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Proposals for federal budget 1990-91.

Keeping in view the present situation in the country, Gujranwala Chamber is pleased to forward a few proposals/suggestions for incorporation in the Federal Budget for 1990-91. We are confident that government would give due consideration to these proposals, while formulating the budget.

A general slackness in business is prevailing and business has allowed down to a great extent. Particularly, small traders/industrialists are facing liquidity problems even for day to day requirements. This situation is adversely effecting the industrial climate in the country. Another factor which is responsible for creating this situations is levy of sales tax on almost every industry irrespective of their size and functioning on a No-Account Basis. This has led to another severe controversy between government agencies and industrialists specially where there is no specific list of items, which are covered under sales tax. It is beyond the capacity of small industry and consumers to absorb 12-1/2 Sales Tax in addition to many other taxes on industry.

In the context of these observations, it is necessary to take corrective measures to revive the industrial activities to maximum level in order to control stagflation and mounting unemployment. To achieve this end, it is indispensable to frame policies regarding taxation, which should encourage industrial investment to ensure and flow of capital into productive channels. It is therefore necessary to remove the bottleneck hindering business and industrial activities in order to boost economic development of the country.

Keeping in view the present situation in the country, Gujranwala Chamber is pleased to forward a few proposals/suggestions for incorporation in the Federal Budget for 1990-91. We are confident that government would give due consideration to these proposals, while formulating the budget.

Income Tax

The self-assessment scheme, introduced in 1979, produced very encouraging results both in increasing the revenue collection and the member of Assessees. It also had a great role in building confidence between the assesses and Income Tax Department. Despite its successful operation, self-assessment scheme was discontinued and a simplified procedure introduced for assesses living income upto Rs. 100,000 in 1987-88.

This policy has created a sense of resentment among the assessees and a strong protest was lodged through representations made to the government against adopting double standard for assessment of income and demanded uniform policy for every assessees. This Demand was not accepted by the government last year as well and the policy in force continued which is still agitating the minds of business community as it empowers Income Tax Officers to use arbitrary powers in assessment of cases above Rs. 100,000. This has shattered the confidence of assessees build up during Self-Assessment Scheme. It is, therefore, recommended that Self-Assessment Scheme should be restored forthwith.

Income Tax Licensing System should be introduced for every small businessmen Rs. 100 per annum in order to broaden the lease of taxation. This may cover small shopkeepers engaged in various lines of business. Income Tax License System will make the people tax-minded and fetch a substantial amount for National Exchequer.

Agricultural Income

Income derived from whatever source should be taxed including income from agriculture. Presently income from business and agriculture is clubbed for computation of income tax whereas income from agriculture is exempted. This is unabashed discrimination because every citizen should be treated equally in view of justice and fair play. If agricultural income is desired not to be covered under income tax, then agricultural income of businessmen should also be given the same status.

Rates of income tax should be revised to facilitate the business community to pay income tax "with open heart". This will not only increase the revenue but will also increase the number of assessees. It is recommended that rate of income tax should have divided into following three slabs for income tax: (i)

10 per cent upto Rs. 100,000 (ii) 20 per cent between Rs. 100,001 to

Rs. 200,000. (iii) 30 per cent upto and above Rs.


Registered firms and Limited Companies should be treated at par while assessing income tax.

Limit of investment allowance should be enhanced from Rs. 50,000 to Rs. 500,000 in order to encourage industrial investment in the country. Investment allowance should be deducted direct from income as it was allowed in the past. Investment allowance of Rs. 50,000 is too low in present day in view of rising inflation and cost of industrial infrastructural. Total Income from export earnings should be exempted from income tax which is exempted 75 per cent at present National exports will be encouraged due to this incentive provided to the exporters.

At present thousands of appeals are pending with appellate authorities and tribunals for decision. Despite of pendency of appeals, recovery officer of Income Tax Department the pressurising the Assessees for payment of tax against which Appeals have been filed with Commissioner (Appeals) and Income Tax Tribunals in order to avoid undue pressure on assessees whose Appeals are pending, tax amount should not be recovered till final decision of their Appeals.

It is recommended that appeals filed every year should be decided within that year and before filing of returns for ensuring year and recovery of disputed tax amount should not be recovered till final decision of assessees' Appeals.

Presently, private limited companies having paid up capital of Rs. 2 million or more are under obligation to deduct advance Income Tax at the rate of two per cent from supplies aggregate exceeding Rs. 50,000 and three per cent from contractors having rendered services exceeding Rs. 10,000 during the year under Section 50(4) of the Income Tax Ordinance 1979. The aforesaid provisions of Income Tax Ordinance are making it rather difficult to get proper supplies for even smooth running of their business. The applicability of said provision of Section 50(4) may be withdrawn in case of private company having paid up capital less than Rs. 8 million for their smooth functioning. The application of provisions of Section 50(4) should be revised as follows: - For Supplies Rs. 500,000 instead of

Rs. 50,000. - For Services Rs. 100,000 instead of

Rs. 10,000.

