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Sales tax and income tax can be doubled in coordination with FPCCI – Nasser Hyatt Maggo’s budget proposals to PM

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Mian Nasser Hyatt Maggo, President, Federation of Pakistan Chambers of Commerce & Industry has announced that the entities paying Sales Tax can be easily doubled from 41,000 to 80,000 once a single stage tax is introduced. Presently, collection of sales tax is related to a few commodities. This is confirmed by the fact that petroleum products alone contribute around 44 percent of the total domestic sales tax collection. Against the prescribed rate of 17%, if we introduce simplified and single stage sales tax at the rate of 5%, based on the size of retail market of Rs 22.8 trillion, import of 6.6 trillion and manufacturing of Rs 8.58 trillion, this can yield Rs 1.915 trillion, up from Rs 1.596 trillion currently.

He claimed this in his budget proposals submitted to Prime Minister of Pakistan about two months back on February 13, 2021. In his Proposals for simplified taxation and accelerated growth Mian Nasser Hyatt Maggo stated that a substantial addition in the income tax can be achieved by levying a 10% income tax on large land holders for which provincial governments should be taken on board. He had requested the PM to grant an audience so that they can elaborate the proposals further.

Maggo urged the need of a simple, fair, and predictable tax system: 10% income tax on individuals and AoPs, 20% income tax for companies, 5% sales tax (for exporters 0% tax). Loss-rate customs duty (One Chapter, One Rate, 5%) on all items and federal excise duties on luxury items and on health-hazard products like cigarettes, beverages etc.

According to him the fundamental element of tax reforms is to provide a simple tax system that is manned by an efficient, accountable and competent administration. Tax administrations, both at federal and provincial levels, lack the requisite level of digitization, professionalism, and human skills. Tax administration has become source of developing complicated tax statutes, rules, SROS, Customs, Sales Tax and Income Tax General Orders and engaged in issuance of clarifications round the year, which are discretionary and influence based orders, adversely affecting the conducting of smooth and predictable business in the country. The business must be conducted in harmony instead of conflicts and contradictions created by tax administration, in which they most of the time mislead the governments and place the allegation of all odds on businessmen to the exclusion of tax administration officials.

According to research done by country’s leading tax experts like Dr. Ikram ul Haq and Huzaima Bukhari, the number of income tax returns with tax paid can be doubled to more than 4 million in 2021-22, from 2.19 million currently out of which almost one million paid no tax. This includes businesses, non-salaried individuals, and professionals, many of them are currently not filing income tax returns for various reasons. This will double the income tax collected from Rs 1.5 trillion to Rs 3.0 trillion in 2021-22 without reliance on withholding taxes, advance tax, or minimum tax.

Maggo said; “We are of the opinion that a cascading tariff structure since decades as has been discussed needs to be reviewed while supporting the efforts for industrial sector promotion by rationalizing the customs duties. The rationalization of customs revenue is not possible through narrow bases (10 items contribute more than 80% receipts). A single rate of 5% for all items will eliminate the menace of smuggling, arbitrary and/ or favorable valuations, complicated registration processes as well as the SRO-ridden system. This will bring the customs revenue down from Rs 626 billion to Rs 346 billion. We believe that this reduction is necessary as over-reliance on import stage taxation has proven harmful for industrial development and has fueled inflation.”

“We believe that by levying FED on cigarettes, carbonated drinks and on luxury items alone and through better enforcement, the collection can go up from Rs 250 billion currently to Rs 333 billion. FED on all other items should be removed. In sum, we believe that the total taxes collected under the new system can go up from Rs 3.9 trillion (which includes refunds) to Rs 5.6 trillion (without any refunds) in 2021-22, of which direct taxes will be 54%, up from 38% currently, thus realizing a critical manifesto promise of your government to move towards progressive taxes, a goal which the present system has failed to achieve,” President FPCCI added.

He further stated that we are observing and I am sure you will be aware about continued unsettled issues on site in taxation which surely also include the non-resolved issues with small businessmen, in specific retailers who are agents of economy performing as outlets for the production economy. These hundreds of thousands of small businessmen in several thousand markets need to be integrated to the taxation system so that the supply chain from the producer to seller becomes documented. The small and medium enterprises which are in a fairly large number have to be facilitated to provide self-employment and add to further employment.

Kindly consider our proposal for simplification of tax system to ensure payment of tax by all through our representative efforts as apex body representing all the CCIs and Associations of trade and industry of Pakistan with overseas bilateral councils and counterpart federation of chambers in respective countries. Dear Prime Minister, we once again thank you for your goodwill gesture towards taxpayers and hope that a meaningful dialogue will be initiated on our proposals.