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Pre budget proposals.

Management Assocition of Pakistan has put forth the following proposals to the Ministry of Finance submitted by its members for consideration in Annual Budget 1991-92, to be announced on May 30, 1991.

ABM Data System (Private) Limited

* Sales Tax on all types of Computer Hardware should be eliminated.

* Import duties and sales tax on consumables and necessary components required for maintenance and local manufacture of computer hardware should be eliminated.

Beat-All Engineering Industries

* Working hours should be kept at 48 hours per week on the basis of 5 days a week all over Pakistan.

* Fixed rate tax assessment be introduced on the basis of monthly tax in advance depending on area of shop/factory, number of employees, and capital invested in the business. Tax levied should be independent of income.

Greaves Airconditioning Limited

* The per cent excise duty on all types of Airconditioners, which has burdened the local Airconditioners manufactured for industrial and commercial units, should be removed.

* The excise laws should be improved so as to minimize the hardship faced by tax payers.

* The system of self assessment of excise duly with minimum involvement of the Central Excise Department is strongly recommended.

Habib Bank Limited

* Dividend received by a Pakistani Company from overseas should be totally exempted from tax instead of being taxed at the standard rate along with surcharge. If this is not possible then the tax rate should not be more than 5 per cent which is applicable on dividend received from a Pakistani company.

* Clauses 126 and 128 of the Second Schedule to the Ordinance exempt only the profits and gains of industrial undertakings from tax and not the support enterprises. In order to encourage export oriented industries, the auxiliary of supporting services of banks and insurance companies, being very vital and part of infrastructure required for industrial activities, should also be exempted from tax.

* Tax rate of commercial banks at 66 per cent should also be brought in line with the tax rate of other public companies at 44 per cent to strengthen their equity base.

IBM World Trade Corporation

* Borrowing Power of branches of foreign companies (other than manufacturing) under the form "L" Limited to 25 per cent of Head Office Permanent Investment in Pakistan should be revised.

* Non-resident companies having a permanent establishment in Pakistan, and which have been regularly assessed for preceding 10 years should be treated at par with resident companies for the purposes of deduction of tax at source under section 50(3).

* The ceiling of 50 per cent of salary for perquisites to employees of private sector under section 24(i) be increased to 75 per cent.

* Retirement Benefit Funds and private companies be allowed to invest in Defence Savings Certificate and Special Savings Certificate.

* The existing high statutory tax rate including surcharge of 66 per cent for banks and 55 per cent for private limited companies (including foreign business entities) should be brought down to 55 per cent and 45 per cent respectively.

* Head Office expenses should be allowed in full and the unrealistic ceiling imposed under Rule 20 should be withdrawn.

* Exempt import of data processing equipment from process of Cotecna.

* Computer parts (Customs Classification 84.73) should be exempted from duties and sales tax.

* Sales tax of 12.5 per cent should be eliminated from XT & AT Personal Computer or equivalent.

* Duties and sales tax should be removed on loaded computer media-customs classification 8524.9000.

Middle East Bank Limited

* Annual profits should be remittable on accrual basis, as per internationally accepted accounting standards or alternatively, expenses should also be considered only on "cash" basis, i.e. provisions should be ignored when arriving at the remittable profits.

* The value of motor car for tax depreciation purposes be increased from Rs. 250,000 to Rs. 600,000.

* The income from investment Treasury Bills be taxed at lower rate of 40 per cent.

* The ceiling of excess perquisite under section 24(i) should be increased to 75 per cent of the salary paid to the employee.

* H.O Admin expenses should be allowed on the basis of 3 year moving average. The existing practice of allowing the lesser of their actual expenses or the average calculated at historical exchange rates, is unrealistic.

* Specific Provisions for loans as agreed with the external auditors and upto 1/2 per cent of total advances as General Provisions should be allowed to foreign banks as deductible expenses.

* Cost of borrowed funds, if taken for capital purposes, be allowed as an admissible expense.

* At least 90 per cent of Profit upto 30th November be allowed to be remitted in December each year or interim profit as at 30th June should be allowed to be remitted or the rate of exchange applicable on 31st December should be applied to the remittances of profits for that year, regardless of when sanctioned for remittance by State Bank of Pakistan.

Monnoo Group of Industries

Investments

* Exemption limit for issue of capital under Capital Issues (Exemption) Order should be raised from Rs. 50 million to Rs. 200 million.

* Companies having assets upto the value of Rs. 500 million should be exempt from registration under Monopoly Control Ordinance. Companies not willing to go public should not be pressed to be listed on Stock Exchange.

