Hotel industry needs patronage.
Establishment of hotels does not call for any specific Government investment apart from the provision of infrastructure in the form of water, power, roads and communication services which are even otherwise the social responsibility of every Government. Tourism has recently been classified as an industry, and the potential of earning large sums of foreign exchange through tourism is well-recognised. Hotels are an integral part of tourism and the primary requirement for promotion. Therefore Pakistan Hotels Association (PHA) proposes some measures for the hereunder promotion of Tourism Industry.
Central Excise Duty: Proposals
Abolition of CED: The tourists being required to pay a 10 per cent per Central Excise Duty is considered to be extremely high and creates an unpleasant feeling. The tourist thus departs resolved never to return. It is suggested that the Central Excise Duty be lowered on rooms and food billing and abolished on all other facilities offered by the hotel. If the hotel is taxed, same facilities offered by others should also be taxed.
Central Excise & Sales Tax on OutDoor Catering: Hotels have to pay 15 per cent Sales Tax on all outdoor catering plus 10 per cent Central Excise Duty. Sales tax should be abolished and the hotels should be required to pay central excise duty. This would reduce a lot of unnecessary paper work. It will also reduce the discriminate as the commercial caterers are required neither to pay CED nor the Sales Tax. Central Excise Duty and Sales Tax should be chargeable on the net discounted sale price.
Uniformity of Charging CED: Excise Duty on normal parties is 10 per cent whereas it is 20 per cent the wedding parties if held in large hotels. Instead of creating the distinction between the nature of parties and inducing the persons to declare the wedding or valima dinner asnormal party, it is suggested that the tax base should be increased by bringing into the tax net all marriage halls and other organisations providing banqueting facilities in various clubs, guest houses, municipal parks and other public places which cater to at least 80 percent of the total marriage/banquet business. A flat imposition of 10 percent excise duty on hotels as well as all such marriage halls and other public places named above would generate at least 4 to 5 times more excise revenue on parties than is presently collected through big hotels. It is ironical that whereas one person holding a wedding party in a hotel is required to pay huge excise duty of 20 per cent, another person holding a similar party or a much larger party outside the hotel through other commercial caterer does not pay any excise duty.
Abolition of CED on Laundry & Bakery Products: No Central Excise Duty is charged throughout the country on Laundry/Dry cleaning shops and bakery shops. However, the laundry/dry cleaning and bakery shops operating in hotels and services provided to the guests staying in the hotels are supposed to charge 10 per cent CED. This imposition CED on these services provided by hotels needs to be withdrawn.
Collection of Central Excise Duty: At present Central Excise Duty rules require that the Excise Duty on sales and services rendered in a particular month is paid to the Department by the 10th of the following month. These rules do not take into account the fact that most of the hotel business is on credit basis (a large portion being Government business) and actual collection against these sales are made after 30 to 120 days. Depending on the type of customer. It is, therefore, extremely unfair that the hotels should pay the Excise Duty from their own working capital resources prior to collection from the customers. It is, therefore, suggested that relief should be granted to hotels by giving them one month's time.
Due to paucity of funds if CED is not paid in time, an additional duty is payable 50 percent of the normal CED. This 50 per cent additional duty is very high and needs to be abolished or reduced to 50 per cent. Inspite of the directives from CBR the refund claims are being delayed for years. It is requested that refunds must be paid within 15 days of assessment, otherwise interest at ruling rates be paid to assessees on the amounts so blocked.
Excise Duty Exemption for Small Hotels: In view of the continuous depreciation in the value of money, it is suggested that smaller hotels with room rates upto Rs. 450/- or below per day should be exempted from the levy of Central Excise Duty.
Refund of Excise Duty on Bad Debts: Excise Duty paid on hotel revenue subsequently written off as "Bad Debts" (a normal feature in the hotel business) due to failure of customer to pay should be refundable by way of adjustment against Excise Duty payable by the hotels.
Income Tax - Suggestions
General: Every individual firm or company earning income (including income from agriculture) above the exempted limit should pay income tax. It is high time that the concept of equality and justice is fairly applied in taxation matters.
Advance Tax Exemption Under Section 50(4) & 50(5): The assessees who are paying advance tax, should be granted exemption from deduction of tax at source under section 50(4) and 50(5) of the Income Tax Ordinance. The proof of payment of advance tax should be taken as sufficient evidence for the grant of exemption.
