The Federal Board of Revenue (FBR) is working out the revenue impact of freight tax imposed on shipping companies for possible withdrawal of the tax in the coming budget under the policy of ease of doing business.
The freight tax is applicable on shipping companies under the Income Tax Ordinance 2001, and its total incidence on shipping companies is four percent.
Sources said that a meeting of the stakeholders was held to discuss the impact of freight tax imposed under the Income Tax Ordinance 2001, vis-à-vis government’s drive to improve ease of doing business in the country.
The representatives of the FBR, the National Tariff Commission (NTC), Pakistan Ship’s Agents Association, Federation of Pakistan Chamber of Commerce and Industry (FPCCI), and officers of the Commerce Ministry, attended the meeting.
According to sources, the issue being faced by the business community due to the imposition of freight tax, which tends to increase the cost of doing business and proposal of the Pakistan Ship Agents Association to make necessary amendments in the Income Tax Ordinance 2001.
The representative of Pakistan Ship Agents Association explained as how the imposition of freight tax makes the country’s merchandise lose its competitiveness in the international market.
He informed that higher profits could be fetched if exports are made using CIF (cost insurance and freight) /CNF (cost, non-insurance and freight) and imports using FOB (free on board or freight on board) to save on costs.
The representative regretted the exporters’ inability to materialize higher prices for the merchandize due to the presence of Section 7, sub-section (1), Para (a) & (b), which discourages the practice and thus reduces the profit margins of the exporters.
The representative from the FBR said that Pakistan had bilateral trade agreement with 65 countries for the exemption of the freight tax.
Therefore, around 80 percent of the shipping companies do not have to pay freight tax; whereas for the rest of shipping companies the tax is half.
According to FBR, the total incidence of tax is four percent only.
While opposing the proposal of the association, the representative from the FBR asserted that the freight tax does not have any impact on the competitiveness of the exports and suggested that the exporting industries should improve quality of their products in order to become competitive in the international market.
In support of his argument, tax authorities committed to provide fright tax collection statistics for perusal.
After detailed discussion on all aspects of the matter, it was decided that to better understand the impact of freight tax on the country’s exports merchandize, it was decided to hold another consultative meeting to resolve the issue.
The FBR will provide detailed statistics regarding freight tax collection in the next meeting.