By Parvaiz Ishfaq Rana
Friday, 14 May, 2010
This was stated by the Aptma central chairman Anwar Tata, while talking to Dawn on Thursday. He said that the spinners were at a loss to know on what basis and wisdom the government had imposed duty on yarn export.
According to the track record, he said, on an average the country exported 50,000 tons of yarn per month during last ten years, which indicates that there would be surplus of yarn in the country per month with no outlet to sell or to be consumed.
Mr Tata further said that as to how the industry would survive if it has to import cotton at higher price from the world market and export it on paying 15 per cent regulatory duty, particularly when profit margin of the spinning industry is not more than 2 per cent.
The Aptma chief said there was no reason the spinners keep producing yarn when there is no market. He said that for the last 40 years
The spinning industry, he said, is not getting any sort of support from the government in the shape of subsidy or cheaper export refinance as the value- added textile sector has been enjoying over the years.
As a result of this, the spinning industry had been the biggest defaulter of bank loans and most of the non-performing loans are related to this industry. The spinners would not like to close the industry but the government's decision to impose R/D will ultimately compel the industry to wind up, he added.
He said if the government wanted to support the downstream textile sector it should have given it from its own pocket and not at the cost of the spinning industry.
He reiterated the spinners' firm decision not to import costly cotton to accumulate losses and alternatively, it will have to close down their units. He declared that during next two months there would be no export of cotton yarn and consequently, the country will lose around $200 million per month in yarn exports.
Meanwhile, the downstream textile industry has reiterated its demand for imposing a total ban on yarn exports till such time the position of next cotton crop is cleared with regard to its size and output.
In a meeting held on Thursday under Pakistan Apparel Forum the leaders of value-added textile exporters associations appreciated the government for taking a step in the right direction by slapping regulatory duty on yarn exports.
However, they reiterated their demand that there should had been a total ban on yarn exports to save the local value added textile sector, which had suffered immensely for the last eight months.
They suggested to the government that if a total ban on yarn exports was not possible then the rate of regulatory duty should be enhanced from 15 to 30 per cent, which would ensure the availability of yarn in the domestic market.
These leaders decided to temporarily call off their strike what they described in the larger benefit of the country.
Duty notified
Amin Ahmed adds from
The notification issued by the Federal Board of Revenue, reads: Provided that no regulatory duty shall be levied on export of yarn made from the material temporarily imported under the facility of Notification No SRO 492(I)/2009 dated June 13, 2009, DTRE as provided under sub-chapter 7 of Chapter XII of the Customs Rules, 2001 and the scheme of manufacturing bonds as licenced under Chapter XV of the said rules.
The cabinet committee on textiles at its meeting in
The imposition of duty was decided for improving availability of yarn in the domestic market.
15 percent regulatory duty on yarn exports: Aptma to hold strike twice a week
HAMID WALEED
They, therefore, decided to put spinning mills off twice a week in order to cut down production losses. The Aptma leadership is set to make public announcement of EOGM decisions in a press conference on Friday (today). It may be noted that the textile ministry had earlier restricted exports of cotton yarn to 50,000 tones a month, followed by further reduction in quantity to 35,000 tones a month on the pressure of value-added sector. The spinning industry had approached the courts of law and obtained stay orders.
Meanwhile, the Aptma held a very successful strike on March 18, followed by intervention from the President Asif Zardari through Governor Punjab Salmaan Taseer. Negotiations were underway to restrict the exports of cotton yarn at 40,000 tones a month when the value-added sector turned up with an innovative idea of imposing RD on exports of cotton yarn. There were rumours that the value-added sector was pressurising the Ministry of Textile Industry to impose 25 percent RD on exports of cotton yarn but the ministry decided to impose 15 percent RD.
Interestingly, the decision to impose 15 percent RD was announced late on Wednesday night, as none from the electronic media was airing any report relating to imposition of 15 percent RD and the development took place late in the night. The industry sources are of the view that the Federal Minster for Textile Industry had exerted pressure on the Federal Finance Advisor Abdul Hafeez Sheikh for approving the imposition of 15 percent RD on exports of cotton yarn.
Sources further told that the minister had warned that turning down of the RD would result into burning down of
It may be noted that the situation was quite different during the tenure of Shaukat Tarin as Finance Minister. According to the industry sources, Tarin never surrendered to the pressure either from the value-added sector or the Federal Textile Ministry and only restricted the exports of cotton yarn to 50,000 tones a month besides approving 2 percent rebate on local sale. This decision was also honoured by the textile industry at large.
But things went out of control when the ministry reduced the restriction to 35,000 tones a month, followed by the present state of affairs. Sources from the value-added industry, meanwhile, maintained that the Aptma has played tactfully for delaying the decision to the maximum. They said the ministry should have imposed the RD much earlier but the Aptma leadership kept on playing the tactics to ensure maximum delay. However, the ministry has yet to face tough time ahead, especially when the spinners would go on strike twice a week.
Copyright Business Recorder, 2010
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Govt urged to delay VAT for one year
By Kalbe Ali
Friday, 14 May, 2010
Senator Ishaq Dar and former FBR chairman Abdullah Yousaf addressing a seminar on 'Legislative forum on VAT' said that the demand by Sindh to collect VAT on services had placed the proposed VAT structure in jeopardy.
The seminar was organised by Pakistan Institute of Legislative Development and Transparency (PILDT).
The PML-N legislator said that the whole idea was heading for a doom and the economic managers should rather be fair with the IMF and tell them about the problems faced by the country.
He said there were conflicting views about revenue could be generated from the VAT. "Under these hard times the estimates of IMF and the government of increasing tax revenue through VAT by an additional Rs500 billion is unrealistic," he remarked.
"Now the estimates suggest that the government is expected to bag additional Rs50 billion to Rs60 billion from VAT in the next fiscal year," he added.
He said the government must keep it in mind that all the stakeholders were opposing the idea.
He also said that Sindh had genuine concerns that taxation on services was the right of the provinces but implementation of VAT would be a problem if there was a missing link or double taxation if the provinces insisted on collection of tax on services.
"The federal government needs to resolve this scenario urgently," Dar said and added that without creating a sustained and thorough mass education and awareness among the masses, the implementation of VAT in an undocumented economy would be problematic.
Abdullah Yousaf said that the tax colleting authority was not prepared to implement VAT. "The preparedness is on the papers but it has to be on the ground and the stakeholders are not ready to cooperate with the FBR," he observed.
Regarding issues with Sindh government, Mr Yousaf suggested that constitutional changes should have been made to avoid the current deadlock-like situation.
"VAT could not be implemented if goods and services are not at one source and the position taken by the Government of Sindh will be problematic," he said.
He also criticised the FBR over refund issues and said that before a fool-proof system for refunds was not introduced the zero rating cannot be abolished.
"Otherwise it would hit the exports severely and all the liquidity of exporters would be stuck up in refunds claims," he added.
FBR Member Sales Tax Abrar Ahmed Khan briefed about the VAT and said that the new tax system would be inflationary.
Customs switches over to new system today
By Parvaiz Ishfaq Rana
Friday, 14 May, 2010
The Federal Board of Revenue has developed its own software with the assistance of Pakistan Revenue Automation Ltd (PRAL) to replace the exiting system, whose Intellectual Property Rights (IPR) belong to a Kuwait-based company of US origin, sources said.
Sources said e-customs would become functional at 11:00pm on Friday and replace the existing PaCCS working under the Model Customs Collectorate (MCC).
As the new software developed by PRAL is yet to prove its capacity and workload, the customs have also made an alternative plan to meet any emergency for speedy clearance of the containerised cargo at both the ports in
Sources said the collectorates of appraisement at
The strength of staff and officers at these collectorates has been increased for speedy manual clearance of imported containerised cargo in of failure of the new system.
The customs agents and importers have already been given new IDs for making access to e-customs and measures have been taken to secure data.
The Model Customs Collectorate has secured record related to personal deposit fund, duty drawback and bank guarantees of importers and customs agents.
The customs staff at PaCCS is working on fast track so that no pending work is left on any given day so that on deadline of May 15, 2010, given by the owners of the existing system, there could be easy shifting from one system to another without any backlog.
It is ironic that a poor country, like
In the recent past, SGS-Cotecna was given powers to do the job and this, too, failed after losing huge funds.
