PBC lays bare loopholes in supplementary finance bill

Our Correspondent
Friday, Jan 14, 2022

KARACHI: Having identified a number of counterproductive proposals in the Finance (Supplementary) Bill 2021, Pakistan Business Council (PBC) has suggested some well-researched solutions to the country’s economic managers, The News has learnt.

The highlight of these suggestions, conveyed to Federal Minister for Finance and Revenue Shaukat Tarin in a letter, was the demand for a ‘clear’ definition of ‘digital means’ and reinstatement of 10 percent rate of advance tax on telecom services.

“PBC appreciates Finance (Supplementary) Bill 2021 has been drawn up under considerable revenue pressure but would like to list some major concerns, some of which have no revenue implication,” said Ehsan A Malik, CEO PBC, in his letter to the finance adviser.

Malik said the Bill had proposed to add a new definition of “digital means” through inserting Section 2(17B) in the ITO. Proposed definition: “digital means” mean electronic or digital payments as defined by the State Bank of Pakistan (SBP).

However, while identifying the issue, Ehsan said the proposed amendment did not mention which specific legislation, circular and/or notification of the SBP must be relied upon.

“The proposed amendment is unclear on whether “Digital Means” includes crossed cheques, pay orders and demand drafts, which are the instruments that result in electronic and transparent inter-bank settlement of payments, thus meet the objective of documenting the economy.”

He said that proposed amendment needed to be redrafted to a clearer definition of digital to include crossed cheques, pay orders, and demand drafts.

He said rate of advance tax on telecom services increased from 10 percent to 15 percent and currently, advance tax on telecom services was 10 percent for FY2022, which was to be reduced to 8 percent for future years to reduce the impact on those having no tax liability.

“Increase in tax to 15 percent on telecom services affects the affordability of internet and data services and works counter to the government’s aim to digitise the economy and will also impact export of IT services, given their tax-exempt status.”

The PBC recommended that the current provision be restored where advance tax is 10 percent for this year and 8 percent for future years.

Sales tax zero rating on local supplies of raw materials, components, plant and machinery, etc, has been proposed to be withdrawn on supplies to exporters registered under the Export Facilitation Scheme, 2021.

The PBC CEO said Export Facilitation Scheme was launched to consolidate all export promotion schemes like DTRE, EOU and Manufacturing Bond.

“The scheme allows exporters to purchase goods without payment of sales tax on the basis of quota approved by Custom Authorities. Quota to purchase goods is allowed on the basis of financial security submitted by exporter, therefore, there is no risk of loss of sales tax.”

He said goods purchased by exporters under the scheme were subject to quota approval by, and strict scrutiny of, the Customs authorities, adding, to avoid impacting exports, zero rating should be kept intact.

The PBC chief said at present, sales tax @ 10 percent was applicable on import of plant and machinery and this rate was proposed to be increased to 17 percent.

“Moreover, sales tax exemption is also proposed to be withdrawn on machinery, equipment, and materials imported for exclusive use within the limits of Export Processing Zone for making exports.”

He said the proposed imposition of sales tax @ 17 percent on import of plant and machinery would unnecessarily increase the cost of investment and that too without raising any additional revenue for the government as sales tax would either be adjustable or refundable.

In addition to industries in general, this amendment would be extremely detrimental for Greenfield industries, which normally take 2-3 years for commencement of commercial production, said he and advised the government to withdraw this proposal.

The supplementary budget also proposes to omit the third proviso to Section 23(1) of the Sales Tax Act, 1990, which states that if it is subsequently proved that CNIC provided by purchaser was not correct, liability of tax or penalty would not arise against the seller in case of sale made in good faith.

This, Malik said, was a harsh step which shifted the penalty for providing incorrect CNICs from the buyer to the seller who received it in good faith.

“The proposed amendment, is unfair and works counter to need for ease of doing business. It should be deleted,” he stressed.