One of the representative bodies of the corporate sector, Pakistan Business Council (PBC), has asked the government for major tax relief in order to keep the business activities going across the country.
Addressing the advisor to Prime Minister on Economic Affairs Dr. Hafeez Shaikh, Ehsan Malik CEO PBS wrote a letter requesting him for taking measures under the Business Relief Package in the wake of the economic slowdown caused by Covid-19.
“The Pakistan Business Council is grateful to the government for announcing an Economic Relief Package. For it to have the maximum impact, it is desirable to supplement it with a Business Relief Package (BRP),” the letter read.
PBC sought tax reduction on different heads including income tax, sales tax, customs duties besides certain exemptions and deferred payments of various duties to shore up the economy.
Here are the demands:
- Turnover tax should be brought down to 0% from 1.5% currently for the tax year 2020 and 2021. Tax should be levied on the assessed profit of the businesses.
- Advance tax on imports collected at import stage (even though it is adjustable for raw material importers) should be suspended for 6 months for manufacturing businesses i.e. the application of tax under the section should commence from imports from October onwards.
- Advance tax collections on goods, services & contracts should be suspended for 6 months for manufacturing business allowing them to receive the gross amount and improve cash flows during the interim period between receipt of funds and submission of funds to the government.
- Immediately release all pending Income Tax and Sales Tax refunds.
- Restore Sec 65 B – Business making 90% of their sales to registered persons should be allowed 10% initial allowance against new capital expenditure for BMR projects (as prior to FY19 budget).
- New Sec 65 – Company’s which pay full salary to employees registered for EOBI and earning under Rs. 30,000 per month during the lockdown period, should be given a tax credit for the amount of such salary paid.
- Waive payments of WPPF/WWF/EOBI/other labor-related payments for the fiscal year 2019/2020.
- Advance quarterly income tax should be suspended for March and June 2020 quarter ends to help manage the cash flow.
- An income tax rebate of 50% for employees with a taxable income of Rs. 1,800,000 per annum in the FY2020 to help them meet the exceptional costs during the crisis period.
- The corporate tax rate for companies for FY 2020 be reduced by 5% of the rate applicable.
Sales Tax and Excise Duty
- The Output Sales Tax and Excise Duty payments due from manufacturing businesses in respect of February, March, and April be accumulated and paid in 6 equal installments commencing July 2020.
- Sales Tax Act – u/s 8b – input adjustment to sales tax should be allowed up to 100% (currently set at 90%); higher adjustment level will reduce the pressure on cash flow.
- Additional Sales Tax of 3% at the import stage should be abolished for the manufacturing sector. It is currently applicable to imports resulting in cash flow curtailment.
Customs Duty and Utility Bills Payments
- Additional Custom Duty (ACD) of 4% & 7% on goods with normal Custom duty of 16% & 20% to be reduced to 2% with immediate effect. Others: Abolish the 100% margin against import LC for industrial raw materials.
- Waive fixed charges on electricity bills for the next 3 months and reinstate Industrial Support Package (ISPA) of PKR 3/kWh for at least the next 6 months.
- Waive demurrage or detention charges on imports during the lock-down period.
- Bring the cost of electricity and gas down in line with the reduction in the global price of oil and gas.
Provincial Taxes and Duties
- The Sindh infrastructure Development Cess be withdrawn or at least deferred for the next 12 months: No cash payment or bank guarantee to be given.
- Property tax on businesses reduced by 50% for the FY2020.
The export sector faces acute problems due to order cancellations and shipment deferrals following the closure of retail outlets in the main overseas markets. It is unlikely that normality will be restored in this sector till the end of 2020.
The problems of the export industry, especially of textiles, which employs the largest percentage of industrial workers and now face an existential threat and needs to be addressed urgently.
The key steps recommended are as follows:
- The mechanism instituted by the FBR to expedite the refund of sales tax to the five previously zero-rated export sectors has failed to function. They have recommended that the zero-rating of sales tax for the export sector be restored at least for the period to the end of December 2020. Moreover, the concurrent zero-rating of domestic sales of the textile sector will also enable some capacity utilization and hence employment and economic activity in this sector.
- As the export sector is subject to a different tax regime, tax credits recommended for the domestic industry to sustain employment are not applicable. Instead, direct subsidies may be paid to this sector to enable it to maintain employment, especially of the lower-paid workers. For this, they have recommended that a separate Export Bail-Out Fund be established to help exporters in difficulty. Pakistan will need them as soon as the global economy revives.
- Foreign customers are invoking force majeure clauses to cancel orders and delay shipments. Banks in Pakistan, however, are reluctant to adopt the same basis to unwind the forward exchange contracts which were contingent on continued export streams. These will now not materialize within the contracted period and exporters will suffer a loss due to the further devaluation of the Rupee. The State Bank is empowered to direct the closure of forwarding contracts.
- As promised by the government in its Economic Relief Programme, all tax refunds and rebates due to the export sector may be refunded immediately to help it overcome the cash flow crisis. The PBC looks forward to engaging with the government and assured them with their continuing support to promote jobs, exports, import substitution and the documentation of the economy.