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PBC suggests reduction in withholding tax on FMCG distributors

PBC suggests reduction in withholding tax on FMCG distributors

KARACHI: Pakistan Business Council (PBC) has proposed measures for reducing cost of doing business in the country and suggested that rates for withholding tax on Fast Moving Consumer Goods (FMCG) distributors should be reduced to 0.2 percent in line with Section 113 of the Income Tax Ordinance, 2001.

The PBC in proposals for budget 2018/2019, suggested the Federal Board of Revenue (FBR) Section 153 (1) (a) withholding income tax on supplies by distributors of FMCG products needs to be rationalized.

It further said that Section 148 imports procedure and rules for obtaining exemption certificates for import of raw material by industrial taxpayers has serious restrictions which causes hardship and increases cost of doing business. In case withholding tax-exempt imports cross the 125 percent limit of previous year’s imports, withholding tax at 5.5 percent is levied, which significantly impacts cashflows as refunds remain blocked for extended period of time.

Highlighted Section 156 related to prize offered by companies for promotion of sales, the PBC said explanation needs to be added to this section to clarify that products/cash given as part of sales promotion efforts to increase/achieve targets will be taxed at the withholding tax rate applicable to channel partners and that this provision is applicable to prizes given to end consumers only.

The PBC said that withholding tax under Section 235 should only be used to widen the tax base. Currently it is creating financing issues for businesses.

Regarding sales tax, it said that input sales tax is adjustable at 90 percent of output sales tax. Current situation is leading to buildup of refunds. Input sales tax to the extent of 95 percent of output sales tax should be adjustable.

The PBC further said that there is no concept of either group taxation nor of filing consolidated returns in Sales Tax Act along the lines of the Income Tax Ordinance.

Further, Section 2 (44) of the sales tax law requires that sales tax should be deposited on earlier of receipt of payment or delivery of goods. I suggested that sales tax should be collected at the time of actual delivery of goods and not at the time of advance payment received from customers.

The PBC highlighted that sectors exempt from sales tax on their output are not allowed adjustment of their input sales tax. Therefore, it is suggested that sectors whose output is exempt from sales tax should be allowed zero rating to allow the to claim input sales tax to allow them to become competitive.

The council recommended to abolish alternate corporate tax. It said that under section 113 of Income Tax Ordinance, 2001 corporate entities are subject to one of three income tax regimes – Alternate Corporate Tax, Minimum Turnover Tax or Normal Tax Regime.