SAI recommends strong measures for the Federal Budget 2023-24

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The SITE Association of Industry (SAI) has recommended the Government save industries from closure, prevent further unemployment and strengthen the role of the Industrial sector in import substitution and export promotion. SAI urged in its Federal Budget Proposals 2023-24 that the government remove unannounced and imprudent restrictions on imported raw material, machinery and spares since such reckless curbs have brought down the output of the Industrial sector, which has further deepened the ongoing economic crisis, thereby putting the collection of government’s tax targets into jeopardy.

Overall, the inflation and rising cost of doing business coupled with lending rates for the industry, as high as 22-23% have broken the backbone of the economy. The government needs to take immediate measures to save the industrial sector from falling sick –– a dire state that, if allowed to go unabated, would never be reversible.

The State Bank of Pakistan’s (SBP) EPD Circular No 20 of 2022 has created more problems than it could have solved, and some of its provisions are in contravention of the SBP Foreign Exchange Regulation/Manual, it said.

The abovementioned circular needs elaboration, clarification and amendments to provide a complete framework of what SBP calls “self-funded imports”, it demanded.

The industry representative body also pointed out the perennial issue of low tax-to-GDP ratio, narrow tax base and counterproductive taxation policies which provide incentives to the non-taxpayers rather than incentivizing the honest taxpayers, which is a critical factor for promoting a documented economy and a thriving formal sector.

The Association recommended a unified tax number for both income and sales tax, and no sizable business should be allowed to operate without acquiring a tax registration certificate. This should be the responsibility and key accountability of FBR.

The plethora of withholding and presumptive tax provisions have distorted the whole ‘income tax regime, which has become anything but not really an income tax! The presumptive and withholding regime needs to be consolidated and systematically replaced with a ‘tax on income’, says the SAI proposals.

SAI demanded a reduction in turnover tax rates by at least 50 per cent from the current year, thereby allowing the businesses to pay income tax according to their assessable income and pay or adjust sales tax according to their actual turnover and value addition.

Other proposals included reducing the general sales tax (GST) rate from 18 to 15 per cent and abolishing 3% further sales tax on unregistered persons while making it mandatory for FBR to register every sizeable business for sales tax purposes.

Tax refunds should be expedited within 60 days of refund application; otherwise, the sales tax zero-rating of the whole supply chain of zero-rated goods should be restored.

Rampant under-invoicing and misdeclaration is badly damaging the local Industry and depriving the exchequer of its much-needed revenue. SAI recommended consolidation of varying rates of statutory custom duty, additional customs duty and regulatory duty into ‘one custom duty’ with a maximum slab of 25% while appropriately cascading the tariff structure, i.e., starting rate of 0% on raw materials with increasing tariff rates, with stages of production and value addition up to the finished product level. Such a move would render smuggling unviable and clandestine imports unfeasible.

SAI President Riaz Uddin addressing budget proposals to the Minister of Finance, Governor State Bank and Chairman FBR, hoped the recommendations would meet approval in the country’s best interest.

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