last year, the FBR had collected Rs32 billion in taxes on sales of goods.
For exporters, who are currently taxed at the rate of 1% of the value of exports, the SECP has suggested a 100% increase, asking the government to take the standard rate to 2%. Like importers, there are many slabs for the exporters ranging from 0.75% to 1.5%.
In the last fiscal year, the exporters paid Rs23.2 billion in taxes including Rs19 billion against the standard rate of 1%. The meagre collection shows the benefits the exporters are enjoying.
According to a study conducted by the Institute for Policy Reforms, in upcoming fiscal year 2014-15 the government can raise a minimum of Rs21.5 billion by rationalising income tax rates for exporters of goods and services.
“The proposals are workable only when every container is scanned at the import stage,” said Dr Ikramul Haq, a Lahore-based leading tax expert and lawyer.
In the absence of enforcement measures by the FBR, higher tax rates under the presumptive tax regime would encourage taxpayers to under-declare the volume and value of their goods, he said.
Published in The Express Tribune, May 13th, 2014.