KCCI urges govt to continue RCET, DLTL to support industry

KARACHI: The Karachi Chamber of Commerce and Industry (KCCI) has identified various anomalies in the federal budget for the next fiscal and asked the government to continue the regional competitive energy tariff (RCET) for five export sectors.

KCCI also underscored the need to restore and provide all incentives under the National Textile and Apparel Policy 2020-25, particularly DLTL, TUF, etc to the value-added textile industry.

KCCI further suggested to restrict super tax to tax year 2023 as it was imposed for a period of one year vide Finance Act 2022; and in case it was not possible, it urged to slash it down to 4 percent from 10 percent.

A new concept of ‘additional tax on income, profits and gains’ with a capped rate of 50 percent has been introduced for extraordinary incomes arising from economic factors to be determined by the federal government for the preceding five years. The proposed section carrying this concept should be deleted, as any income on which tax under normal course has been levied, should not be taxed again. Moreover, existing rates of income tax were already too high so this additional tax will further burden the documented sector.

Referring to amendment in the definition of associates, the KCCI advised to abolish the amendment as the majority of the suppliers from whom import was made or buyers to whom goods were exported would become associates, which went against the intent of the law.

It further recommended that the bonus shares, not within the scope of income, should not be taxed as it will create unnecessary hurdles in industrialisation and its growth.

The bill proposes to introduce a tax holiday for SMEs setup exclusively as agro-based industry in a rural area. The trade body urged the government to extend this holiday to all areas, including urban centres, to incentivise investment in agro-based industries across the board.

KCCI pointed out that the bill has proposed incentive of exemption from advance income tax collection from non-residents with certain conditions. While appreciating this amendment, the chamber suggested that all unregistered persons must be required to mandatorily file income tax return and report advance tax payment in income tax return subject to exclusion given under the law.

“Moreover, 1 percent advance tax under section 7E is only being collected from filers. In order to rationalise this, property registration authorities should be made liable to charge 2 percent tax [1 percent increased rate for being non-filer] under section 7E on all property tax challans issued to non-filers which would broaden the tax net and rationalise tax collection on immovable properties,” KCCI added.

Referring to a new section which would empower the commissioner to recover any outstanding liability under any other law for the time being in force, it suggested that scope of the powers should be limited to the extent of income tax, sales tax and FED. This it said would avoid unfettered and discretionary powers to tax machinery resulting in unnecessary harassment.

KCCI, while mentioning the proposal pertaining to restriction under Section 8(1)(h) to disallow input tax on building / construction materials, recommended that input tax on building / construction material should be allowed on such materials used for extension / expansion, BMR or industries to provide incentive for industrialisation and growth.

Increase in line with rupee devaluation in threshold for annual turnover of cottage industry has been proposed, which should be increased to Rs50 million.

KCCI stressed that despite several representations on the issue, the 3 percent value addition tax imposed on commercial importers of polyethylene and polypropylene has not been removed. This deterred legal imports of industrial raw material, it said.

KCCI stated that at present, dividend received by a shareholder from a company under group structure is subjected to around 68 percent tax, which is extremely high as compared to the rates applicable to sole proprietorship and partnerships, while the undocumented sector was totally out of the tax net.

“As per study on 46 countries, income under the group holding structure [where controlling interest [greater than 50 percent] is owned by the holding company], is nowhere taxed multiple times and the same is treated as exempt in the hands of holding company. Consequently, in order to provide level playing field to documented sectors, taxation on multi-layered basis should be removed,” the KCCI noted.