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KCCI memorandum for revision of tax measures.

KCCI Memorandum for Revision of Tax Measures

Self Assessment Scheme: The simplified procedure has been replaced by the so-called self-assessment scheme. Under the simplified procedure, an assesse with an income below Rs. One lakh was allowed to file his return without any document, having no fear of at-random scrutiny. Now under the newly introduced self-assessment scheme, such assesses will be required to submit documents to substantiate their return and will be subjected to 5 per cent at-random detailed scrutiny. In addition, they have been subjected to a surcharge of Rs. 300, regardless of their tax liability. Apparently, the limit for availing the self-assessment scheme, has been extended to an income below Rs. 2 lakh, but the companies and the assessees making refund claim of Rs. 20,000 and above, will not be qualified for this scheme. Thus, neither the assessees who were hitherto ailing the simplified procedure, nor the assessees of higher income upto Rs. 2 lakh, now qualified to avail the self assessment scheme, would be the real beneficiaries from the new scheme.

Emoluments of Directors: A limit has been imposed on payment of salary and allowances to the directors of private limited companies, by adding a new clause in the Income Tax Ordinance 1979.

No private limited company can now claim expenditure by way of provision of salaries of directors exceeding 30 per cent of the total income, with the condition that a director cannot claim more than rupees twenty thousand a month as salary and allowances.

This is a discriminatory and harsh provision, encroaching upon the rights of the working Directors of the private limited companies. The corporate managements would be reluctant to plough back their income in extension, replacement and modernization of plant and machinery in view of the fear that the consequential relief through accelerated depreciation may tend to reduce the total income of the company, entitling them to a lower or nil claim for directors' remuneration. Likewise, companies with lower profitability or running into loss would find extremely difficult, to compensate suitably to their corporate managements. In Chamber's view this new provision may prove counter productive and needs to be withdrawn in the interest of national economy.

Corporate Tax (Private Company): The private limited company has been playing very important role in the economic development of the country in general and in industrialization in particular. Even the 45 per cent corporate tax on private limited company was on the high side which was further burdened with the imposition of 10 per cent surcharge. In the current budget the tax rate has further been increased from 45 per cent to 50 per cent. The rate of corporate tax in Pakistan should not exceed 35 per cent for all companies, whether public and private.

Withholding Tax: The most irritant problem of refund, in fact, emanates from the withholding tax in general and at Custom stage in particular, which is deducted far in excess of the tax liability of the assessee.

The fact that during the year 1988-89 a sum of Rs. 1.12 billion and in 1989-90 a sum of Rs. 2.22 billion refunded to assessees in Southern region alone speaks of the gravity of the problem, which is a source of irritation for the assessees whose working capital remains blocked for years with the Income Tax Department.

We would, therefore, reiterate the oft-repeated demand of trade and industry that assessees liable to pay advance tax under Section 53 of the Income Tax Ordinance on quarterly basis be exempted from withholding tax and in case of others, the tax rate should be reduced to 1 per cent on C&F value of import. Likewise at supply/service/auction/tender stage rate should not exceed one per cent.

Pre-shipment Inspection & Valuation: The trade and industry had already expressed serious concern and apprehension about the delay that would cause in the delivery of contracted goods from abroad, particularly in case of emergency consignments required to be airfreighted, as a result of mandatory pre-shipment inspection and valuation of goods notified in the Inspection and Valuation of Imported Goods Rules 1990. In fact, the introduction of Cotecna will create and complicate the existing Custom procedure.

Along with this scheme, the ITP Scheme is also in vogue and goods, the value of which have been fixed under ITP, are also subjected to pre-shipment inspection and valuation by M/s. Cotecna e.g. automative parts, chemicals etc. This exercise amounts to unnecessary duplication. Further the custom authority has discretionary power to reject the value certified by Cotecna and appraise duty at higher value. The scheme, therefore, needs to be reviewed in its various aspects and in the meanwhile, it should be kept in abeyance.

Open End Yarn: For promotion of export of open end yarn, government has exempted open end yarn manufacturing units from payment of export duty on such yarn. Though it is appreciable, yet it is discriminatory against commercial exporters who are back-bone of our export trade and always in search of new markets and new customers. There should be no discrimination in respect of payment of duty between commercial and industrial exporters.

Sales Tax and Central


Sales Tax: At the time of announcement of federal budget 1990-91 sales tax exemption from 31 locally manufactured items were withdrawn and a list of such items was also notified. However, when a fresh list of exempted items was notified by CBR in supersession of the previous one, it was revealed that in addition to the 31 items, over 100 additional items have also been dropped from the list of exempted items, this subjecting them to sales tax. We therefore, urge that all such items, be brought on the list of items exempted from payment of sales tax.

Dry Battery Cell: With the imposition of Sales Tax the incidence of tax on the raw material imported for the local manufacture of dry battery cell goes as high as 73 per cent. Increases in surcharge, licence fee, electricity/wages have further added to the cost of production. This is one of the items largely smuggled and being sold in the market, at a price much below the cost of local production. In order to save the local industries from ruination, the exemption of sales tax previously available on the manufacture of dry battery cell be restored with suitable reduction in the custom duty leviable on its raw material. A big dry battery cell unit, being set up at Gadoon, will further weaken the competitiveness of this industry located in Karachi.