Customs agents are of firm opinion that it would have been better if the FBR purchase the exiting software from the foreign company because it already had gone though trial and errors.
Reserves rise to $15.36bn
Friday, 14 May, 2010
Reserves held by the State Bank of Pakistan (SBP) rose to $11.55 billion from $11.18 billion a week earlier, while those held by commercial banks eased to $3.81 billion from $3.86 billion, said SBP spokesman Syed Wasimuddin.
"This includes $468 million received from the
Monetary policy on 24th
Friday, 14 May, 2010
In the last monetary policy review on March 27, the central bank kept its key policy rate unchanged at 12.50 per cent.—Reuters
Cotton prices ease from record level
By Our Staff Reporter
Friday, 14 May, 2010
"It (levy) may well prove a no-win situation in the final analysis as both the textile sectors play complementary role on the export front," analysts said.
The textile ancillary sector for the time being has reinforced the idea of its importance as one of the major foreign exchange earners and managed to secure official patronage but the key to the crisis is still with its elder brother, they said.
The spinners and the integrated units are considered the price trend-setters on the local market and have an enormous financial and holding capacity to manipulate prices in their favour and may not like to be on the receiving-end for a longer period, some others said.
"Whether or not they too go on strike against the levy would set the future price trend on the wholesale cotton yarn market," they added.
Analysts said the next couple of sessions would show how much cotton prices fall on the open market after the imposition of the levy.
The New York cotton futures on the other hand remained under pressure and were marked down by 0.16 and 1.13 cents at 80.37 and 76.67 cents per lb for both the ruling July and the forward October contracts respectively.
The official spot rates were again firmly held at the last level of Rs6,700 per maund but in the ready section some deals were done below this rate.
In the ready section, 1,330 and 574 bales from Haroonabad changed hands at Rs6,500 per maund.
Taxpayers may face curbs on imports: failure to file ST, FED returns for two months
SOHAIL SARFRAZ
ISLAMABAD (May 14 2010): The Federal Board of Revenue is planning to impose restrictions on the imports of registered taxpayers, who would deliberately not file sales tax and federal excise returns for the last two months in a row. Sources told Business Recorder here on Thursday that the FBR is expected to issue an order in coming days to declare consecutive non-filers as inactive persons.
In this regard, the parameters for declaring 'inactive persons' would cover those who fail in filing returns during the last two tax periods. The imports of those registered persons would be blocked, who would not consecutively file returns for the last two months.
When asked whether it is a strict parameter to block imports of non-filing for only two months period, sources said that it is very easy to electronically file returns though FBR web-portal. The consecutive non-filing of returns is a major non-compliance. Over 80,000 units are filing sales tax and federal excise returns electronically without involving any manual interaction with the tax officials. Out of nearly 80,000 sales tax returns, approximately 25,000 are paying no tax by declaring null income.
In case of 15,000 to 20,000 registered persons, they show nominal business transactions or limited business activity. Only 16,000 to 20,000 taxpayers are paying nominal amount of sales tax, as first 1000 taxpayers are paying 90-95 percent of the total sales tax.
The data clearly reflects that the FBR is even accepting sales tax returns with no tax payments or returns showing business activity. Therefore, the condition to restrict imports of consecutive non-filers for the last two months period is not a strict parameter. The registered units have no problem to electronically file returns through FBR web-portal.
Sources said that the FBR would gradually tighten the criteria for risky taxpayers to ensure compliance by the units registered with the sales tax department. Through the FBR order, the board would obtain legal backing for restricting imports and exports to only registered taxpayers covered under the "List of Active Taxpayers".
The FBR would introduce necessary changes in the IT systems of the customs clearance processes to restrict imports/exports to only the "List of Active Taxpayers". The units not covered under the "List of Active Taxpayers" would be restrained from making clearances of imported consignments, till they become active.
The "List of Active Taxpayers" has been issued and subsequently placed on the FBR website. The list covered taxpayers registered with the sales tax and federal excise department. Sources said the web version of active taxpayer list is functioning well based on analysis of the sales tax returns.
The FBR has defined the relevant criteria for sales taxpayers and produced the first version of the list, which is currently published on the FBR website. The FBR has also introduced restrictions to sales taxpayers, who are not on the list. The sales tax invoice credits issued to the taxpayers not in the "List of Active Taxpayers".
The electronic filing system rejects invoice credits issued by the sales taxpayers who are not included in the "List of Active Taxpayers". The next step would be to expand this list to cover income taxpayers, withholding tax and the federal excise taxes. This action would require legal amendments, which is likely to be included in the 2010-01 budget proposals.
The FBR is considering disallowing imports by the "inactive taxpayers". The FBR would send letters to those importers and exporters who are not on the "List of Active Taxpayers" with a warning that they will not be able to import or export until they are current with their tax filing obligations. Following that, the system would need to be expanded to impose restrictions to taxpayers who do not respond to FBR intimations and notifications.
Copyright Business Recorder, 2010
Documents not needed for ST refund through ERC: FBR
RECORDER REPORT
ISLAMABAD (May 14 2010): The Federal Board of Revenue has abolished condition for submission of documents including invoices, credit notes, debit notes, goods declarations, bank credit advises, etc, for obtaining sales tax refund using Electronic Refund Claim (ERC) under Expeditious Refund System.
The FBR on Thursday issued procedure for filing and processing of expeditious refund by IT system of the FBR, taking away all discretionary powers of the sales tax officials used for issuance of refund manually. Under the sales tax general order 19 of 2010, the registered person has to maintain all the record pertaining to refund claim including invoices, credit notes, debit notes, goods declarations, bank credit advices, etc and the same will be produced as and when required by the authorised officers of FBR.
However, the requirement to submit such papers and documents along with the ERC has been withdrawn by the board. Therefore, no paper has been required to be attached for processing of claims through ERC, sources said. The FBR has also issued qualification criteria for expeditious processing and payment of refunds. An ERC qualifies for expeditious payment of refund on fulfilment of the following conditions:
The applicant should be manufacturer-cum-exporter registered in RTO Lahore (or other RTOs/LTUs, with effect from tax period July 2010). The registered person should be 'active taxpayer' and the amount of refund claim should also have been claimed in the corresponding Sales Tax/FE Return. Moreover, the registered person should be registered as manufacturer-cum-exporter for this refund claim period.
No short shipment and export GD objection by Customs should be involved in any of the exports mentioned in this refund claim. All the payments for purchases have to be made through banking instruments, by the registered person, as required under section 73 of the Sales Tax Act, 1990.
According to the qualification criteria, the refund should be claimed only to the extent of stock consumed. Refund claim amount has not been adjusted/claimed earlier. No short payment should be due against any of the returns filed so far. All the utility connections like electricity, gas and telephone for which inputs are claimed in this refund should be used in the business premises and full payment of these bills to be made.
The brought forward input tax amount in this claim from carry forward input tax amount of the previous claim(s) does not include quantities of raw material consumed in the exported goods covered in this claim. All the information provided in the RCPS format and this declaration is correct and the registered person shall be liable to legal action under the Sales Tax Act, 1990 in case of any misdeclaration is noticed by FBR staff posted in HQ or field formations, qualification criteria for expeditious refunds added.
Under the Electronic Submission of Refund Claim under Rule 26A of Sales Tax Rules 2006, the registered person eligible for claiming expeditious refund will file refund application on RCPS format by logging in at FBR web portal. He will also complete declaration given at Annex-A electronically. If an ERC qualifies for expeditious payment of refund, then the registered person shall be intimated by e-mail.
If an ERC does not qualify for expeditious payment of refund, then the registered person shall be intimated by e-mail. In case an ERC qualifies for expeditious payment of refund, then the respective tax office shall be advised by e-mail and a system-approved Refund Payment Order (RPO) shall be placed in the Inbox of the treasury officer of the RTO for issuance of cheque to the registered person.
Simultaneously the refund claim shall be forwarded electronically to the concerned audit division of tax office for post refund audit, procedure added. It is learnt that the Pakistan Revenue Automation Limited (Pral) will devise procedure for manufacturers-cum-exporters for obtaining expeditious refunds for which a seminar would be held at
The FBR has also issued a new declaration for the refund claimant under ERS. As per declaration, taxpayer will declare that the amount claimed as refund relates to sales tax paid on raw materials consumed in the exported goods and the amount being carried forward relates to sales tax paid on raw materials presently in stock with the registered person.