* Under Monopoly Control Ordinance the value of assets of a Company should not be the entire total of the assets side of the Balance Sheet. If should be the value of total assets less liabilities relating to such assets.

Taxation

* Tax on inter-corporate dividends declared by unquoted companies should be abolished.

* Tax collection should be the responsibility of the Department. But under Section 50 every two persons/business organisations dealing with each other have virtually become the tax collectors of each other.

* In order to achieve the aim of documentation of economy, the Government should announce that effective from next year each transaction over Rs. 500,000 should be made only through account payee cheque. The Government should also announce in advance that this amount will be reduced by Rs. 100,000 every year and will be finally brought down to Rs. 100,000.

* Deduction of advance tax from payment of brokerage/commission vide subsection 4(A) of section 50 introduced by Finance Act, 1989 should be withdrawn as it is not practicable.

* Deduction of advance tax on income from dividends and house property through new addition of sub-Sections 6(A) and 7(B) respectively to section 50 will affect the growth rate of savings and construction of new houses which are badly needed.

* Rate of initial depreciation reduced from 45 per cent to 25 per cent through Finance ACt 1989 should be changed to 45 per cent again to ensure steady industrial investment.

* All capital gains should be declared exempt from income tax.

* Provision was made under section 100 of the Income Tax Ordinance that refund voucher would be attached with every order but tax refunds are delayed for months.

* Tax credit under section 107 should not lapse after two years but should be allowed to be adjusted indefinitely.

* Disputed amount of tax should not be collected until the decision on appeal in Income Tax Appellate Tribunal. Cases where the department losses on assessments vicariously made, this fact should have reflection on the service record of ITO concerned which may affect his promotion etc.

* Disposal of appeals by Commissioner of Income Tax (Appeals) be restricted within 6 months time.

* Maximum value of motor car for charge of depreciation be enhanced to atleast Rs. 500,000.

* Holding period for shares of companies to claim tax rebate on investment should be reduced from 60 months to 36 months as in the case of Defence Saving Certificates.

* Rate of interest on unpaid income tax should be reduced from 24 per cent to normal bank interest mark-up rate.

* Zakat should not be deducted from the Bank Deposits and dividends etc., paid to Companies.

* The unfair and un-islamic method of assessment of wealth tax on Association of Persons instead of individual partners of a rented-out building or family business should be discontinued.

* Tax on agricultural income should be levied after allowing adequate exemptions.

* The present tax rates should be drastically reduced to maximum of 30 per cent and a system of collection of fixed tax from small traders should be introduced.

* Dependence and working on fictitious revenue collection figures should be discouraged. Assessing authorities should be stopped from levying tax on issues already decided by the superior courts.

* In cases where investor Companies do not receive any dividend, assessing authorities disallow portion of interest paid to commercial banks. This practice should be discontinued.

* Wealth tax should be abolished.

* The limit of income be enhanced from Rs. One hundred thousand and Rupees Three hundred thousand regarding furnishing of Wealth Statement under Section 58 of Income Tax Ordinance, 1979.

* Investigations against an existing assessee or a non assessee initiated on mere receipt of an anonymous letter should not be started until full particulars of the complainant are disclosed.

* Statutory exemption to assessees having salary income be increased to Rs. 60,000 from Rs. 30,000.

* Clubbing of minors assets gifted by parents assets for wealth tax purposes negates the effect of abolishing of gift tax.

* Textile industry should be treated as "Key Industry" for purposes of SRO 458(I)/88 dated 26.6.1988.

* Suitable tax credit should be allowed to those industrial units who install their own power generation plants.

* Self assessment scheme should be extended to private limited companies also.

Bank Credit and Monetary Policy

* Margin requirements on pledge of industrial raw material and finished goods particularly raw cotton, yarn and cloth should be withdrawn completely and for the same purpose, industries should be allowed to freely sell their surplus imported raw material to other industries.

* Nationalised banks should allow pledge of cotton by textile mills at actual purchase rates and not at national rates or minimum rates fixed by the Government,.

* Provincial Headquarters of nationalised banks are functioning. But, for medium sized and big industrial organizations, this has only added one more channel as their powers are limited and cases involving larger sanctions are still required to be sent to their Head Offices.

* The so-called islamisation of banking system has proved a failure. Banks should, therefore, revert to the internationally accepted and highly developed banking system again.

