Karachi, March 06, 2013 (PPI-OT): Dr. Arshad A. Vohra, Chairman, Mr. Naseem Anwar, Senior Vice Chairman, Dr. Qazi Ahmed Kamal, Vice Chairman and Mr. Ali Ahmed, Chairman, GST, Excise and Direct Taxes Sub-Committee, S.I.T.E. Association of Industry, in a press statement have lamented Federal Board of Revenue (FBR) for arbitrarily and exorbitantly increasing the withholding tax deduction rate from 1% to 1/5th (20%) of the sales tax involved vide SRO 98(I) 2013 dated February 14, 2013 and urged to immediately rescind it as it would adversely affect the business activities in organized/ documented sector They elaborated that in addition to LTU taxpayers now all the companies as defined in Income Tax Ordinance 2001 and registered in Income Tax, Sales Tax or Federal Excise Laws and persons registered as exporters in Sales Tax are required to withheld tax @1/ 5th or 20% of the amount of Sales Tax shown in invoice issued by a registered persons, which comes to 3.2% based on 16% standard rate of Sales tax. Referring to commercial importers who pay advance value added tax at import stage, they said that they might not be in a position to absorb such additional amount of input tax arrived in shape of withholding and thus accumulation of tax credit would lead to accrual of refund and open the flood gate of corruption. Moreover, “According to a FBR clarification, the commercial importers are restricted from claiming refund and such the anomaly may be removed from by excluding them from the purview of the SRO”, they proposed. They explained that the provisions of section 8-B of the Sales Tax Act., restricts registered persons from adjustment of input tax over 90% of output tax.
They said the SRO would be a blow to the economic activities that were facing an inertia-like situation because of poor infrastructure, shortage of gas and law and order situation in the Karachi. They are of the view that FBR should concentrate on expansion of tax base by bringing the undocumented sectors into the tax net rather than squeezing the sectors which were already documented.
The issuance of the SROs without any prior notice or consultation with business community is very unfortunate. The role of the FBR should not be only to collect taxes but to ensure enabling business environment in the country. of collecting sales tax. They further lamented FBR on issuance of SRO 140(1)2013 dated 26th February 2013 without taking into confidence business community and all stakeholders that would add further difficulties and liquidity problems of important sector of the country. Due to acute energy crisis in the country added with impact of war on terror export sector of Pakistan was already in shambles while the current SRO would add to the miseries of the export industry.
They said that authorities have taken short sighted decision without realizing present balance of trade and balance of payment of the country. During the year 2011-12, our imports were US $44.912 billion as against our exports of US $23.641 billion leaving trade deficit of US $21.271 billion. Under these circumstances announcement of SRO 140(1)2013 makes no sense being anti-export policy.
They rejected the logic of FBR that the rate have been standardized by applying uniform rate of 5 percent withholding tax at import stage is myopic and FBR has not gone through their files of previous government to see the rationale behind this policy and why this policy was adopted. It may have short-term gain for FBR which may collect little more revenue from the policy but in the long run, policy will be damaging to our export sector. Due to very high cost of business in Pakistan, foreign direct investment is at the minimum level and with such policies both foreign and domestic investors will stop investment in Pakistan.
The energy crisis, law-and-order situation in the Karachi has compelled certain units of Karachi to move their business to Bangladesh, Sri Lanka, Malaysia and other parts of the world. Under these circumstances, introducing such harsh policies would have serious repercussion on investment and industrialization, they said and urged the FBR to immediately withdraw the anti-export SRO 98(1)2013 dated 14th February,2012 andSRO140(1)2013dated 26th February 2013 in the interest of country.
For more information, contact:
S.I.T.E. Association of Industry
H-16 SITE Karachi