Shift in Taxation regime suggested: Zakaria Usman

Karachi, May 07, 2014 (PPI-OT): Zakaria Usman, President Federation of Pakistan Chambers of Commerce and Industry suggested a new taxation regime in FPCCI’s Shadow budget for fiscal year 2014-15. He said that before describing the basis of taxation measures, it seems necessary to describe the present structure of taxation policies in Pakistan. Here, it is noteworthy that inducement of private investment particularly foreign direct investment is the only feasible option to develop the badly deteriorated infrastructure in Pakistan.

He added that Greenfield investment and capitalization of the savings of expatriate Pakistanis are also included in this program. President FPCCI declared that proposed fiscal policy and shadow budget provide a survival strategy, while revival strategy will be based on foreign investment. It is unfortunate that tax rates in Pakistan are considered as major hurdle in investment, he stated.

President FPCCI also compared the figures of tax as percentage of Gross profits with other regional and international economies and said that Tax as percentage of Gross profit is 57 percent in Pakistan, while it is 43 percent in India, 11 percent in Malaysia, 21 percent in USA, and 50 percent in Bangladesh. The average tax rate on corporate sector in Pakistan is 41 %; it is 36 % in India, 28 % in Malaysia, and 35 % in USA.

He further stated that tax system in Pakistan emphasizes on indirect taxes and surcharges. The share of direct taxes in central government revenue is around 25 percent in Pakistan, 47 percent in India, 46 percent in Malaysia, 38 percent in UK and 50 percent only in USA, he added. The lower share of direct taxes is because of exemptions and less efforts for tax collections from agriculture, services, real estates and retail trading activities.

This situation leads to dependency on indirect taxes. He said that the indirect taxes hampered the industry in many ways: they increase the cost of production and reduce the demand for manufacturing products, because of higher market prices of those products by inclusion of sales tax. By such a manner, they damage the industrial competitiveness and induce the inflation in economy. The President, FPCCI has recommended the shifting of dependency from indirect to direct taxes.

He said that FPCCI strongly recommend the reduction rate of sales tax to provide relief to the general public. This step will improve the buying power of general public and will help the industry in revival process and accelerate the investment in the country. The reduction in the rate of GST is proposed on the basis of expected enhancement in revenue because of enhanced economic activities.

Zakaria Usman further stated that to increase the revenue, government should not depend on indirect taxation. This approach leads the poverty and inflation. We should encourage revenue enhancement through direct taxation on equity and egalitarian basis.

Tax should be paid according to the magnitude of earning regardless the source of earning, President FPCCI suggested. To accelerate economic activities and improving efficiencies, FPCCI’s Shadow budget suggested reduction in the rate of GST. This is the pivotal point of our taxation policy, he informed.

He said that the reduction in the rate of sales tax will enlarge the size of consumer markets and government earnings will definitely increase. The sources of FBR have been indicating the effective tax rate of GST is less than 5 percent, which indicate that 71 percent of total collection of sales tax has to pay back in account of input adjustment and refund claims.

President FPCCI suggested that this culture of refunds should be abolished and government should collect GST at the rate of 5 percent. It will transfer the benefits to the end consumers which lead the control over inflation and poverty and enhancement in economic activities.

Mr. Usman said that the novelty in tax revenue collection can be observed in FPCCI tax proposals. In this respect, he proposed a new shift in sales tax regime. To accelerate economic activities and improving efficiencies, FPCCI suggested reduction in the rate of GST, which is the pivotal point of FPCCI’s taxation policy. He said that the reduction in the rate of sales tax will enlarge the size of consumer markets and government earnings will definitely increase.

The sources of FBR have been indicating the effective tax rate of GST is less than 5 percent, which indicate that 71 percent of total collection of sales tax has to pay back in account of input adjustment and refund claims, he informed. He suggested that this culture of refunds should be abolished and government should collect GST at the rate of 5 percent.

It will transfer the benefits to the end consumers which lead the control over inflation and poverty and enhancement in economic activities. This strategy will also enhance sales tax collection.

FPCCI’s Shadow Budget estimated that Rs.1387 billion will be collected in the head of sales tax, which is 387 percent higher than last year. Rs.266 billion of the additional taxes in sales tax will be collected by the proposed amendment in the rate of GST, while the remaining incremental tax revenue will be collected through additional sales volume because of reduction in market price.

An increment of Rs.295 billion is expected in direct taxes, which shows a record 32 percent growth. It is estimated that Rs.220 billion will be added in direct taxes because of growth in GDP and increase in profitability of the sellers as a consequence of significant reduction in sales tax rate, Rs.54 billion will be collected because of new tax measures to collect tax from retailers, while Rs.25 billion will be collected by administrative measures and improvement in documentation process. According to a survey, there are 1500000 retail shops in the country; the aggregative collection of tax from these shops is only one billion rupees.

Different slabs for collection should be created to collect tax from the shops according to their size and location. The collection of tax from retailers will be based on progressive system. He suggested the minimum tax for retail shops is Rs.1000 per month, however, the rate for supper markets and chain store will be certainly different.

In the budget proposals, FPCCI recommended several measures to increase the tax revenue. Each suggestion was contemplated on the basis of its specific role in the fiscal policy. The role of each proposal in making economic efficiency, buoyancy and revenue feasibility has been contemplated. In our revenue proposals, though FPCCI emphasized efficiency in revenue collection by the provinces on agriculture income.

According to FPCCI’s estimates it will provide Rs.400 billion to the provinces which can be utilized for health, education and social services etc. However, this revenue effect is not incorporated in federal budget, because constitutionally this income will be part of provincial budget, he stated.

For more information, contact:
M. A. Lodhi
Secretary General
Federation of Pakistan Chambers of Commerce and Industry (FPCCI)
B-1, Federation House, Main Clifton Road,
Shahra-e-Firdousi,
Karachi-75600, Pakistan
Tel: 0092-21-35873691, 93-94
Fax: +9221 3587 4332
Email: info@fpcci.com.pk
URL: www.fpcci.com.pk

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