Dividend Income: It is suggested that 10 percent tax imposed on dividend income derived from the quoted public companies in the hands of the individuals be withdrawn.
Tax on Capital Value of Certain Assets: It is suggested that a revised method of specific taxation be introduced as proposed below: Motor Vehicles - Upto 1000cc Rs. 2,000/- above 1000cc Rs. 3,000/-. Property (Land and Building); Less than Rs. 100,000 Exempt between Rs. 1 lac to 5 lac Rs. 5,000/-. Over Rs. 5 lac Rs. 10,000/-.
Minor Capital Expenditure: The law may be modified to permit the full write off of any item of plant and machinery or other fixed assets costing not more than Rs. 5,000/-. The monetary limit may be appropriately and adequately raised later on in line with inflation rates.
Company Taxation: In this regard minimum limit for seeking details should be fixed at Rs. 100,000 or more.
Income from Other Sources: The scope of deduction allowable under the head "Income from other sources:, should be expanded. Section 31 of the Income Tax Ordinance 1979 should be deleted or modified to bring it at par with old Section 12(2) as this is a big hurdle in encouraging savings and in turn capital formation.
Carry Forward of Losses: At present carry forward of loss is limited only to business loss. An assessee can suffer a loss in a given year under any head of income assessable to tax under "Income Tax Ordinance, 1979 and he should be allowed to carry forward his losses under any or all head of income.
Draft Assessment of Orders: The concept of draft. The mechanism should be that if the income proposed to be assessed by the DCIT is more than 25 per cent of the income returned by the assessee, the DCIT should send the copy of draft assessment order to the tax payer for his rebuttal and comments. Time of say 20 days be allowed to the tax-payer for filing his rebuttal and comments.
Wealth Tax on Shop-Rentals: Wealth tax on shopping arcade rentals of public limited companies should be removed in view of the decision of Honourable Supreme Court of Pakistan in various similar cases.
Incentives for Foreign Exchange Earning of Hotels: It is strongly suggested that Government may kindly accord special recognition to hotels for their exchange earnings by granting (a) tax rebate on foreign exchange earnings in line with other exports (b) allow hotel to use parts of their earnings for essential imports of equipment, spare part and materials and (c) allow Hotel executives to undertake foreign travel for business purposes without permission or restriction.
Tribunal Appeals: In Section 134(65), fee should be made payable in case of all the appeals filed before the Tribunal is prevalent in the neighbouring country. At present department does not have to pay appeal filing fee and hence choking the appellant forum and delaying disposal of appeals.
Clubbing of Income of Spouse and Children's: It is suggested that section 58 be suitably amended so as to exclude the assets of spouse and minor children in the wealth statement of an assessee if he or she is a separate assessee.
Section 50 (Deduction of tax at source): It is suggested as-under:-
a) Employer should be responsible to deduct the tax from salary only on his own computation.
b) Exemption limit of payers which is lowered to Rs. 1.5 million a few years back be enhanced to a realistic limit. Only the public limited companies with a capital of Rs. 10 million or more be made responsible for deduction of tax u/s 50(4).
c) Monthly statements under various subsections of section 50 are to be filed and again annual consolidated statements for the same information are to be filed under section 139 to 144. This duplication be avoided and only the monthly statements be required.
d) Section 144(a) is the repetition of section 141 and hence be deleted.
e) Annual statements of tax deduction are containing 43 unnecessary columns. These statements be simplified.
f) The authorities be refrained to create harassment by exercising powers u/s 144 for audit and inspection of record of deductions under section 50.
Income From Salary: On account of continuous inflationary trends, salaried class deserves special relief to mitigate its hardships. Salary is bifurcated into basic salary and allowances. The law states that allowances only upto 50 per cent of the basic salary will be allowed as an expense in the hands of the employee, any amount exceeding this be disallowed and added back to the income of the employer. On the other hand as per the rules more than 50% per cent can be given as allowances which are tax free in the hands of the employee. This anomaly should be removed and allowances be brought in line with those allowed as per the rule. Following benefits are also suggested for favourable consideration.
Basic Allowance: To be increased from Rs. 40,000 to Rs. 80,000.