Copyright Business Recorder, 2010
PaCCS operations terminated
RECORDER REPORT
KARACHI (May 14 2010): In a move to terminate Pakistan Customs Computerised System (PaCCS) operations from May 15, 2010, the Model Collectorate of Customs (MCC), Karachi has discontinued receipt of payments of duty taxes against fresh Goods Declarations (GDs) with immediate effect.
Sources told Business Recorder on Thursday that the MCC has issued a circular in this regard to the National Bank of
They said the tax collecting authority was earlier keen to extend the services of Agility Logistics, a software developer of PaCCS till June 30, 2010 as they were of the view that if the system was terminated on May 15, it would drag the customs department far from the annual revenue collection target.
But the
Copyright Business Recorder, 2010
VAT: One step forward and two steps back? - I
MUHAMMAD SHAHID BAIG
ARTICLE (May 14 2010): It seems that the stage has been finally set to replace the existing Sales Tax Law with the VAT with effect from 1st July, 2010 as the World Bank experts, after finalising the VAT implementation plan with the FBR have left for Washington to submit their report on Pakistan's preparedness on VAT to the IMF Executive Board, which is scheduled to meet on 14th May, 2010.
It is relevant to say that the IMF depends on the World Bank report to review progress on the tax administration, including the implementation of VAT. The FBR Chairman says that the FBR is prepared to implement the VAT and not looking for Plan B to introduce the improved version of the GST. He further says that the rules and regulations have been finalised which would be made public for comments after the Law is passed by the Parliament and the Provincial Assemblies.
Encouraged partly by the government's determination to impose the VAT, the IMF was the first to respond in a positive manner and its Executive Board will now meet in Mid-May to approve the next tranche of
The drafters claim that the value-added tax (VAT) bill has been prepared keeping in view the best practices of VAT prevailing in the world. The FBR Chairman says the VAT is successfully implemented in 130 countries of the world and tax collection has been increased substantially in these countries after implementation of the VAT. Israr Rauf, one of the members of VAT team of FBR, says,
All members of the committee were unanimous that it is too early to implement a new law without taking all the stakeholders such as business and trade community on board. The committee has recommended deferment of implementing the VAT for one year. This is necessary as the stakeholders, particularly business and trade community, are not ready to accept the VAT at this stage. The entire business community has rejected the VAT law and at least one year should be given for deliberations on the new law.
Few stakeholders opined that the time of consultation is too short as it should be at-least two years from now onward, arguing that Singapore took two years to complete the consultation process and India postponed the introduction of the VAT system for one year just to complete the consultation process as every country has its own economic structure and tax culture.
The World Bank says
However, the matter of levy of the VAT is an issue of utmost importance and involves question of constitutionality. This appears to be the main stance of the government to introduce the VAT that tax-to-GDP ratio in
When we look at different developed countries of the world where VAT is successfully implemented, it does not appear to be correct as is evident from the following table:
It is quite obvious from the above that by applying lesser rate, higher tax-to-GDP ratio has been ensured by these countries. So, it cannot be said that higher VAT rate is directly proportional to the tax-to-GDP ratio. The matter is, in fact, of proper application of law in its true perspective. So, the Senate Committee and other stakeholders have rightly demanded the reduction of the VAT rate from 15% to 12.5%, but the government appears to be still reluctant to reduce the proposed VAT rate.
It is being commonly said by the stakeholders that the Federal as well as the provincial drafts are not in consonance with the present spirit of the Constitution. If we look at Article 142 of the Constitution, which is basically the subject matter of the Federal and provincial laws, there are four situations provided in this Article. First situation says that this is the sole prerogative of the Parliament to make legislation in respect of the entries contained in the Federal Legislative List.
In the Second Situation, it has been provided that regarding 47 entries contained in the Concurrent Legislative List, both Parliament vis-à-vis provincial assemblies are authorised to make legislation. It is relevant to add that through 18th Amendment, the Concurrent Legislative List has been abolished and now both the Parliament as well as the provincial assemblies have been given authority to promulgate criminal laws and procedures/law of evidence.
However, Article 143 still, after cosmetic changes through the 18th Amendment, says that in case of any inconsistency between the Federal and provincial laws on the same subject, the Federal Law would prevail.
As per the Third Situation, all those matters, which are not enumerated in both the Federal as well as the Concurrent Legislative List, fall within the exclusive domain of the provincial assemblies. After the 18th Amendment, now except the entries contained in the Federal Legislative List, all the remaining matters fall within the jurisdiction of the Provincial Assemblies, to make legislation.
In the Fourth Situation, it is provided that matters, which are not provided in the Federal Legislative List, this is the prerogative of the Parliament to make legislation in respect of areas falling within the jurisdiction of the Federation.
It is relevant to say that in the light of Article 142(1)(a), as per Entry No 49 of the Federal Legislative List, Sales Tax Act, 1990 was promulgated to levy tax on sale, purchase, importation, exportation, production, manufacture and consumption of goods. Whereas, in the light of Article 142(1)(c), the provincial governments issued Sales Tax Ordinances in 2000 to levy sales tax on certain services. In 2001, the President of Pakistan issued
The Entry No 49 of the Federal Legislative List empowers the Federal government to levy taxes on sales and purchases of goods imported, exported, produced, manufactured or consumed. Through the 18th Amendment, the words "except Sales Tax on services", have been inserted in this entry.
As per Entry No 53 of the Federal Legislative List, the Federal government is empowered to levy terminal taxes on goods or passengers carried by railway, sea or air; taxes on their fares and freights. Both the above Entries are contained in the preamble of the draft VAT Bill.
As per Section 2 (XII), Federal List Services means "the carriage of goods or passengers by railway, sea or air". As per Section 2 (XIV), the Federal VAT means tax imposed under this act on supply or import of goods or on supply of Federal List Services. As per recent Amendment, ie insertion of words "except sales tax on services" in Entry No 49 of the Federal Legislative List read with 7th NFC award, the Federal government has been specifically barred from levying sales tax on services and this has been declared the domain and sole prerogative of the Provinces to make legislation and collect VAT on services.
Now, by inserting Entry No 53 in the preamble and defining the Federal List Services, the Federal Government has been given Powers under Section 9 to impose sales tax/VAT on said services under the garb of terminal taxes. Undoubtedly, these are two different entries defining the levy of two different taxes but surprisingly the VAT has been proposed to be levied on goods and certain services in the light of both these entries.
In
Moreover, if any power was earlier available to the Parliament to impose sales tax on services that stands omitted as the later amendment would repeal the earlier one, if any available on the subject and doctrine of implied repeal would be squarely applicable in the given circumstances.
As per Section 8 of the proposed Federal Law as well as Section 19 of the proposed Provincial VAT Bill, the VAT shall be collected as an integrated tax regime.
The draft Bills 2010, relating to Federal and provincial VAT, reflect a gross violation of the Constitution of Pakistan, and these are totally contrary to the recommendations of the 7th NFC award relating to sales ax on services.
On the issue of sales tax on services, there is a specific recommendation in the 7th NFC award, which reads: 'NFC recognises that sales tax on services is a provincial subject under the Constitution of Pakistan, and may be collected by respective provinces, if they so desire'. The deletion of this recommendation is a major deviation from the entire spirit of the NFC and is contrary to the interests of provinces.
It is worth mentioning that Finance Department, government of Sindh has already placed its serious reservations to the FBR by submitting that the draft bills on the VAT, both Federal and provincial, being contrary to constitution "are not acceptable to Sindh."
According to the Sindh government, these bills empower the FBR to collect the VAT on behalf of the Federation and the provinces without providing any scope for provincial rights on collection of sales tax on services. There are innumerable clauses which, in a way, encroach upon the provincial jurisdiction so much so that the role of the provincial government has almost been minimised to the promulgation of the act only, as is the case in the existing Provincial Sales Tax Ordinances, 2000.
The draft VAT Bills further involve a very complex system of input and output adjustments in such a way that it becomes impossible to ascertain what are "goods" and what are "services". (Example- Section-17 - Federal Bill, Section-6 - Provincial Bill/Ancillary or incidental supplies. Simplicity in tax structure is one of the basic principles under the cannons of taxation, as a complex tax structure will always lead to evasion of tax. 'Tax on goods' and 'tax on services' are two separate domains; thus they should be treated separately.
