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Ramadan 5, 1437 A.H.
JUNE 11, 2016

Grave concerns expressed over discretionary powers, enhancement of taxes Siraj Teli
for collective efforts for dealing with budget anomalies

KARACHI: Chairman Businessmen Group (BMG) and Former President of the Karachi Chamber of Commerce and Industry (KCCI) Siraj Kassam Teli, while expressing serious dismay over the announcements made in Federal Budget 2016-17, underscored the need to make collective efforts to get numerous budget anomalies removed, particularly those pertaining to further overburdening the existing taxpayers by imposing new taxes, enhancing the existing tax rates and granting more discretionary powers to FBR. Speaking at a post-budget meeting held at KCCI to review the impact of many anti-business and harsh decisions taken in the Federal Budget, BMG Chairman pointed out that the last three budgets announced by the government already granted massive discretionary powers which created immense problems for the Business and Industrial Community of Karachi. “This year’s budget is worst as compared to what we have seen during the last three budgets. It has been prepared to largely please the feudal lords only as announced by Mr. Ishaq Dar himself during the budget speech whereas no pro-business announcement or relief has been provided to revive the economic activities and provide a level playing field”, he added.

Vice Chairman BMG & Former President KCCI Haroon Farooki, President KCCI Younus Muhammad Bashir, Senior Vice President KCCI Zia Ahmed Khan, Vice President KCCI Muhammad Naeem Sharif, Former Presidents KCCI AQ Khalil, Haroon Agar, Abdullah Zaki, Iftikhar Ahmed Vohra, Former SVP and Chairman of KCCI’s Special Committee for Budget Proposals Muhammad Ibrahim Kasumbi and KCCI Managing Committee members were present at the meeting. The meeting participants pointed out that the federal budget and Finance Bill 2016-17, have entirely focused on Tariff and Tax concessions granted to Feudal Lords and Land Gentry. Thus, they feared that the loss of revenue was likely to be recovered from the Industry and Trade based in urban areas through additional taxation measures amounting to Rs204 billion. They said that the recently announced budget has not focused on dealing with falling exports. Pakistan needs to expand export markets in regional countries, particularly with countries with whom FTAs (Free Trade Agreements) and PTAs (Preferential Trade Agreements) are inked. The meeting participants further expressed deep concerns over government’s attitude towards KCCI’s Proposals as many of these proposals were ignored despite assurances given by the decision makers at numerous meetings held at FBR prior to the Budget.

Terming Finance Minister’s budget speech as “Election Speech”, they said that it was clearly an attempt to capture the vote bank of land gentry. They said that no effort is seen to broaden the tax base and the existing tax payers were being further taxed to bring more revenues. Moreover, there was no effort to include the income from agriculture in the definition of incomes which are to be taxed. According to meeting participants, the concept of taxing the Non-Filers is faulty and must be protested. It was a matter of serious concern that out of a total population of 180 million, only about 1.1 Million are Tax Filers which clearly indicate the shortcomings of FBR to bring the prospective Tax Payers into the Tax Net and the consequences of such shortcomings are being transferred to the entire Nation. Contrary to KCCI’s proposals, all discretionary powers of the FBR and IR officers have been retained and kept intact which is a major deterrent to broadening of tax base and harassment of taxpayers, they added.

