BMG, KCCI demand to revisit Supplementary Finance Bill 2021-22 imposed under IMF dictates

Business News English

Karachi, January 14, 2022 (PPI-OT): The Leadership of Businessmen Group and Karachi Chamber of Commerce and Industry (KCCI) have expressed reservations on various taxation measures taken by the federal government through Supplementary Finance Bill 2021-22 on IMF dictates which will not only have negative implications for industry and trade, but will also overburden the poor and middle-class segments due to increase in prices of consumer goods.

In a joint statement, Chairman Businessmen Group Zubair Motiwala, Vice Chairmen BMG Tahir Khaliq, Haroon Farooki, Anjum Nisar and Jawed Bilwani, General Secretary BMG AQ Khalil, President KCCI Muhammad Idrees, Senior Vice President Abdul Rehman Naqi, Vice President Qazi Zahid Hussain and Former Senior Vice President Ibrahim Kasumbi demanded that the Supplementary Finance Bill 2021-22 should be revisited and should not be implemented without taking the main stakeholders on board.

They pointed out that harsh measures and withdrawal of exemptions on inputs of essential consumer items such as Packaged Dairy Milk, Oil Seeds for sowing, Plant and Machinery and industrial raw materials including Raw Cotton etc. will have a detrimental impact on the economy by terribly affecting industrial performance and also the lives of the poor masses.

These harsh measures have been imposed to such an extent that they have imposed taxes even on milk and many other items of daily consumption, making the lives of the poor masses more miserable. Talks to increase petrol prices by Rs4 per litre every month and also raising the electricity and gas tariffs give an impression that the IMF has devised a program to make Pakistan completely unviable, they added.

They emphasized that instead of putting additional tax burden on industry and the consumers for complying with IMF conditionalities, the government and FBR should intensify efforts to broaden the tax base and generate additional Rs.340 billion target compared to number of unregistered persons was not that bigger target. In fact, the government can generate significant additional revenue by plugging various loopholes including exemptions given on import of various items for PATA/FATA which were massively being abused.

This includes Steel Sheets, Bulk Edible Oil, Steel Sheets and Plastic materials etc. Moreover, massive smuggling of Black Tea, Edible Oil from Iran, Auto Parts and many other high value products was also going on which causes heavy loss of revenue to the exchequer. IMF can only provide broad guidelines to curtail fiscal deficit and cannot micro-manage the economy. Therefore, it is unjust and unfair to continue targeting those sectors which are tax compliant and unable to bear more taxes.

BMG and KCCI leadership stated that Vide amendment Sec.23 (sub-sec.1, G) of Sales Tax Act 1990, the supplier has been held liable under the new law for fake CNIC number provided by purchaser, whereas earlier the Seller/Supplier was not held responsible for fake CNIC provided by purchaser. Already small number of around 50,000 entities are registered in Sales Tax regime. Putting additional burden of liability for fake CNIC and Further tax of 3 percent over and above 17 percent, will result in many persons going out of Sales Tax net and was tantamount to absolving the tax authorities from broadening the tax base.

It appears that business and industrial community was being compelled to shut down businesses forever, they said, adding that the rate of Sales Tax on import of raw material has also been increased from 5 percent to 10 percent. If somebody comes in and buys in cash and pays the penalty described under law then how can a seller ask for verification of CNIC. Why we can ask for CNIC verification when he is paying 3 percent additional charges surcharge. The government has to understand that they were granting permission to stay unregistered by paying 3 percent penalty.

They were of the opinion that despite better crops and increase in output of raw cotton, a shortfall of about 4.5 to 5.0 million bales was likely which will result in higher cost of finished products of domestic textile industry. With recent incentives provided under TERF, a substantial number of plant and machinery for textile industry has already been imported and a huge lot was also in the pipeline. Increase in Sales Tax on raw cotton will be counterproductive at this stage hence, the government must restore concessional rate of 5% Sales Tax on import of Raw Cotton to support the industry”, they urged.