Any integration of the taxes on sales and purchase of services in the provinces and cross-credit of each tax in case of 'Federal VAT' on integration; with Federal taxes on sales and purchases of goods and cross-credit of each tax in case a 'Provincial VAT' would lead to complexity in tax structure.
Since Sindh was contributing more than 60% to the main pool of GST on services and, in return, it had been receiving only 23% of the total kitty of the said pool. So, Sindh has decided to opt for the collection of the GST on services by itself instead of assigning it again to the FBR.
(To be continued)
Copyright Business Recorder, 2010
Availability of yarn, cotton in local market: government urged to take timely decisions
TAHIR AMIN
ISLAMABAD (May 14 2010): The value-added textile sector has accused the government of failing to take timely decisions with respect to availability of raw cotton in the domestic market leading to a severe yarn and cotton shortage in the county. "The value-added textile sector would not have faced the acute yarn and cotton shortage it is facing today if the government had taken timely decisions", Chairman Pakistan Apparel Forum, Javed Balvani said in an exclusive interview with Business Recorder on Thursday.
Per maund cotton price increased by a whopping 106 percent during the last season while yarn price ballooned by 80 percent, he elaborated. Global cotton production declined by 5 percent compelling many countries to import cotton to meet local demand, Balvani said.
An official of the textile ministry said that huge quantities of three categories of yarn was exported mainly to China after failure of the crop in all major cotton producing countries of the region including China, which has resulted in shortage for the local industry.
Due to low cotton production, raw cotton prices surged in three Asian countries namely
Talking to Business Recorder Chairman Karachi Cotton Brokers Forum, Naseem Usman revealed that the price of cotton has reached an all time high: Rs 6900 per maund against Rs 3,300 in the month of August while in
Chairman Pakistan Cotton Fashion Apparel Manufacturers and Exporters Association (PCFAMEA) Dr Shahzad Arshad said that the big issue for the value-added sector was not the yarn prices but unavailability of the commodity. Due to paucity of raw cotton in the local market, yarn prices have skyrocketed and thereby negatively impacted on textile exports and made it difficult to achieve the government's export target, Arshad said.
Copyright Business Recorder, 2010
Volume traded in the July contract stood at 7,777 lots at 2:33 pm EDT (1833 GMT). New-crop December cotton futures rose 0.45 cent to end at 77.74 cents, ranging from 77.07 to 77.94 cents. Sharon Johnson, cotton expert for First Capitol Group in Atlanta, Georgia, said the unwinding of positions in spot July and into December would be the main feature of action in fibre contracts for several weeks.
The spread business is tied to how the certificated cotton stocks on ICE Futures US would be disposed as the stocks now stand at 1.061 million (480-lb) bales. Mike Stevens, an analyst for brokers SFS Futures in
Unless the July contract can surmount 82 to 82.50 cents, "the risk is to the downside," said Stevens. Some positive backdrop may have also been generated by the US Agriculture Department's weekly export sales report. USDA said total
VAT to have serious inflationary impact: Yousuf
RECORDER REPORT
ISLAMABAD (May 14 2010): Former FBR Chairman Abdullah Yousuf on Thursday said the Value Added Tax would definitely have serious inflationary impact due to withdrawal of exemptions under the Sixth Schedule of the Sales Tax Act, 1990. Sharing his experience on VAT, he informed the participates at a seminar here that the reduced rate of VAT may help check inflation, but reduction in sales tax rates to standard rate of 15 percent VAT would cause revenue loss.
He was of the view that the FBR would face strong resistance from retailers and wholesalers during implementation of the VAT keeping in view past experience. It is apprehended that retailers and wholesalers would create serious problems for the FBR during VAT enforcement. Historically, they have preferred to remain out of the tax net to avoid documentation. It is not possible that all retailers and wholesalers would suddenly become compliant after VAT introduction from July 1, 2010.
He said all best VAT administrations have one agency for collection of VAT on goods and services. In case of
When zero-rated sectors would be brought into the VAT net, there is a strong possibility that cost of doing business of such export sectors would increase. The inputs of the five zero-rated sectors would become taxable following VAT enforcement, which would have an affect on their working capital. Former FBR Chairman said the Board did not make necessary arrangements for giving taxpayers education on VAT issues. He said the VAT would be inflationary and prices would go up.
He said VAT is not essentially a new system of taxation as the GST was already in VAT mode. He however pointed out that application of VAT will not be possible if legislative authority for goods and services is not at one source, contending that the collection of tax on services by the provinces, especially as that has been the position taken by the government of Sindh, will be problematic.
Yusuf believes that there are gaps in the preparedness of the FBR to institute a foolproof system especially that of refunds, contrary to the claims of the FBR. He said that a foolproof system, without human intervention, should be such in which the businesses should be satisfied with the system of refunds credited within 72 hours into their account as opposed to just the FBR claims of preparedness.
He believed that the Parliament must reconsider exemptions regime especially from businesses and investment point of view. He also recommended phasing-out of the application of VAT after a comprehensive information drive on VAT for consumers, retailers and businesses as key stakeholders.
Muslim League (N) leader Ishaq Dar was of the view that if the Parliament opted to veto the VAT on goods it would be difficult for the donors to go against the sovereignty of the elected House. The enforcement of VAT could be stopped if the Parliament refused to pass it, he added. He said there was need to defer VAT for one to two years.
Highlighting difficulties in implementing the VAT on services, he said two bills were tabled into Sindh Assembly under which one seeks to withdraw the right of collection of GST on services from the FBR while the other aimed at introducing VAT on services as being tabled in three other provincial assemblies.
"If the Sindh government agreed to give right of collection of VAT on services for time being, how it could be ensured that this issue would not resurface again," he added. Ishaq Dar said they would support to publish 'Tax Directory' as top to bottom approach is required that the people should know that how much their leadership was contributing to tax net.
He said it was the right of the provinces to impose and collect tax on services in accordance with 1973 Constitution and it was not rendered to them in 18th Constitutional amendment. Dar said tax on services was not made part of Federal Divisible Pool and there was serious dispute on distribution formula to this effect between
He said VAT is a consumption tax and people pay tax so it is not the right approach to demand a major share only because the main port city is located in Sindh. He also disclosed that there was no credible data of GST on services with exact revenue collection share of each province while Punjab was equipped with this information which was tabled before the NFC in
Dar, Chairman Senate Standing Committee on Industries and Productions and former Finance Minister, and Abdullah Yusuf, Former Secretary and Chairman FBR, reviewed the bill at the Pildat Legislative Forum in the presence of members of Parliament, business community and media representatives as participants.
Senate has already sent its unanimous recommendations to the National Assembly of Pakistan, the House that can vote on the VAT Bill 2010, to postpone the imposition of value added tax for one year to allow for 'preparation' by business community in particular and the country in general to pay this tax. Imposition of 15 percent VAT will actually cost the final taxpayer at around 21 percent, therefore, VAT rate is proposed to be reduced to 12.5 percent.
Other experts said the imposition of the VAT is subject to parliamentary approval. Speakers observed sales tax already implemented in
Ahmed Bilal Mehboob, Pildat Executive Director, who moderated the forum said that the Government of Pakistan is planning to implement the Federal Value Added Tax Bill 2010 from July 2010 if it gets approved from the Parliament of Pakistan. Tabled in the National Assembly of Pakistan on February 24, 2010 and in the Senate of Pakistan on February 26, 2010, the Bill is under consideration at the committee stage in the National Assembly while the Senate Standing Committee on Finance and Revenue, after reviewing the bill, has passed a set of 24 recommendations to the National Assembly.
Similar laws are also pending before Provincial Legislatures. Mehboob said that as is Pildat's practice, the objective behind this forum is to assist parliamentarians understand the context, objective and issues relating to the VAT Bill 2010, especially in view of the government's agreement with the IMF. Pildat believes that like all legislations tabled at the parliament, MPs must take well-considered and informed position on the VAT Bill 2010. The Pildat Forum strives to provide an objective understanding to MPs in this regard.
Copyright Business Recorder, 2010
Export of yarn: value-added textile forum rejects 15 percent regulatory duty
RECORDER REPORT
FAISALABAD (May 14 2010): Value-added textile Forum has rejected the 15 percent regulatory duty on export of yarn as half-hearted and insufficient and have reiterated its demand of imposing 30 percent regulatory duty. The forum has also demanded that weekly gas supply to spinners on Tuesday and Wednesday should be diverted to value-added textile sector.