Central Excise: In the current budget, a number of economic services have also been brought within the purview of Central Excise, which interalia include shipping agent and clearing and forwarding agent. These agents are already licensed with the customs authority, but they are again required to obtain licence from the Central Excise Collectorate. Further Car Dealers, Recruiting Agents, Travelling Agents, Advertising Agents, irrespective of their business turnover have also been brought within the purview of Central Excise. In the case of purchase and sale of cars, the buyers pay vehicles tax, capital value tax and registration fee to the Provincial Excise and Taxation Department. We would, therefore, urge that all agencies rendering economic services should, as usual remain, excluded from the purview of Central Excise Collectorate.

Excise Duty on Yarn: There are about 400 textile units, out of which more than 30 per cent are conventional spinning units. With the passage of time such units have become old, out dated and in-efficient. These units are, therefore, unable to bear the burden of the additional excise duty levied in current budget 1990-91.

Before such units become sick and ultimately close down, they should be exempted from the payment of excise duty by Rs. 1/- per K.G.

Panel Surcharge: A 2 per cent panel surcharge imposed on the cargos lying in the bonded warehouse for the period of over one year, may be withdrawn enabling the importers to release their consignment against payment of custom duty and other taxes. The withdrawal of panel surcharge would also facilitate the recovery of huge amount blocked in terms of duty and sales tax etc. It is also suggested that the old duration period of ware-housing of goods in bond i.e. one year for non-consumer items and six months for consumer items may be restored. There are also a few outstanding cases of refund of customs duty paid for clearance of in-bonded goods, which caught fire and burnt before clearance, within two days as required after payment of the duty.

Gadoon Amazai Industrial


We are aware that the Care-taker Government would not like to take any fundamental and long term economic decision. It is however, reassuring to note that the present Government is keen to bring back the economy on right track and improve its shape. It is presently engaged in undoing the socio-economic injustices perpetuated in the last few years. We, therefore, hope that the government would rectify a very glaring fiscal anomaly which has been the single crucial threat to the very survival of industries in the country.

As your goodself is aware, this Chamber other trade bodies repeatedly drew the attention of the government to SRO No. 517 (l)/89, whereby an unprecedented package of concessions and incentives including duty and sales tax free import of raw material and components and plants, income tax-holiday, 50 per cent reduced power tariff, availability of finance at a concessionary rate of 3 per cent, have been provided to Gadoon Amazai Industrial Estate. This had placed the industries located in other parts of the country in a very disadvantageous and incompetitive position.

The goods produced at Gadoon Amazai, such as in ghee industry, polyethylene liners/bags, polypropylene woven bags, man-made fibre goods etc. is bound to be much lower in cost and the effect on similar goods produced elsewhere is quite obvious. Its crippling impact on industries in rest of the country has already started discerning and many smaller plastic units which were further subjected to enhanced rate of import duty from 40 per cent to 50 per cent, have been closed down. Unfortunately, this tax-paradise has also emerged as a source of mal-practices. The duty-free raw material is reportedly finding out-let in some other parts of the country. The official media of T.V. also reported similar malpractices of sanctioning loan and issuing licences of raw materials of an exceptional higher amount to certain industry. Let me make it very clear that we are not against the development and growth of any area of the country. What we are pleading, is that the incentives made available to an area should not be allowed to stragngulate the growth of another area. We have submitted time and again that atleast duty and sales tax free import of raw materials be discontinued in the Gadoon Estate. Even after the withdrawal of this facility, Gadoon area would continue to enjoy edge over other industrial estates in the country.

Credit Card

We have welcomed the credit card scheme to facilitate the business travel abroad. However, conditions and procedure prescribed by the State Bank of Pakistan is quite cumbersome and complicated and will render its use restricted. Presently holders of blanket permission and those firms/companies paying minimum income tax of Rs. one million qualify for the facility. Its other formalities include submission of passport together with original N.I. Card and income tax assessment order etc. We would suggest that in order to make this scheme meaningful and purposeful, the limit of income tax be reduced to Rs. Once lac and the fulfilment of a score of formalities be reduced so that more exporters, industrialists and importers could avail this facility.

Bank's Loan

We have welcomed the Finance Minister's statement that the project already sanctioned would not be victimized. However, stress that the project, sanctioned on political ground and without colateral be regularised. It is noteworthy in this connection that the loan granted on political ground are not utilised in setting up industries and thus deprive the genuine industrialist and businessmen of loan for financing their projects. Every year, not only the industrialists, but the exporters are generally confronted with the oft-repeated reply of bursting credit ceiling. The whole financial and banking structure which has lost professional efficiency and performance due to release of unauthorised loan and recruitment on political basis has to be overhauled. It would be most timely and helpful, if the representatives of trade and industry are taken on the Board of Directors.

The current Gulf crisis has engulfed the entire global economy and the process of recession is visible. Pakistan seems to be no exception to it. Not only Home Remittances which were within the vicinity of 2 billion dollar would be reduced but problem of unemployment would be further accentuated in the face of returnees, numbering about 1.5 lac from Kuwait and Iraq. The exports to Middle-East and Gulf countries have already been affected due to Naval blockade in the region. It is, therefore, imperative that planned and precautionary measures be adopted in consultation with trade and industry to avert the impending economic crisis.
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Title Annotation:Karachi Chamber of Commerce and Industry
Publication:Economic Review
Date:Sep 1, 1990
Previous Article:The eagle has landed.
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