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 percent of taxable income; Workers’ Profit participation Fund — 5 percent of profit before tax; Workers’ Welfare Fund — 2 percent of profit before taxation or 2 percent of taxable income whichever is higher; Minimum tax: 1 percent of Turnover (in case of losses; Withholding Tax — Multiple and cross withholding; FED — Rs. 400 per tonne; and Sales Tax — 17 percent 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: Turkey 20 percent ; Iran 25 percent ; Bangladesh 29.50 percent ; Sri Lanka 28 percent ; India 30 percent ; Malaysia 25 percent ; China 25 percent ; United Kingdom 23 percent ; Asian average 22.50 percent ; European average 20.60 percent ; Global average 24 percent.
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 percent GST, imposed on MRP instead of ex-factory, which is comparatively very high from the global rates. The reduction of GST to 12.5 percent 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 percent, as has been the case with coal, from current 5 percent and 10percent of ad valorem.
APCMA has also suggested that the 50 percent rate of initial allowance on plant and machinery should be restored from the current 25 percent 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 percent to 1 percent 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 to Rs. 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 5percent Workers’ Profit Participation Fund and 2percent Workers’ Welfare Fund effectively means that the industry is being subjected to 41percent corporate tax. Even though this was brought down from 42percent to 41percent through the last budget, i.e. a meager 1 percent, the rate is still nearly double of the Asian average of 22.50 percent. 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 0.5percent and wholesalers 0.1percent has been imposed on cement manufacturers. Further, the wholesalers are also required to collect income tax 0.5percent on sales made to the retailers. Thus a retailer receiving goods through wholesaler is subject to 0.1percent 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.
By Moonis Ali, WEEKLY PULSE MAGAZINE, March 10, 2014