They said that it was a matter of grave concern that FBR has once again heavily relied on Indirect Taxes including Customs Duties, Sales Tax, FED on beverages and cigarettes, and Withholding Income Tax while no road map has been provided for Economic Growth and diversion of Capital from Real Estate to the Industry and Trade. BMG Leadership and KCCI Office Bearers strongly believe that by way of reduction in Slabs of Customs Duty, a new Pandora box has been opened. The changes in Slabs has put many industrial raw materials and commodities under higher slabs of customs duty with an intention to increase revenue by Rs204 billion. The meeting participants further noted that various pressure groups have been able to obtain or retain the concessionary regime through intense lobbying prior to the budget.  The Finance Ministry and FBR have succumbed to the pressure and therefore, failed to present a Budget in the best national interest. Instead a significant amount of revenue has been sacrificed. They further mentioned that no reduction has been made in the rate of WHT of 6.5 percent on Commercial importers of raw materials, which will lead to misuse of exemption and most of the commercial importers will now divert to import under industrial category, resulting in loss of revenue. In fact the government has only been able to collect around Rs150 billion in WHT from commercial importers at source. They noted that against KCCI’s proposal, further Tax of 2 percent on sales to unregistered persons has been retained.  There is no justification for retaining this tax after collection of 3 percent Value Addition Tax at Import stage. They said that by virtue of retaining the exemption on import of raw materials by industry and subjecting it to 100 percent Audit, a floodgate of corruption has been opened for field formation and auditors. Instead a 2 percent WHT imposed on import of raw materials by industry and subject to adjustment would result in removal of disparity and increase in revenue, they opined. Referring to the amendment proposed through Finance Bill 2016 in Section 68 of Income Tax Ordinance 2001 about Fair Market Value, BMG Leadership and KCCI Office Bearers stated that now the officials of Inland Revenue (IR) have been empowered to arbitrarily ascertain the market value of properties and disregard the value determined by provincial authorities.  

They said that this particular amendment is a glaring example of granting more discretionary powers and promote corruption as the IR Officials may misuse this power to financially benefit by arm-twisting and black mailing the buyers and sellers of property. Instead of granting such powers to officials, the government should determine the realistic market value by raising it three to five times of the current value assessed by Collectors. In the Financial measures for Budget 2016-17, the federal government has proposed to amend the Sales Tax Act 1990, whereby the adjustment of INPUT of Provincial Sales Tax on services will not be allowed against the Output of Federal GST.  The implication of this measure is far reaching and covers the broad spectrum of services.  This is tantamount to increase in costs and blockage of working capital for the services industry including Power, Utilities, Banking, Insurance, Security, Catering, Travel agencies, and many other segments. Such provisions are counter-productive to business activities and will also burden the end-consumers. The provision should therefore be restored to allow adjustment of Input of Provincial GST on services against the Federal GST wherever applicable. The importers of Dairy Products present at the meeting expressed deep concern over imposition of 25 percent Regulatory Duty on Powdered Milk and Whey, which are essential consumer products. Increase in cost of Milk and Whey powder will directly impact the common man.

They feared that imposition of regulatory duty on Powdered Milk and Whey would inflate the prices of Fresh Milk, Tetra Pack Milk and Other Dairy Based Products together with Confectioneries, Sweets, Ice Cream & many other consumer products. Heavy import taxes would also encourage smuggling via Afghan Transit which would cause losses to the national exchequer and make it impossible for importers and traders to carry on their businesses who are the main source of supply to consumer markets. The importers have therefore demanded the immediate withdrawal of 25% regulatory duty in the Finance Bill 2016-17 and retain the Exemption Status of Powdered Milk & Whey from the Sales Tax Representatives of the Marble Trade pointed out that Pakistan has been producing high quality of Marble and fine quality of Gypsum. Marble products and Gypsum products need incentives to lower cost of production and increase exports. Furnished Gypsum Products are importable at 6.25 percent Customs Duty whereas its raw materials are importable at 20 percent Customs Duty.  Customs Duty on raw materials may be reduced and Regulatory Duty may be imposed on finished products. These anomalies may be removed for survival of Gypsum Board Industry. While imposing the Regulatory Duty of 25% on MDF board to protect the domestic Industry, an inadvertent error has been made and the HDF (High Density Fiber Board) which is not manufactured in Pakistan has also been subjected to Regulatory duty. This anomaly has to be rectified prior to approval of budgetary measures. The meeting participants strongly felt that Export Development Surcharge on export proceeds increases the cost of exports which should be withdrawn as other countries give incentives on exports.  After lengthy deliberations with the stakeholders of different sectors and noting their concerns, Siraj Teli advised the office bearers to fully utilize all available resources and every single platform to bring these issues and anomalies to the notice of decision makers in Islamabad with a view to get them amicably resolved which would not only go in favor of the country’s economy but will also ensure an enabling business environment.