High withholding tax on raw material to enhance trade imbalance

LAHORE: The All Pakistan Business Forum has opposed the decision of substantial raise in withholding tax on import of industrial raw material from one per cent to five per cent without talking business community into confidence and without realizing the trade imbalance of the country.

Raising serious concerns on antiindustry and antiexport policy of the FBR, Central Executive Committee meeting held here on Saturday, observed that authorities have taken short sighted decision at a time when trade deficit of the country has already crossed the figure of $ 21.27 billion in 201112 due to high imports of $ 44.92 billion against $ 23.64 low export.

All Pakistan Business Forum CEC meeting, which was chaired by its chairman Syed Nabeel Hashmi, was attended among others by APBF central president Rashid Mehr, central SVP Imtiaz Rastgar, Punjab president Asad ShujaurRehman, Sindh president Shariq Suhail, FATA president Shah Faisal Afridi and KPK president Fahim Khan.

The meeting urged the Federal Board of Revenue to withdraw antiindustry SROs, as on one hand, SRO 98I 2013 subjects industries to withholding tax of 20 per cent of sales tax payable on purchases, and on the other hand, SRO 140I 2013 increases withholding tax from 1 per cent to 5 per cent on imports of industrial raw materials.

Addressing the meeting, Mr. Hashmi said that exportoriented industry is already in shambles due to acute energy crisis coupled with impact of war on terror and the recent SROs will add further difficulties, creating liquidity problems for the exporters.

He observed that manufacturers were already facing severe cash flow issues due to deduction of 3.5 per cent withholding tax on supplies to customers as well as withholding tax at imports.

APBF chairman said added that authorities should have done proper homework before issuing such policies. He further added the economic planners have never calculated the amount of money being paid on borrowings from IMF and other institutions in shape of interest and cost of technical assistance.

After deduction of expenses and installments of previous loans the net transfer to Pakistan is most of the time in minus resulting into debt trap for the country.

Central president Rashid Mehr talking to the CEC participants explained that all countries keep their export sector free of all taxes, direct or indirect. It is well known principal all over the world that any export item must shed all duties and taxes and logic of FBR to apply uniform rate of 5% withholding tax at import stage is myopic.

Textile sector representatives said this measure would unnecessarily burden the textile exporters with Rs10 billion of refund claims, as textile industry annually imports cotton worth $1 billion and fibres worth $1 billion.

Highlighting auto sector condition, representatives said that the local auto industry is already at its lowest web as car sector’s production has declined by 30% in first half of the current fiscal year, while tractor industry is still trying to recover from last year’s recession. In this scenario, these new withholding taxes will leave no working capital for carrying on routine.

The CEC meeting unanimously asked the FBR to concentrate on expansion of tax base by bringing the undocumented sectors into the tax net, rather than squeezing the sectors which were already documented.

The APBF leadership supported the chairman’s efforts to boost tax revenues, saying the business community would do it best to help the board in collection of taxes.