In an emergent meeting of the forum here held Thursday night, the trade association's leaders expressed huge disappointment over ineffective 15 percent regulatory duty on export of yarn and said this would not have the desired results.
Chairman Pakistan Textile Exporters Association Khurram Mukhtar, Vice Chairman Sohail Pasha, Central Chairman Pakistan Hosiery Manufacturers Association Rana Mushtaq Khan, Chairman Pakistan Apparel Forum Javed Bilwani and General Secretary Pakistan Power Loom Association Multan Khaliq Qandeel Ansari said that the Government was not realising the full implications of the unbridled export of yarn, which had two fanged detrimental effect on labour intensive home industry. The value-added textile sector, they said, was facing difficulty of the high cost of production and becoming incompetitive in international market. The foreign buyers were diverting their export orders to
They further contended the wisdom of exporting the most essential raw material of home industry to rival countries thereby strengthening their industries and strangulating the home industry. The value-added textile sector leaders emphasised the importance of saving the 18 million workers from unemployment and wage earners from joblessness in case the value added sector of the country was forced to close down. They also questioned the wisdom of exporting one dollar value yarn at the cost of value added finished goods which fetched 8 dollars for the same quantity of yarn.
The forum leaders warned that if the Government did not pay heed to their demands, the industry would leave no stone unturned in their efforts and would not hesitate to go all out for their fundamental right. The value added textile sector demanded imposition of 30 percent regulatory duty on yarn export and announced to continue their protest indefinitely.
Copyright Business Recorder, 2010
Three percent extra tax liability on taxable supplies: FBR estimates Rs 60-62 billion collection in 2010-11
RECORDER REPORT
ISLAMABAD (May 14 2010): The Federal Board of Revenue (FBR) has estimated collection of around Rs 60-62 billion in 2010-2011 from un-adjustable extra tax liability of 3 percent on taxable supplies made by manufacturers, importers and wholesalers to unregistered buyers without disclosing their National Tax Number (NTN) or computerised national identity card number (CNIC).
During a seminar organised by the Pakistan Institute of Legislative Development and Transparency (Pildat) on Federal Value Added Tax (VAT) Bill 2010, FBR Member Sales Tax Abrar Ahmed Khan said that the penalty of 3 percent would generate approximately Rs 60-62 billion from the un-registered buyers reluctant to operate under the documented regime.
The penalty is for those retailers who did not declare their NTN/CNIC at the time of purchase of saleable commodities, which is likely to generate over Rs 62 billion under VAT regime. There is also a proposal to make it mandatory for them to transect their business activity especially the purchase through banking instruments to document their activity. The cost of un-registered buyers would increase following imposition of the penalty and they would be compelled to operate under the documented regime, he added.
Responding to a query, FBR Member Sales Tax said that the VAT would not have inflationary impact, as he rate would be reduced from standard 16 percent to a uniform rate of 15 percent on both goods and services. However, he boldly admitted that present taxation system is putting immense burden on poor people as compared to elite class. In this regard, he quoted several examples where poor people have to pay more taxes under higher slabs as compared to lower slabs for rich people.
Abrar Ahmed stated that VAT regime could only be introduced after approval of National Assembly as well as all four Provincial assemblies. The provinces would have to authorise the FBR to collect VAT on goods and services. He clarified that the VAT was proposed by
He pointed out that the retail sector constitutes nearly 17 percent of the Gross Domestic Product (GDP) and its contribution in national kitty is negligible. Around 15,000 to 20,000 persons are doing business transactions with big companies but are not paying any tax, VAT would also cover their activities.
He observed that the challenge before the government is; which exemptions to be withdrawn in the budget and how to tackle the issue of taxing domestic sales of the five export-oriented sectors ie textile, leather, surgical instruments, sports goods and carpets. There is a proposal to impose a low rate of tax on domestic sales of such industries to avoid fake refund phenomena as well as to keep intact liquidity for meeting their exports orders in time. Zero rating at import stage is actually making local industry un-competitive against the imported items. Once, the zero-rating on import stage is withdrawn under the proposed VAT regime, it would improve the competitiveness of the local industry.
He was of the view that at present fertiliser and pesticides are exempted from sales tax, however, their inputs like raw materials, gas and electricity are subject to sales tax. He said that under integrated VAT Act, the government intends to broaden the base of services. The 18th amendment passed by the parliament as well as National Finance Commission has empowered the provinces to impose and collect the VAT on services themselves. However, he was of the view that federal government strongly feels that organisation established by province of Sindh for collection of VAT on services is small and have no experience, Sindh should allow the FBR to collect VAT on services for few years in near future, he added. Federal government is hopeful of settlement of the issue with Sindh government in days to come.
Commenting on the performance of new refund system, Abrar Ahmed Khan said that the FBR has made it mandatory for the tax officials to issue refund cheques to the taxpayers within a period of seven days under the Expeditious Refund System (ERS) being tested at Regional Tax Office (RTO),
Similarly, the RTO Lahore has to give intimations to the refund claimants within 48 hours about processing and status of the claim. The FBR would also allow the registered units to electronically file refund applications to avoid manual interaction with the tax officials. The refund claims could be filed through FBR Web Portal to ensure processing of claims through speedy electronic system. In this way, the discretion to withhold the refund cheques would be automatically abolished using web-based refund payment system, he added.
Copyright Business Recorder, 2010
Virtual standstill on cotton market
DR ZAFAR HASSAN
LAHORE (May 14 2010): After the clamping of a Regulatory Duty (RD) of 15 percent on yarn exports, cotton market became listless because it is feared that this step of the government will render a sizeable section of the textile industry under pressure. Brokers said on Thursday that leftover of unsold stocks from the current crop (2009-2010) were meager, but the ebullience of the growers and traders has suffered a setback because the extent of the Regulatory Duty is excessive.
According to initial reports, mills sales of yarns in the export market could be frustrated leading to serious problems of both manufacturing and marketing. According to Haji Abdul Shakoor Dada, a former chairman of the Karachi Cotton Association (KCA), the problems of one textile sub-sector, namely the value-added industry, have been shifted to the spinning sector.
Haji Shakoor said that in case one sector or sub-sector is in difficulty, it should be provided necessary incentive by the government but the burden of one sector should not be shifted to another sector. Haji Shakoor Dada added that it is always preferable that free trade mechanism should be maintained.
Mills sources said that with import of cotton at 92 or 93 cents a pound, there will be a big lack of parity between raw cotton and yarn prices, and thus working on expensive cotton is quite unfeasible under the present circumstances. With the imposition of the Regulatory Duty on yarn exports, the smaller units will suffer more. Moreover, a considerable loss of foreign exchange will ensue due to notable decrease in yarn exports which will lead to decrease of foreign exchange earnings and increase in unemployment.
The spirit of the growers who were planning on planting a record crop for the next season (2010-2011) could be negatively effected. Also, with recent Indian restriction on cotton exports, already the spinners in
With these bearish factors, cotton business has become muted while mill-owners were said to have huddled into various meetings to evolve and then express their reaction to the government step to slap fifteen percent Regulatory Duty on the export of cotton yarns. Earlier this week, yarn and textile sectors were running relatively normally but now they have been put in a quandary. Thus lint prices in a listless cotton market were reported to have ranged between Rs 6,000 and Rs 6,500 per maund (37.32 kgs) according to the quality.
Under these circumstances, spinners are still trying to ascertain about the status of their pending export sales of yarns and how they will fare under the newly imposed Regulatory Duty on yarns. According to trade circles, mills were contemplating that if Regulatory Duty on existing pending sales was demanded by the customs authorities, mills would approach the competent courts to restrain the authorities from claiming such Regulatory Duty.
Yarn dealers said in the afternoon that prices for medium counts of yarns had fallen by Rs 150 to Rs 200 per ten pounds. Likewise, lint prices also came under considerable pressure. Prior to the impending federal budget scheduled to be announced on the 5th of June 2010, both cotton and yarn markets are suffering sizeable bearish pressure which has upset the market and sent it into turmoil.