The rate of advance tax under Section 50(4A) is 10 per cent which is very excessive. It is suggested that the same should not be more than three per cent. We understand the government is seriously considering to introduce |Fix Tax Rate System' we welcome the system.

Besides a workable formula must be evolved in consultation with Chambers and selected industrialists paying heavy taxes, for the fixation of annual liability of Income Tax of course payable in advance installments, in order to ensure guaranteed collection and to avoid abuse of officers and malpractices presently prevalent.

Customs Duty

The rates of Customs Duty currently in force are very high. The assessment of duties on the import value determined at the ever-increasing rate of exchange. Increased landed cost and effects adversely on sale. It is decided that rate of duty must be rationalised rather decreased so as to equalise the effects of unprecedented high exchange rate.

The shift in policy to change the entire structure of specific Customs Duty to Ad Valorem has once again created a serious controversy between Customs authorities and importers at the time of clearance. The Import Trade Prices (ITP) for many items are fixed at a high level without considering prices prevailing in international market. This practice is a great hindrance in the clearance of consignments particularly raw materials due to which production process adversely affected leading to higher cost of production and price increase of goods.

It is therefore strongly recommended that specific rate of Custom duties on weight basis should be introduced as it was accepted by the government through repeated demands of the Chambers of Commerce and Industries in order to eliminate corruption and delay in clearance of consignment, Import Trade Prices (ITP) should be rationalised, keeping in view the fluctuation in prices of various commodities in international market.

Stainless Steel Sheets

Customs Duty should be imposed for industrial and commercial importers particularly for raw materials. Exemption in Custom Duty to particular industry and area should be withdrawn in view of its misuse. For instance, manufacturers of agricultural implements are importing stainless steel sheets duty-free and jeopardising the interests of commercial importers who are paying Custom Duty plus other charges. The big consignments imported Custom-free in garb of industrial consumption has pushed the commercial importers from the market, rendering them incompetitive authorities by misusing some old SRO. This practice should be checked which is a great source of loss to National Exchequer.

Artsilk Yarn and Fibre

Powerloom industry is continuously in a crisis due to ample availability of smuggled cloth in the local market. Local industry has virtually become unable to compete with smuggled cloth in view of high cost of production creating less demand. The State of affairs demands a decrease in Customs Duty on artsilk yarn and enabling local industry to curtail its cost of production in order to complete with smuggled cloth as quality of locally manufactured cloth is equally good to attract consumers.

It is therefore, recommended that Customs Duty on artsilk yarn and fibre should be Rs. 20 per kilogramme and Rs. 10 per kilogramme instead of Rs. 30 and Rs. 20 respectively.

Electric Sheet/Silicon Sheet:

Electric Sheet (ITC 7225-1000) is an essential raw material for electric fans, motors and transformers firstly because of its being the correct material and secondly to ensure saving in the consumption of electricity which is being consumed more than 120 Watts per hour by a fan/motor produced with M.S. Sheet. To encourage the use of correct material it is the need of the hour to waive Customs Duty on electric steel sheet or reduce it to a maximum of 10 per cent. This will facilitate the manufacturers of electric fan, motors, transformer to use correct material (Electric Steel Sheet (ITC 7225-1000) in order to quality products in addition to saving much needed energy in the wake of present severe load-shedding in the country.

Chunian Industrial Estate

In order to pick up industrial investment in the country the Federal Government had provided incentive in various areas like Hub (Balochistan), Nooriabad (Sindh) and Chunian (Punjab) in the shape of duty-free import of machinery and tax-holiday for five years through SRO (500) in 1984. This facility was withdrawn in 1989 but has been restored recently for Hub (Balochistan) and Nooriabad (Sindh). It is very astonishing to note that SRO (500) is not restored for Chunian Industrial Estate where 150 projects are under process and their machinery/plants are sanctioned for import. At this stage the withdrawal of SRO (500) for Chunian has put the investors in hot waters and can't afford levy of customs duty plus other charges on plant/machinery.

It is, therefore, strongly recommended that facilities under SRO (500) should also be extended to Chunian like other areas in Balochistan/Sindh in the larger interest of economic progress of Pakistan.