Industrialisation

New industries should be allowed to be set up preferably by the local entrepreneur only. The same principle should be followed in the matter of recruitments in industries and civil government.

Government should make earnest efforts to sell nationalised industries to Private Sector preferably by public auction.

Private Sector should be permitted, on priority basis, to manufacture textile machinery with foreign collaboration.

Exports

Custom rebate is now available on export of only a few items. But the exporters have to wait for realisation for a long time. Consequently the rebate which forms a large part of total sale proceeds remains blocked. This situation should be corrected.

Others

Import license fee for industrial raw material and machinery should be reduced from 5 per cent to 1 per cent.

Insurance companies should be stopped from charging 5 per cent administrative charges from the clients. The rates of premia should also be reduced keeping in view heavy profits earned by the insurance companies.

The rate of mark-up charged by scheduled bank on industrial loans between 10 per cent and 20 per cent should be reduced to between 7 per cent and 13 per cent.

Banks are making huge profits. Their charges should, therefore, be reduced to give relief to their clients.

In view of delinking of the rupee from US Dollar and abnormally high increase in the rates of exchange, rates of custom duty levied ad-volarem on imports should be reduced.

Pakistan Bedwear Exporters

Association

One collection agency for various taxes.

100 per cent Tax exemption be given to export oriented agencies.

Pakistan Burmah Shell Limited

For individual assesses, investment relief should be increased from Rs. 50,000 or one-third of the total income to Rs. 75,000 or one-third of the total income whichever is less.

Investment made in NIT units should be over and above the above limits i.e. any individual investing Rs. 75,000 in approved securities and Rs. 25,000 in NIT's should be entitled to relief on the total of Rs. 100,000.

Dividend income on NIT units should not be subject to tax.

Pakistan Petroleum Limited

Tax ceiling of 50 per cent of salary on the perquisites/allowances under section 24(i) of Income Tax Ordinance be increased to 75 per cent.

Aggregate rate of income Tax and Super Tax for private companies be reduced from existing 50 per cent to 40 per cent and no surcharge should be levied on the tax liability.

Ceiling of expenditure in respect of salaries and allowances of Directors introduced through Finance Bill 1990 should be withdrawn.

The ceiling for purposes of depreciation allowance on motor vehicles, not plying for hire, of Rs. 250,000 be abolished in view of ever increasing cost of motor vehicles.

Value of Rent Free Furnished/unfurnished accommodation should not be included in the income of the employee and be fully exempted from Tax.

Free petrol and mileage provided by employer for business purpose be fully exempted in employees hand.

10 per cent surcharge on the income tax liability of salaried employees introduced since 1988 be withdrawn.

The rate slabs be further rationalised to reduce the tax liability.

Basic exemption limit of Rs. 24,000 be increased to Rs. 60,000. The limit withdrawn in case of salaried employees drawing upto Rs. 100,000 be restored.

Exepmtion limit in case of house rent allowance of 45 per cent of salary be increased to 65 per cent in view of ever increasing rents.

Exemption limit in case of utilities allowance of 10 per cent of salary be increased to 30 per cent.

Dividend income be totally exempted.

The rate of investment allowance be increased to 60 per cent of total income or to Rs. 100,000 which ever is higher.

Rebate on investment allowance in case of salaried employees drawing salaries upto Rs. 100,000 be restored.

SAL International Management

Consultants

No measures would improve the bleak scenario unless scourage of corruption, bribery, nepotism and indiscipline are eradicated as warned by Quaid-e-Azam.

Appropriate measures be adopeted for strict accountability to defeat the in-built system of corruption to attract investment.

Developed countries have achieved 15-30 per cent savings by eliminating unnecessary costs through application of Value Engineering Technology which should be extensively used in Pakistan.

Tax should be levied on higher agriculture income exempting the poor farmers.

Effective financial controls and discipline must be enforced using modern techniques.

Energy management and losses in transmission due to technical reasons and thefts can be avoided by strict discipline and accountability.

Service Industries Limited

Sales Tax on footwear should be levied on retail price of Rs. 400 per pair of more instead of Rs. 250 per pair and above.

Custom duty and Sales Tax should be exempted on rubber moulds used in the motorcycle and (Utility Light Truck) ULT tyres.

Recently the Government has given concession to leather shoe industries in as much as they have allowed free of duty import of material used in the leather shoes industries for export purposes. Similar concession should also be allowed in case of canvas shoe industry.