They further stated that by amendment to Sales Tax Act 1990, concessional rate of Sales Tax on Plant and Machinery has been withdrawn and Sales Tax at the rate of 17 percent will be imposed on import of Plant and Machinery, (other than those having specific concessional rate or exemption). In principle, all plant and machinery imported in Pakistan, is meant for industrial expansion and new industries for production of goods. It is counter-productive to impose such high rate of taxes because any investment in plant and machinery will support economic growth, expansion and job-creation. Therefore, the concessional rates on Plant and Machinery must be restored. The government needs to understand that the machinery imported will definitely be put in place for production and it is was not something that will go waste or can be misused.

BMG and KCCI leaders also mentioned that for the very first time in the history of Pakistan, tax has been imposed on Tax-Free Export Processing Zones which was undoubtedly a conspiracy to completely destroy the activities in these zones. The imposition of 17 percent Sales Tax on Export Processing Zones was a proof of being slaves to the IMF” he said and stressed that the Clause 8 of Serial # 102 of the Amendment Bill must immediately be withdrawn and the original status of the Export Processing Zones must continue as it was a well-known fact that seeking export rebate or sales tax refund has always been an uphill task for the industrialists and exporters. All the proceeds of these export zones, which are described as a place outside Pakistan, are treated in a separate account hence these cannot be subjected to normal taxes.

They noted that the Sales Tax rate under 8th Schedule on Branded and Packaged Milk and Dairy products has been increased from 10 percent to 17 percent. This sharp increase in Rate of Sales Tax will have an inflationary impact and under the prevailing situation of high prices of all essential food items, the measure will put additional burden on consumers. Hence, the rate of Sales Tax has to be restored to 10% on packaged Milk and Dairy products.

They said that the Flavoured Milk has been omitted from 8th Schedule and 17% Sales Tax has been imposed which was extremely unjust and it was an anomaly to impose such high rate of Sales Tax on locally produced Flavoured Milk which was a health drink for Children. Currently only 3 to 4 units were producing Flavoured Milk who serve as import substitution. While there is good potential for growth, but the imposition of 17 percent Sales Tax on Flavoured Milk will render the industry unviable due to increase in retail price and curtailing the demand. Therefore, they proposed to restore the exemption and include the Flavoured Milk in 5th Schedule of Sales Tax Act 1990 to ensure availability of flavoured Milk at reasonable prices and growth of industry.

The imposition of Sales Tax on raw material used for manufacturing pharmaceuticals will bring negative impact and the way refunds are made by the FBR, the prices of drugs would obviously increase as the impact will be passed on to retailers. They said that 17 percent Sales Tax has also been imposed on Sewing Machines of Household type which were mostly used by self-employed women who work from home and earn a living. It is extremely unjust to impose 17 percent Sales Tax on such Sewing Machines and make it unaffordable for self-employed women hence, the exemption of Sales Tax on Sewing Machines of household type must also be restored.

They further observed that exemption of Sales Tax on Oil Seeds for Sowing has been withdrawn thus imposing 17 percent Sales Tax on such seeds. Oil Seeds for Sowing are meant to grow high value crops of Oil Seeds intended to be used for production of Edible Oil. Pakistan has a major shortfall of Edible Oil and relies on imported Palm Oil and other edible oils for domestic consumption. Imposition of 17 percent Sales Tax on Oil Seeds for Sowing will prove counter-productive and discourage local production of edible oil which is in fact import substitution. Therefore, the exemption of sales tax on Oil Seeds for Sowing be restored.

For more information, contact:
Director Press/Electronic Media and Public Relations
Karachi Chamber of Commerce and Industry (KCCI)
Aiwan-e-Tijarat Road, Off Shahrah-e-Liaquat,
Karachi-74000
Phone: +92-21-99218001-09
Fax: +92-21-99218040
Email: info@kcci.com.pk, secretary@kcci.com.pk
Website: www.kcci.com.pk