The Karachi Chamber of Commerce & Industry (KCCI) believes that out-of-box solutions are needed to avoid further downslide of the economy while the decision-makers must have a better perception of the ground realities of Pakistan’s economic landscape and business dynamics.
“The Ministries of Finance, Commerce and the Federal Board of Revenue (FBR) will have to look beyond the traditional approach to deal with the present situation and come up with out-of-box solutions to put the economy back on track”, KCCI stressed in its Federal Budget Proposals 2023-24.
Identifying some of the key economic issues, KCCI pointed out that depleting forex reserves, curtailing imports of raw materials and essential goods, a cap on opening LCs for industrial raw materials, declining inflows of foreign exchange, significant decline expected in revenue collection due to reduced imports, descending exports caused by the high cost of energy, inputs, and shortage of raw materials, inefficient collection and narrow tax base, tax evasion and tax avoidance by affluent individuals, low productivity of the agricultural sector and stagnation in real estate market causing severe liquidity crisis were some of the major economic issues in the current scenario which needs special attention.
According to KCCI, as a result of the sharp decline in forex reserves, steep devaluation of the Pakistani Rupee against major currencies and restriction on the opening of LCs, the trade and industry across the entire spectrum of economy were finding it extremely difficult to survive.
“Industries are running out of raw materials while many SMEs have already shut down their operations because they are dependent on commercial importers for the supply of raw materials.”, KCCI said, adding that the high rate of inflation has pushed prices of consumer goods and commodities to a level where these were beyond the reach of the poor and lower middle class. As a consequence of these factors, demand for various goods has been suppressed and the country was facing an economic slowdown.
To overcome the unavailability of foreign exchange and decline in inflows, KCCI proposed that importers may be allowed to arrange payment/remittance of foreign exchange through their own sources including outside of Pakistan, and directly receive their import documents from suppliers without the involvement of domestic commercial banks.
“The role of commercial banks in last few months has been questionable as vastly differing rates of US Dollar have been charged by banks keeping a high-profit margin while preferential treatment is given to clients with high trade volume and the SMEs are generally ignored,” KCCI said.
To comply with IMF conditionalities, the policymakers should explore other avenues to enhance revenues such as withdrawal of exemptions from PATA, FATA, and Azad Kashmir, reducing the government’s administrative expenditure and size of the cabinet and perks, retirement benefits of officers in grade 17 to 22 in addition to reducing the size of PSDP, KCCI said.
KCCI also underscored that all audit functions should be brought under one provision of the Income Tax Ordinance rather than various overlapping provisions with clear and well-defined parameters. Audit parameters should be transparent and open to taxpayers.
“Sub-Section 7 may be deleted and Powers of the Commissioner and sub-ordinate officials should be curtailed to restore the trust of Taxpayers and encourage the broadening of tax-base.”, KCCI said, adding that such audits should be restricted to specific queries or objections and call for the relevant document only rather than opening and re-opening a comprehensive audit every time.
KCCI also proposed that the CNIC number of unregistered buyers provided by registered sellers/suppliers must be treated at par with STRN. 3 percent further tax on supplies to the unregistered buyer should not be charged, if the CNIC number was provided by the registered seller in Sales Tax Return. In case the CNIC number of unregistered buyers of raw materials is not provided, VAT may be charged at 1.7 percent on Sales of raw materials.
KCCI also proposed that Sales Tax Invoices issued by sellers for goods sold to buyers in various other parts of the country should be treated as a valid document for clearance of all such goods. WHT may be revised to 2 percent on the import of essential food items and be equal for all importers without distinction of the commercial or industrial importer.
KCCI suggested that Withholding Income Tax at the import stage on raw materials should be treated as Advance Tax and be adjustable against actual liability. The concept of Minimum WHT on the import of raw materials may be phased out and treated in a normal tax regime. The distinction should be made between Importers of Finished Goods and Raw Materials who mainly cater to the industry and are fully documented.
KCCI also recommended that as the tax on reactive dyes was quite exorbitant, the Customs Duty on reactive dyes should be rationalized to a maximum of 3 percent and Additional Customs Duty may also be abolished by considering the fact that it was a basic raw material required for the textile industry which was an export-oriented sector and this item cannot be used as finished end product.
KCCI also proposed to reduce the rates of Customs Duty to 2 percent, Sales Tax to 12 percent, and WHT to 1 percent for both industrial and commercial importers of Polymers.
“Value Addition Sales Tax of 3 percent on Commercial importers be waived in order provide a level playing field. Commercial importers do not add any value to raw materials and sell them to small industries in their original form. Hence, the 3 percent VAT is unjustified in any case,” it said.