Mohammad I. Naseem

- A.F. Ferguson & Company

Self employed professionals such as Medical Practitioners, consulting engineers, practicing lawyers, architects and practicing chartered accoutants are presently taxed at the applicable rate on their gross income and are not entitled to a number of reliefs, allowances and perquisites. However, their professional colleagues who work as salaried individuals, executives and directors enjoy such allowances and perquisites. Consequently, tax burden on self employed professionals for greater than those who work as salaries individuals.

It is recommended that allowances and perquisites as enjoyed by salaries individuals such as house rent, conveyance, cost of utilities, etc. should be exempt in the hands of self employed individuals also.

Similarly, professional firms should be allowed to contribute to pension schemes and pensions received from such schemes should be exempt in the hands of self employed individuals.

If such professional firms maintain a Provident fund for their staff, the self employed professionals should also be allowed to participate in such provident fund schemes.

M. Iqbal A. Rehman

- House of Habid

The financial services must be deregulated so that efficient and competent industries are financed. Today it is virtually impossible for a legitimate industry based on local raw material for domestic consumption to get any bank financing for its working capital.

Foreign investors should be treated at par with Pakistani Entrepreneurs.

Government must quickly act on the recommendations of Taxation Commission and convert all taxes and levies into a consolidated tax, based on capacity.

The Government must soon announce a new labour policy to rationalise the present laws which must graviate on principles of equity and justice and no outsiders should be allowed to join workers union.

Deterrent punishment must be expeditiously given for possession and sale of smuggled or stolen goods.

A full time industrial commission headed by an industrialist with Finance Ministry and Ministry of Industries as members should be set-up.

The fiscal policy must contain the following attributes:-

it should be simple to understand and should not subject assesses to fulfil complicated procedural formalities.

should be covered by legal framework and immediate issue of necessary notifications and SRO's which are easy to comprehend without seeking interpretation from 'consultants'.

Once announced, it must be backed by a firm commitment from the highest level that it will remain unchanged for a period of ten years.

fiscal anomaloes providing unreasonable, unjustified benefits to certain regions must be revised and made more reasonable and should only be available for Manufacture and not conversion or fabrication.

Customs duty rates must be simplified.

a fresh review of subsidies granted to exporters should be carried out to ensure that undue advantage is not taken by non-genuine exporters.

assuming simplicity and consistency in tax law and procedures, assesses should be encouraged/invited to determine their firm tax liability in advance on conversion/expansion of existing units and on new ventures.

tax rebate/incentives should be offered to industries prepared to plough back their resources. Industries should be allowed to deduct from taxable profit the portion reinvested in the organisation for expansion/modernisation/diversification also providing them with an option to spread such tax relief over a period of upto 5 years.

Dividends from public and private enterprises should be exempt from tax in the hands of the receivers - both individuals and corporate bodies.

At present rate of tax varies on dividends received from public and private companies. Also withholding tax on corporate dividend received by non-resident individuals inclusing overseas Pakistanis is exorbitantly high (30 per cent) as against withholding tax on resident individuals (7.5%).

Mohammad Hussain Dadabhoy

- Dadabhoy Group of Companies

Abroad based value added taxt (VAT) should be introduced in place of present Sales Tax.

Tax exemption of interest from national savings schemes should be extended to all interest income, upto a specified amount, irrespective of source.

Tax structure of company taxation should be simplified by consolidating different taxes on companies. Some reduction in the over-all rate of company taxation seems desirable as a means of stimulating company savings as well as investment.

Agricultural income should be liable to income tax.

In the Income tax law, exemptions should be eliminated and the highest marginal rate brought down to 40 per cent.

Self-assessment scheme whereby if the annual income of an assessee was on the increase by at least 20 per cent he was exempted from detailed tax scrutiny, should be re-introduced.

There should be fixed rates of income tax on such sectors as wholesale and retail trade and small industries which are difficult to be enrolled as assessee.

Manufacturing units, wherever possible, should be under capacity taxation for indirect taxes like excise duties.

Specific excise duties should be indexed to maintain their advalorem rates over time.

For proper enforcement of tax laws an adequate data base should be built up and capacity developed to analyse the data.

N. Mecklie

All agro based industries must be made responsible to collaborate with the farmers in improving the efficiency of their operation and reduce import of raw material.

Agricultural can be taxed and employment increased if mechanisation of agriculture is prevented.

We need to diversify our agriculture towards self sufficiency subsistency.
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Title Annotation:Management Association of Pakistan's pre-budget proposals for Annual Budget 1991-92
Publication:Economic Review
Date:Apr 1, 1991
Words:3418
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