Budget proposals for 2014-15 : Cement industry demands tax rationalisation

Budget proposals for 2014-15 :   Cement industry demands tax rationalisation
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KARACHI: The cement manufacturers have demanded from FBR to either exclude cement from “Third schedule” of Sales Tax act or if the said procedure must continue then the fixation of MRP must be allowed on the basis of two different zones in the upcoming budget of 2014-2015.
In a letter to Chairman FBR, the Cement manufacturers said that the dynamics of every province and region is different in Pakistan therefore, collection of sales tax on the basis of single MRP across the country is anomalous which will ultimately force the manufacturers to restrict the sales only to nearby markets.
It added that this would mean stopping sales to the far flung area where there are increased chances of parallel market getting established which will impede FBR’s revenue collection.
As an alternate, cement industry proposes a zone based maximum retail price as it will save the consumers of the nearby areas from paying excessive amount while also protecting the manufacturers from incurring losses on cement sales in remote areas.
All Pakistan Cement Manufacturers Association (APCMA) in a letter has asked FBR to introduce uniform tax rate for corporate sector besides some other measures in the upcoming budget for the year 2014-15.
Cement is one of the most taxed industries of the country and is currently subject to the following taxes and levies: Corporate Income Tax — 34% of taxable income; Workers’ Profit participation Fund — 5% of profit before tax; Workers’ Welfare Fund — 2% of profit before taxation or 2% of taxable income whichever is higher; Minimum tax: 1% of Turnover (in case of losses; Withholding Tax — Multiple and cross withholding; FED — Rs. 400 per tonne; and Sales Tax — 17% of the maximum retail price.
The letter stated that Pakistan has the highest tax rates in the region and among the developing world. It is universally accepted that higher corporate taxes are a major impediment to rapid economic development and employment generation. The corporate tax rate in some countries is as under: Turkey20%; Iran 25%; Bangladesh 29.50%; Sri Lanka 28%; India 30%; Malaysia 25%; China 25%; United Kingdom 23%; Asian average 22.50%; European average 20.60%; Global average 24%.
The association also proposed step wise abolishment of FED, which amounts to Rs. 400 per ton, in order to encourage cement off-take.
In addition to this, cement industry is subjected to 17% GST, imposed on MRP instead of ex-factory, which is comparatively very high from the global rates. The reduction of GST to 12.5% will encourage the registration of the unregistered taxpayers to avail the benefits of the input adjustments.
The cement industry is experimenting with different options for reducing fuel cost by using alternate energy resources such as pet coke and shredded rubber tires to enhance its competitiveness in the global market. Therefore, government should reduce the duty on alternative fuels to 0%, as has been the case with coal, from current 5% and 10% of ad valorem.
APCMA has also suggested that the 50% rate of initial allowance on plant and machinery should be restored from the current 25% which in turn will result in gearing up investment in BMR and capacity enhancement of existing industries.
It further proposed that withholding tax rate on import of raw materials, spare parts, stores and capital goods by industrial undertaking for its own use, be reduced from 5% to 1% as this initiative would strongly support the industrialization base against commercial importers.
Moreover, Withholding Tax on electricity bills should not be made from cement sector because most of the companies have to file for refunds of the tax.
APCMA proposed that 210 days should be set for filing duty drawback claims which were not accepted by the custom department pertaining to the period July 2005 to June 2011 due to unavailability of original Afghan Custom documents as the original document is retained by the Afghan Custom authorities.
In view of the high level of inflation, the limit of Rs. 50,000/¬ for a bank transaction under single account head under Clause (I) should be increased at least up toRs. 250,000; and Rs. 15,000/¬ per month set for the payment of salary under Clause (In) of the Section 21 needs be increased up to Rs. 25,000, the letter said.
APCMA opined that levying of 5% Workers’ Profit Participation Fund and 2% Workers’ Welfare Fund effectively means that the industry is being subjected to 41% corporate tax. Even though this was brought down from 42% to 41% through the last budget, i.e. a meager 1%, the rate is still nearly double of the Asian average of 22.50%. It is recommended that tax burden be significantly reduced to a reasonable level for accelerating economic growth which attracts foreign investment, he added.
As far as multiple withholdings/extra taxation on the supply chain, he said, responsibility of collection of withholding tax from the retailers 0.5% and wholesalers 0.1% has been imposed on cement manufacturers. Further, the wholesalers are also required to collect income tax 0.5% on sales made to the retailers. Thus a retailer receiving goods through wholesaler is subject to 0.1% more tax having negative impact on wholesale business.
Multiple and cross Withholding and collection of income and sales taxes has caused undue blockage of funds, excessive Works and extra documentation/reporting within industry and tax authorities. Taxes are blocked in the shape of refundable taxes, negatively affecting businesses and thus hurting the economy, he added.
As far as custom duty on sack Kraft paper is concerned, packaging cost is a major component of Cement sold in Pakistan. Kraft paper bags are still a medium of choice. In order to boost economic activity in Pakistan, we request to reduce the duties 0f sack Kraft paper under PCT Code 48042100 and 480429070 from 15% t0 10%.
APCMA said the FBR should immediately de-notify the services which are now chargeable under the provincial legislation after the 18th constitutional amendment with effect from date of promulgation of provincial legislations, for those provinces which have promulgated laws on sales tax on services.
Provincial input tax on services should be allowed against output tax by FBR (Federal) through monthly sales tax return. In this connection we would recommend to remove the ambiguity in the laws made by Federal and Provincial Governments in respect of sales tax on services. This ambiguity severely affects the cash flows of the companies paying provincial input tax on services, he concluded.

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