Conveyance Allowance Rule 10: To be increased from 3,600 (fixed in 1982) to Rs. 6,000 or 10% of Basic Salary whichever is high. Every salaried assessee who purchases any vehicle in his own name for personal transport should also be allowed depreciation on the rarified cost of the vehicle. Such depreciation should be allowed as a direct deduction from the income of the assessee.
House Rent Allowance Rule 4: To be increased to at least 65% from 459 (fixed in 1982) under the existing rules where a salaried person rents a house in his own name, then he is entitled to claim full 45% House Rent Allowance as a direct exemption. However, where the accommodation lease is in the employer's name, then 15% or 25% of basic pay is added to the assessee's income respectively for unfurnished or furnished accommodation. This is not equitable and rules requiring such addition should be withdrawn.
Assessment of Salary Income: In the cases where total income does not exceed Rs. 100,000 the assessing authority i.e. Income Tax Officer should be devised to assess the income on the basis of return filed by the assessee without issuing him notice u/s 58, 61 or any other section of the Income Tax Ordinance 1979 unless the return is not supported by the employer's certificate, bank statement or any other evidence of his income tax paid. No other details such as personal and household expenses should be asked from such assessees. In case of persons having total income of Rs. 200,000 or more, Income Tax Officer should be authorised to finalise and issue the assessment orders without referring the cases to IAC or CIT as used to be done in the past.
Equality of Salaried Citizens: All salaried employees whether in government or private sector should be treated equally in matters of exemption, rebates and treatment for Income Tax purposes.
Simplified Procedures of Assessment: The simplified procedure of assessment for salaries class employees shall be extended to all employees irrespective of their taxable income. This class of fixed income group has no means to escape from the tax ambit and should not be jarassed by the tax authorities.
Gratuity: In order to extend support to retiring employees in old age, it is suggested that gratuity received by any salaried person after attaining the age of 55 years should be fully exempted from tax.
Wealth Tax Statement: In view of the inflation, the prescribed limit for submission of wealth tax statement along with income returns should be increased from Rs. 1 lac to Rs. 2 lacs.
Allowance for Education Expenses: It is suggested that education allowance of at least Rs. 1,000 per month per child for each assessee should be allowed, subject to production of receipt for school fees, transports expenses, books etc.
Waiver of 10% Surcharge on the Income Tax: The 10% surcharge applicable on tax payable by those assessees whose income is Re. 2,00,000 or above should be withdrawn as far as salaried class is concerned.
Markup on advance Tax: The government pays markup on advance tax paid by the companies. Individual salaried assessees pay advance tax by way of "tax deduction at source" every month. They should also be paid markup or given rebate on such monthly deductions of tax.
Provincial Tax - Bed Tax: Whereas the rate of Central Excise Duty is the same, the rate of Bed Tax varies. Thus a guest, particularly a foreign guest, who travels from one province to the other feels irritated about these variations and thinks as if the hotel management is trying to fleece him.
A guest who stays in PC Rawalpindi has to pay Bed Tax of Rs. 150/- per day whereas a guest who stays in Islamabad has to pay only Re.1'5 which is not comprehensible.
Hotels work as collecting agents on behalf of the Government in Punjab, Balochistan and Islamabad. However, in Sindh and NWFP tax is charged on hypothetical occupancy basis of 85 per cent and 50 per cent respectively. None of the four or five hotels in Karachi have achieved average occupancy of 85 per cent in any year during the last 5 years. Thus, the difference between actual occupancy and hypothetical occupancy of 85 per cent is being paid by the hotels out of their own pockets. In view of this, it is proposed that.
i) Provinces should abolish bed tax completely to provide relief to the tourists.
ii) If at all, the bed tax is to be charged then it should be on the basis of actual occupancy and not on hypothetical occupancy.
iii) C.E.D. and Bed Tax should be merged and there should be a uniform rate throughout Pakistan say 10 per cent which should be given the name of "Hotel Tax" instead of Central Excise Duty and Bed Tax. The Federal Government and Provincial Governments should distribute amongst themselves hotel tax of 10 per cent in any agreed ratio.
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|Title Annotation:||Industrial Pakistan 1994|
|Article Type:||Industry Overview|
|Date:||Aug 1, 1994|
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