On the international economic and financial front, a dramatic scheme worth nearly United States Dollars one trillion was announced about a week ago which catapulted global markets to higher peaks reminiscent of the bank bailout plans announced nearly seventeen months ago to rescue almost all the leading global banks which were then floundering in big losses in various loans and other operations. The Eurozone countries finance strategy backed by the International Monetary Fund (IMF) will provide sundry assurances and guarantees to Eurozone countries in case they move towards financial instability or veer towards bankruptcy.
The trillion dollar crisis fund is designed "to defend to Euro whatever it takes" to do it. What is really happening by these measures is that all the bad debts accumulated by the banks over the past several decades coupled now with the corruption and mismanagement of various governments have been underwritten by the tax payers for many years to come so that several countries around the world will sooner or later again fail on their sovereign debts.
Be that as it may, presently the equity markets are under a buoyant mood with the hope that these measures should have salutary effect on their finances and economies. Therefore, the leaders of most countries around the world including the
The other significant news is the resignation of the Labour party government in the United Kingdom under Prime Minister Gordon Brown and the induction of the new Prime Minister David Cameron of the Conservative party in coalition with the Liberal Democrats party. Many view this arrangement as tenuous and fear that it could unravel in the near future bringing more political, economic and financial turmoil around the world.
Copyright Business Recorder, 2010
Budget 2010-11: Need for pro-growth tax policies
HUZAIMA BUKHARI AND DR IKRAMUL HAQ
ARTICLE (May 14 2010): Over the period, our tax system has become rotten, oppressive, unjust and target-oriented. There is a dire need to discuss the philosophical framework and principles that should be the main concern of our tax policy.
Our revenue potential for 2010-11 is not less than Rs 4 trillion provided the rich and mighty are taxed, tax avoidance and evasion is countered, tax net is broadened, equitable and rational policies are devised with the consultation of stakeholders, tax machinery is completely overhauled and all exemptions and concessions available to the privileged sections of society are withdrawn.
Less than four weeks are left for announcement of the national budget for fiscal year 2010-11, the government has yet not prepared - or at least revealed for public debate - any National Tax Policy. Under a democratic dispensation, it is the duty of the elected parliament to make laws and approve policies put forth by the government (Federal Cabinet) for collection of taxes while FBR should merely implement them in letter and spirit.
During the last many years, before the announcement of annual federal budget, plethora of proposals are solicited by the government from trade and professional bodies, tax bars and industry's representatives. This practice, serving the vested interest, should be stopped.
Unfortunately, it's a fact that during the last decade, the FBR introduced an avalanche of mindless changes in the tax codes having no meaningful impact on much-needed industrial expansion and economic growth of the country. The existing process of initiation of budget proposal and making of revenue policies is firmly against the democratic norms. In a true democratic set-up, tax proposals are debated through parliamentary processes, and implemented after thorough public debate, whereas in Pakistan it has always been a bureaucratic prerogative, authority vests in the 'official kingdom' sitting in the Ministry of Finance and the FBR.
This is the root cause of failure of our fiscal and revenue policies. Would Abdul Hafeez Shaikh change this scenario and rely more on "people who know" rather than "all-knowing baboos in the government"? We have our serious doubts as Hafeez has less than a month to draft the Budget for presentation to the nation.
If we want to make
In reality, these measures and policies have caused a dampening effect on the industrial and business growth while expanding the gulf between haves and have-nots. The sole stress on meeting revenue targets, without evaluating its impact on the economy is a self-defeating exercise. Had the successive governments concentrated on economic growth and industrial expansion, there would have been consequential substantial rise in taxes today.
It is impossible to enhance revenues without achieving sustainable economic growth. Over-taxing an already sick economy, as has been done in
Successive governments' onerous tax and regulatory policies have pushed millions below the poverty line. We will have to move quickly and decisively to reverse this trend by restoring
Provisions for countering tax evasion: A curious paradox of our situation is that while money for worthwhile industrial and business growth and public benefits is scare, there is colossal unaccounted cash supply circulating in the economy in search of further undercover gains. What is more tragic is that this social evil inherent in our tax system is doubly compounded as it necessitates greater and greater tax burdens on those who are law-abiding.
The most crucial problem faced by us in fiscal reform programme is that of devising astute and stringent measures to curb tax evasion so that success can be achieved in distributing the burden of taxes fairly between different persons in the same or similar occupations.
Honest taxpayers have to be safeguarded as day by day they are getting disillusioned by the fact that tax evaders are not paying anything with the connivance of their friends and mentors in tax machinery. This unholy alliance between tax evaders and corrupt tax officials has to be eliminated as a first and foremost step if we want to initiate any meaningful change in tax system.
Available in the form of section 111(4) of the Income Tax Ordinance, 2001, is an unprecedented tax amnesty scheme favouring tax evaders, smugglers, corrupt, extortionists, drug barons and criminals. Such offensive schemes demoralise honest taxpayers [making them appear ludicrous for duly paying their taxes]. An extortionist can decriminalise his ill-gotten money through this scheme but a victim (businessman, perhaps), who paid it due to shameless failure or connivance of law enforcement apparatus cannot even claim it as an expense in his tax return! This situation needs to be corrected.
The facilitation of whitening untaxed/undeclared money should be restricted only to genuine industrial investment for bringing back such capital into disclosed/formal sector by paying some percentage as tax (kaffara will be a better word) and not meant for criminals, corrupt and unscrupulous elements in society.
Positive change in tax policy: There is a national consensus that existing tax policy needs to be reformulated to provide an equitable, pragmatic, investment-oriented and business-friendly tax system, integrating good tax administration with simplified tax laws that are easily understood and hassle-free in implementation. Recent efforts of the government to reform the tax system through World Bank loan/grant, recruitment of new members on market wages and reliance on reports of the so-called foreign experts have not yielded any positive results or acceptability from the taxpayers. Reform remains a closed door, bureaucratic exercise lacking any meaningful dialogue with the taxpayers, public pressure groups and tax experts who matter in the subject.
In the absence of a well-designed tax policy, the agenda of tax reform will always be lopsided. Members of parliament need to debate the restructuring process of the FBR to make required legislative and administrative changes. The FBR's power to issue SROs (Statutory Regulatory Orders) against Article 162 of the Constitution should be withdrawn immediately. After the announcement of budget 2010-11, the elected representatives of the people through debate and consensus in the Parliament need to assess the proposals on the touchstone of pro-growth policy. Such a budget then should be approved to secure support of all effected stakeholders before actual implementation in the Finance Bill 2010.
Equity principle The existing tax system itself is a worst expression of colonial heritage. It is highly unjust. It protects the establishment and exploitative elements that have monopoly over economic resources. There is no political will to tax the privileged classes. The common poor are paying an exorbitant sales tax of 16% (in fact 35% on finished imported goods after mandatory value addition and income tax at source) on essential commodities. Soon it would be replaced with 15% Value Added Tax (VAT) from July 1, 2010 as a commitment to IMF and World Bank. This regressive tax will hit the poor badly, but the mighty sections of society such as absentee landlords, big industrialists, generals and bureaucrats will keep on enjoying luxurious life without being made to pay wealth tax/income tax on their colossal assets/incomes.
It is tragic that in a country where billions of rupees are being made on daily basis through rent-seeking, speculative transactions in real estate and shares, tax-to-GDP ratio is pathetically low at 8.8%. The reason is unwillingness of the Government to crack down on undocumented economy and tax benami (name-lending) transactions - such actions will expose rampant corruption of the ruling classes.
The mighty sections of society are engaged in these transactions in posh localities, administered by defence forces and the FBR is powerless to take the date of transactions from them. It exposes the uselessness of the system to tap the real tax potential of the country. We need a public campaign to dismantle this unholy alliance that taxes the poor and benefits the rich.
Pakistan's indirect tax system is regressive and biased against the poor putting greater burden on the lower income households than the upper class ones, according to a report, "Social Development in Pakistan; Annual Review 2009", issued by the Social Policy and Development Centre (SPDC) in February 2010. It states that the poorest 10% of households contribute 16% of their income to the three indirect taxes - General Sales Tax (GST), Federal Excise Duty (FED) and Customs Duty. However, the report reveals that the burden of tax progressively declines as income rises and the richest 10% of households contribute only about 10% of their incomes towards indirect taxes.