Gadoon Industrial Estate (NWFP)

Federal Government has provided extraordinary package of facilities to investors in Gadoon Industrial Estate (NWFP) under SRO517/89 dated 3.6. 1989. These extraordinary incentives include duty-free import of industrial raw materials for industries to be set up in Gadoon-Amazai. Duty-free import of raw materials in Gadoon will damage the existing industries in other areas of the country curtailing their competitive ability to compete with similar industries in Gadoon in view of unprecedented difference in production cost of same products in Gadoon and rest of the country. This single facility of duty-free import of raw materials in Gadoon will demolish entire industrial structure in rest of the country.

The Gujranwala Chamber of Commerce and Industry is not against the development in NWFP by having Gadoon Industrial Estate, but feels the project should be helped by whatever measures suitable for less developed areas but not at the cost of other areas of the country.

It is necessary to adopt policies, which should supplement the existing industries in the country to usher in a new era of industrialisation and economic progress in the country. It is strongly recommended that extraordinary incentives should not be granted in any area except some nominal concessions in less developed areas to attract investment of establishing industries for creating job opportunities. This will ensure balanced economic growth in the whole country.

Import of Machinery

It must be free from duties in the case of importation by an industry, whether for initial installation, balancing, modernization or replacement. The present system of processing application for BMR purposes must be discontinued. The importer can be asked to given an undertaking that the machinery would be used for industrial purposes within his own premises and will not be disposed off earlier than five years.

Sales Tax:

It is levied and collected on all goods produced, processed or manufactured in Pakistan. Besides it is collected from those who only fabricate component parts of goods on material supplied by the actual manufacturers or assemblers. It is not "sale" as defined in Sales Tax Act. The Vendor claims labour charges. The above provisions have also paved the way for varieties of malpractices, corrupting as also abuse of power by the revenue collecting agencies, who in view of the existing construction of Sales Tax Act, are harassing small manufacturers having meagre resources for their earning or ensuring own survival. It is presumed that saw dust, cutting (of no commercial use) of M.S. Sheets, shavings of items manufactured from pig Iron or other metals, sweepers broom baskets made of stumps, hand fans made by leaves of date's tree and so many other items are liable to sales tax. There seems to be no justification for levy and collection of sales tax on aforesaid items and similarly on several other items of such kinds.

In order to ensure smooth working and harmony, it is suggested that instead of notifying exempted items (SRO 566(I)/89 dated 03.6.1989 refers), a list of all taxable goods, on the line of PCT, be compiled and Sales Tax be levied and collected only on specified item.

Notification No. SRO 560(I)/80 dated 03.6.1989 does not exempt from sales tax such partly manufactured or intermediate goods as are produced in a factory for use within the same premises in goods on which no sales tax is payable. As it is, exemption on end-products vanishes into thin air, Besides, it would lead to controversy, malpractice, abuse or power, etc. This notification merits cancellation or suitable amendment which should exempt partly manufactured or intermediatory goods used in exempted end-products.

General Sales Tax Act:

The government is continuously advocating enactment of General Sales Tax from the next Federal Budget to cover a wide range of products under Sales tax. The proposed Draft of General Sales Tax Act is strongly opposed by the Chambers because it will empower collecting officials to use them arbitrarily against manufacturers leading to constant friction between the industrialists and government officials. This is why General Sales Tax Act is vehemently opposed until the economy is fully documented because Sales tax is required to be charged at sale point. If it is levied on manufacturers, the collection will not achieve.

Export Incentives

Our prices are not competitive in international markets. Consequently there is little or no exportation. It can be revived by providing such incentive and monetary benefits as would fill the gap between local selling prices and export prices. The rebate of Customs Duty and refund of Sales Tax vide SRO 693(I)/80 dated 26.6.1980, intended to recover the production cost, is not adequate. The following suggested measures would supplement the existing incentives and help boost up exports: a) The percentage of the FOB value of

export which L/Cs are being granted

for production requirement of export,

be raised to 20 per cent and 8 per cent

for restricted and banned items

respectively. b) Entitlement Vouchers for the value of

Licence, earned by the exporters, be

introduced to replace the conventional

import licence, being granted

presently. These Vouchers should be

negotiable and valid for 12 months for

the issuance of L/C without payment

of prescribed licence fee. All imports

on such licences by exempt from levy

of Customs Duty, Sales Tax

Surcharge and Iqra. c) Entire export earning be free from

Income Tax. d) Cash subside to the extent of 20 per

cent of the FOB value be allowed to

the exporters of fans. e) Export re-financing be approved at

three per cent. f) The procedure, in force for claiming

the rebate of Customs Duty and re

und of Sales Tax is cumbersome.

Instead export earning by paid to the

exporters on demand by the bank

negotiating export documents who can,

in due course, claim reimbursement.
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Publication:Economic Review
Date:Apr 1, 1990
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