Exporters demand restoration of fixed tax regime to remain competitive

The News International Business Page 22/6/24

To stay competitive in world markets, exporters have strongly opposed the shift of taxation on turnover from a fixed to a normal regime as the government presses ahead with its efforts to increase revenue through various taxes introduced in the upcoming fiscal year’s federal budget.

“The turnover tax should remain within the fixed tax regime to ensure stability,” businessmen said during a high-level meeting of the Senate Standing Committee on Finance, convened to discuss concerns over new taxation measures.

The government in the budget 2024-25 has proposed a shift from a 1% turnover-based Final Tax Regime (FTR) to standard taxation at 29% of the taxable profit on top of the Normal Tax Regime (NTR) plus a 10% Super Tax with a minimum of 1% paid. Analysts say this 39% tax on the profit of exporters would be devastating for exports.

The meeting, chaired by Senator Saleem Mandviwalla, brought to light concerns from various sectors, highlighting the complexities and frustrations surrounding the nation’s tax policies.

Retailers, while expressing their willingness to comply with the POS (Point of Sales) system and pay taxes, voiced concerns about the increase in the tax rate from 15% to 18%.

An FBR IR Policy Member noted that the 18% sales tax now applied to major brands, suggesting that customers, having the power to afford those brands, could absorb this increase too.

However, Senator Mandviwalla came down hard on this approach, contending that higher tax rates unfairly burden compliant taxpayers and complicate legal compliance.

Pakistan Tehreek-e-Insaf (PTI) Senator Shibli Faraz highlighted the challenges faced by taxpayers. “It has become difficult for law-abiding citizens to live in this country,” he said, condemning the systematic legitimisation of non-filers, which he said was the government’s own doing.

He also stressed that maintaining the current tax system seemed next to impossible. “Taxes have been piled on salaried individuals. Will they have to steal to pay their taxes?”

The PTI senator also said deplored the glorification of non-filers. “It is highly unfortunate that the country’s finance minister is a former banker. I am also one, but I have no idea about finance,” he added.

Discussing the issue of 95% of retailers being outside the tax net, an FBR IR Policy Member admitted that a CNIC (Computerised National Identity Card) requirement for tax purposes was retracted after a few months.

Senator Mandviwalla urged the FBR to take steps to include these retailers in the tax net and curb smuggling in the textile sector, which negatively impacts both brands and tax revenue.

“Efforts are underway to document the entire sales tax chain and use national ID numbers as tax identifiers,” the FBR official said, adding: “The super tax, initially intended for one year, has been extended indefinitely, facing legal challenges,” Mandviwalla said.

The tax agency member justified the sales tax on baby products, emphasising that the tax burden ultimately falls on consumers and that brands should not have anything to do with it.

Senator Anusha Rehman questioned the timeline for including local high-earning corner shops — roadside cabins and kiosks — in tax net, citing a shop with a significant daily turnover. “A corner shop in my area has a daily turnover of Rs700,000.”

The FBR officials acknowledged the challenge of enforcement with only 1,000 officers nationwide. “Currently, there are only 4.5 million tax filers in the country and there is a need for more robust measures to increase compliance and expand the tax base,” revenue officials said.

In a bid to boost its revenues, the Pakistan Muslim League-Nawaz (PML-N) government in its International Monetary Fund (IMF) dictated budget for the fiscal year 2024-25 imposed myriad taxes.

The government heavily raised both direct and indirect taxes to a historic high in the budget, showing a loan deal with the IMF to bail out the country’s economy was more important than providing relief to inflation-broken masses, whose incomes have hit rock bottom in recent years.

The new raise in taxes would fetch additional revenues of Rs3.8 trillion in line with the IMF demands.

Posted in: Press Releases