The report states that
GST claims 9.3% of the income of the poorest 10% of households, but only 5.9% of the income of the richest 10%. In other words, the burden of GST on the lowest deciles is 58% higher than the highest deciles. Thus FED is the most regressive tax, with the burden on the lowest deciles being 100% higher than on the highest deciles. Customs duties are the least regressive with the burden on the lowest deciles being 28% higher as compared to that of the highest deciles. The policymakers have exempted selected food items like wheat and rice from GST. However, this does not imply zero-rating of GST on account of the fact that the inputs that go into the production of these items are subject to tax. That is why the nominal tax rate of these items is zero, the effective tax rate amounts to about 7%.
The report by SPDC should be an eye-opener for the policymakers. In the report the impact of presumptive taxes on goods and services imposed under the garb of income tax law has not been taken into account. Had it been done, the ratio of direct taxes would have shown a further declining trend. The incidence of such taxes, which are imposed under income tax (sic), is borne directly by the consumers and the worst hit are the poor people.
They have to pay GST on supplies of iodized salt, which is sold under brand names. In the Sub-continent when the British rulers imposed salt tax, there was mass movement of disobedience that forced them to withdraw the levy. Our rulers are even worse than the British imperialists as unashamedly they have imposed exorbitant GST of 16% on salt. What makes the situation more painful is the fact that nobody has ever raised a voice against this cruel tax. It shows national apathy. Now VAT is going to hit many items of daily needs of the poor.
Determination of a tax base capable of measuring an individual's ability-to-pay is a major problem of our tax system. This rule is incorporated in the form of progressive rate schedule for personal income tax, estate duty, and property tax world-wide.
In Pakistan we have moved from this policy to unequal sacrifice rule where the mighty civil and military bureaucrats (now they are part of the landed aristocracy by getting State lands as awards and rewards), rich industrialists and greedy businessmen are paying meagre personal taxes while the poor are compelled to pay GST of 16% [it is as low as 2% to 4% in countries like Japan and Singapore, boasting affluent societies] and bear ever-rising costs of public utilities and POL products. This is in direct violation of constitutional guarantee given in Article 3, but the apex Court is busy somewhere else rather than taking suo moto action on it. The government must immediately remove these dichotomies and distortions. Taxes should be for the welfare and benefit of public at large and to make the State invincible, not for the luxuries of the rulers and State functionaries.
Benefit principle According to this principle, an equitable tax system is one, under which tax payments are based on the amount of benefits received from government services. In other words, the cost of government services should be apportioned among individuals according to the relative benefits they enjoy. Clearly, implementation of the benefit principle presupposes determination of the incidence of public expenditure before deciding distribution of tax burden. Thus it encompasses issues of both tax and expenditure policies.
Our successive governments have failed to convince the people that payment of taxes is their collective responsibility. All the civil and military governments alike were engaged in wasteful expenditure, never bothered to live within their means and failed to even protect the life and property of the people, not to talk of providing them basic needs of health, education and civic amenities. Are they justified to ask people to make sacrifices when the life style of the rulers is shahana (imperialistic)?
Tax policy should be used as a tool of distributive justice. The Government should launch programmes, financed mainly through taxes, to solve the twin problems of unemployment and poverty. These welfare-oriented schemes may also include subsidised/free medical and educational facilities, low-cost housing, and drinking water facilities in rural areas, land improvement schemes, and employment guarantee programmes. Once people see the tangible benefits of the taxes paid, there will be better response to tax compliance. Taxes cannot be collected through harsh measures and irrational policies. The rulers and tax bureaucrats have to demonstrate by their actions a clear inspirational model for the taxpayers to believe them and to pay taxes honestly and diligently.
Assignment of tax.
Assignment of tax means transfer of taxation power form a higher level to a lower level government. Taxation power includes the following: right to levy tax, collect tax, and appropriate proceeds from the tax. Thus, there can be three interpretations of assignment of a tax.
Firstly, higher-level government may levy and collect a tax but handover the entire proceeds to lower level governments. Secondly, the higher-level government may levy a tax but allow the lower level governments to collect it and fully retain the proceeds therefrom. Finally, the higher-level government may transfer a tax to lower level governments, a situation which defines assignment of a tax in its strictest sense.
Our tragedy is that on the one hand we have too many taxes in the country (federal, provincial and local, although share of the last two is negligible in the nation's revenue) and on the other the benefits of revenue collection are not reaching the poor masses. The few rich are the real beneficiaries of every luxury that is available. Fiscal gap is increasing every year bringing more miseries for the common people of
The Pakistani nation has become one of the most heavily and cruelly taxed nations of the world. They are liable to over 50 local and provincial taxes and levies. These exclude federal taxes and levies. What makes the situation more painful is the fact that the system of taxation is unfair, complex and costly, which punishes the honest and detracts savings and investment.
In democratic dispensations, taxation is considered as a potent instrument to shape and influence the socio-economic polices of a country. It is, therefore, imperative for us to formulate a nationally acceptable tax policy keeping in view our own peculiar conditions and not by taking dictation from the donor agencies, who only suggest what suits their vested interest.
Our tax policy must take into account:
-- Present stage (still not in the take-off position) of our economic development.
-- Objectives of economic policy.
-- Priorities of economic policy that are continually dependent upon the changing economic, social, and political milieu.
It is necessary for us to use the forthcoming budget as a tool for CHANGE and not as protector of status quo. In taxes, we need to bring some fundamental structural and operational changes. Mere amendments here and there will serve no useful purpose. New tax strategy should entail the following three components:
Resource mobilisation and GDP growth
The first and foremost objective must be to raise resources for public authorities for administration and development. Taxes are the main instrument for transferring resources from private to public use. By designing an appropriate tax structure, resources can be raised from those who are holding them idly or squandering them on luxury consumption.
According to Roy Gobin, "the revenue criterion is usually the dominant consideration, since governments in developing countries have become increasingly aware of the active role which budgetary measures can play not only in initiating and promoting growth but also in maintaining political power. Not only are higher revenue levels needed, but also tax yields should be increased at a faster rate than income, if infrastructural investments and social welfare expenditures are to be financed without generating unacceptable inflationary pressures and/or increasing reliance on foreign assistance."
The revenue performance is in fact the best and optimal use of resources. Since the composition of investment is an important determinant of growth rate of the economy, public policy must discourage the flow of resources to low priority areas so that they could be diverted to vital sectors of the economy. By imposing high tax rates on luxuries and other low priority items (such as motor cars, air conditioners etc), the government can discourage the consumption and production of such items, ensuring in the process release of resources for high priority sectors. Conversely, offering tax concessions or even subsidies can encourage production of necessities of life and employment-oriented industries.
Distributive justice Distributive justice or economic justice is an important function of tax policy. Economic justice relates largely to distribution of tax burden and benefits of public expenditure. It is a component of the broader concept of social justice, which encompasses, besides distributive justice, such questions as treatment of women and children, and racial and religious tolerance in a society. Tax policy is a democratic method to influence the distribution of income and wealth on desired lines.
The main ingredients of this policy can be (a) progressive direct taxation of income, wealth, and property transactions, (b) taxation of commodities (customs duty, excise levy, and sales tax) purchased largely by high-income groups, and (c) subsidies (negative taxation) on goods purchased by low-income groups. In
The primary function of a tax system is to raise revenue for the government for its public expenditure as well as for local authorities and similar public bodies. Thus the first goal in development strategy as regards taxation policy is to ensure that this function is discharged effectively. The performance of the Pakistani tax managers is highly disappointing as fiscal deficit remained high during the last decade and the revenue targets fixed annually were much below the actual revenue potential of the country. Tax-GDP ratio remained dismally low.
The second equally important function is to reduce inequalities through a policy of redistribution of income and wealth. Higher rates of income taxes, capital transfer taxes and wealth taxes are some means adopted for achieving these ends. In
Stabilisation Initial developmental efforts are generally marked by inflationary tendencies in an economy. Inflation, if uncontrolled, may thwart all development plans and bring misery to the poor. A reasonable degree of price stability should be a primary concern of a government's economic policies. The overall level of economic activity in an economy depends upon aggregate demand, relative to capacity output. At times, the level of aggregate demand may be insufficient to secure full employment of labour and other factors of production. At other times, aggregate demand may exceed available output at full employment level. Government intervention in both the cases becomes essential to correct such disequilibria in the economy.
The evaluation of our existing tax system with reference to the foregoing objectives is a difficult task because various other policies (like public expenditure policy) may be geared to achieve the same objectives. The Advisory Council of FBR and many Task Forces on tax reform constituted from time to time never considered these questions but rather, confined themselves to superficial aspects of tax system merely suggesting a few changes here and there. To what extent the redistributive objective has been served and what was the relative role of tax policy in it is a difficult question to answer.
Moreover, the various objectives of tax policy may not always work harmoniously. Rather, they are often in conflict with each other if not mutually exclusive. Since the tax system of a country grows out of the interaction between political judgement and economic rationale, the process of compromises and trade offs is influenced by political expediency and economic logic, the former, in most cases, having the upper hand. In fact, political requirements and economic thinking change with time, giving new directions to tax policy. As Richard Bird has observed, "Tax reform is, therefore, a never-ending process, not something that can be brought about once and for all and then forgotten."
Though it is unlikely yet one hopes that in its third budget, the government will announce a new National Tax Policy based on the principles discussed above and instead of slogan-mongering will determine proper direction and devise steps for rapid industrial and economic growth that will automatically take care of revenue mobilisation without putting any undue burden on masses.
(The writers, tax lawyers, are members of visiting Faculty of
Copyright Business Recorder, 2010
| Textile Ministry finally abandons liberal yarn trade policy | |
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Govt to spend Rs672b as interest on debts in 2010-11
By: Imran Ali Kundi | Published: May 14, 2010
ISLAMABAD – The government has estimated an amount of Rs 672 billion for the Interest Expenditure for Domestic as well as External Debts in the coming fiscal year 2010-11, which will be almost four percent higher than the current fiscal year, TheNation learnt on Thursday.
According to the document available with TheNation, the government has estimated Rs 578 billion for the interest expenditure for domestic debt while Rs 93 billion for the external debts for the next financial year.
In the ongoing fiscal year 2009-10 the government had allocated Rs 647 billion for the debt interest expenditure for domestic as well as external debts, which later was enhanced to Rs 664 billion.
The sources informed TheNation that the interest expenditure for domestic debt would be 3.47 percent of the GDP while interest expenditure for external debts would be 0.56 percent of the GDP.
According to the documents, for domestic debt interest government will keep Rs 76 billion for the permanent debt. The break-up of permanent debt shows that government will allocate Rs one billion for Federal Government Bonds, Rs 17 billion for Prize Bonds, Rs 55 billion for Pakistan Investment Bonds and Rs 3 billion for other Bonds (issued to HBL & Ijara Sukuk).
Meanwhile, for floating debt, the government has estimated Rs 243 billion.
In Floating Debt Rs 112 billion will be allocated for Treasury Bills through Auctions, and Rs 131 billion will be kept for Treasury Bills purchased by State Bank of
Similarly, for domestic debt interest, the government will keep Rs 259 billion for unfunded debt. The break-up of the unfunded debt revealed that Rs 120 billion are estimated for Defence Savings Certificates, Rs one billion for Saving Accounts, Rs five billion for Postal Life Insurance, Rs 58 billion for Special Savings Certificates and Accounts, Rs seven billion for Regular Income Scheme, Rs 11 billion for Pensioner's Benefit Accounts, Rs 52 billion for Bahbood Savings Certificates and Rs three billion for GP fund.
On the other hand, among the external debt interest, Rs 1.05 billion will be spent on Public and Publicly Guaranteed Debt, Rs 1.03 billion on Medium and Long Term Debt, Rs 0.40 billion on Paris Club, Rs 0.37 billion on Multilateral, Rs 0.11 billion on other bilateral, 0.14 billion on global bonds and Rs 0.01 billion on military debt.
LSM production grows by 4.6pc in 9 months
Published: May 14, 2010
The Quantum Index Numbers (QIN) of LSM stood at 203.46 points during July-March (2009-10) as compared to 194.96 points in the same period of the last fiscal year.
Meanwhile, in March 2010, the industrial output has registered a growth of 12.17 percent as compared to March 2009.
QIN of LSM stood at 222.77 points in March as compared to 198.60 points in the same month of the last year.
The QIN shows industrial productivity of 100 items received from Oil Companies Advisory Committee (OCAC), Ministry of Industries and Production, and provincial bureaus of statistics.
The OCAC provides data of 11 items, the Ministry of Industries and Production of 35 items while the provincial bureaus of statistics has been providing data of 54 items.
The official data for petroleum products compiled by OCAC showed a negative growth of 5.90 percent during July-March (2009-10) over the last year and 0.08pc in March.
The petroleum products witnessing positive trends in production included Motor spirits (4.61pc) and jet fuel oil (0.68 pc). The items showing negative growth included, kerosene oil (18.39 pc), high speed diesel (2.12 pc), diesel oil (15.54 pc), furnace oil (17.22 pc), lubricating oil (2.68 pc), jute batching oil (16.35 pc), Solvant Naptha (13.10 pc) and LPG (5.38 pc).
The Industries Ministry index recorded a growth of 3.54 per cent during the first nine months of the current fiscal year and 8.08pc in March 2010.
The products witnessing positive trends in production included, soda ash (12.31 pc), nit fertilizer (3.26 pc), phosphate fertilizers (13.86 pc), cement (11.21 pc), tractors (26.87 pc), trucks (16.23 pc), buses (16.18 pc) jeeps and cars (36.63 pc) and motor cycles (58.23 pc).
The Ministry of Industries and Production monitored products showing negative trends in production included, sugar (3.47 pc), cigarettes (10.99 pc), cotton yarn (1.76 pc), jute goods (21.07 pc), sacking (27.19 pc), paper and board (2.89 pc), Caustic soda (22.47 pc), glass plates and sheets (12.73 pc), coke-Pakistan Steel (20.13 pc), pig iron (39.36 pc)and billets/ingots (15.25 pc).
The data of industries provided by provincial BoS showed positive trend of 7.42 percent during July-March (2009-10) and 20.63pc in March.
The BoS products showing positive trends in production included, cooking oil (7.17 pc), Upper leather (17.28 pc), sole leather (59 pc), footwear (7.37 pc), cotton ginned (5.81 pc), tablets (9.33 pc), liquids/syrups (10.15 pc), capsules (17.53 pcointments (32.56 pc), toiled soaps (23.64 pc), cycle tyres (11.60 pc), cycle tubes (3.73 pc and motor tyres (23.35 pc).
The products showing negative tend in growth included, vegetable ghee (2.49pc), Beverages(18.26 pc), woolen and carpet yarn( 17.20pc), plywood (45.10 pc)and TV sets (17.62 pc).
IMF $1.15b tranche news jacks up KSE
Published: May 14, 2010
The benchmark KSE 100-index closed 57 points (up 0.6pc) at 10,280 level. Volumes remained sluggish and stood at a meagre 83m shares, down 40pc from yesterday. Early morning positive news flows, such as the LSM recording 4.3pc MoM growth and rumours of the implementation of the capital gains tax being put off for another year, should have provided much needed motivation but investors chose to remain cautious before materialisation of this hearsay.
MCB and POL, the biggest losers in the recent bear run, regained some of the lost scrip value and closed 2.0pc and 1.3pc up, respectively.
The KSE 100-index opened in green zone with a gain of 20.77 points and at the end of the day closed at 10279.52 with a gain of 57.48 points. KSE 30-index closed at 10369.68 with a gain of 72.93 points. KMI 30-index closed at 15568.46 with a gain of 50.00 points. All shares index closed at 7228.89 with a gain of 40.16 points.
Trading activity was minimal as compared to the last trading session as the ready market volume stands at 83.392m as compared to last trading session 139.477m. Future market volume however stands at 1.974m shares as compared to 3.300m shares last trading session.
Market capitalisation stands over Rs 2.901tr, as total trades decreases to 58,137 as compared to last trading session 66,058, while 249 companies advanced, 141 declined and 23 remained unchanged.
Highest volumes were witnessed in TRG at 12.697m closed at Rs 5.16 with a loss of Re0.12 followed by WTL at 9.322m closed at Rs 4.07 with a gain of Re 0.07, LOTPTA at 7.811m closed at Rs 10.87 with a loss of Re 0.19.
Ahsan Mehanti at Shehzad Chamdia Securities said 'renewed foreign interest in blue chip scrip supported the market despite limited hopes for early monetary policy announcement this month after rising CPI at 13.76pc YoY.'
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