In support of the government of Pakistan’s efforts to strengthen domestic revenue mobilization, broaden
the tax base, and securing the investors’ confidence in tax system, we submitted the following proposals to
Federal Board of Revenue (FBR). We request for your support for their implementation.
1. Polypropylene Granules, tape yarn grade, having HS-code 3902, 1000 is an industry specific raw material for the Polypropylene Industries. Besides the industrial direct imports, a huge quantity of this raw-material is also commercially imported and subsequently being supplied to the undocumented manufacturing sector. That becomes the major source of sales tax & income tax evasion through “flying invoices” and undeclared downstream production.
2. Furthermore, the blanket discriminatory withholding income tax exemption to commercial importers of industry specific raw material places the registered Industrial imports at an disadvantageous position and promotes cash transactions through commercial importers. The Honorable Chairman FBR, has termed total cash economy in the different sectors of our economy to the tune of PKR 11 to 12 trillion per annum. that produces undeclared polypropylene bags, evading sales tax and income tax. Subsequently, these undeclared polypropylene bags are used by the Industrial and Commercial consumers for the packaging of their undeclared goods paving the way for Multi Layered Tax Evasion. In view of aforesaid, we urge for the implementation of the following to plug revenue leakages and increase tax collection manifolds:
Suggestions for improving Revenue:
a) The imposition of regulatory duty/Customs duty coupled with reintroduction of differential Sales tax
rates. The Section 7A of the sales tax act stipulates charging value addition tax at 3% over and above
the sales tax of 18%. We propose increasing this to 25% (18% +7%) for commercial importers by
raising the minimum value addition tax to 7%, It is pertinent to highlight that this move would
discourage the undocumented tax evading polypropylene bag producers.
i. Differential sales tax regime on commercial importers will eliminate massive tax evasion on value
addition by the undocumented polypropylene industry.
A level playing field may be created by allowing generic withholding tax exemption to the
polypropylene bag manufacturers under Sec 153 and raising the tax rate u/s 148 from 2% to 3%,
on polypropylene (plastic) industry, bringing it at par with the Commercial Importers. This
measure will not only increase the Government revenue but also relieve the industry from tiring
exercise of pursuing tax exemptions.
ili. The mandatory printing of Sales Tax Registration No. / Track and Trace Registration No. on all
Polypropylene bags supplied by the industry will ensure the documentation of Polypropylene
Industrial Units that operates in the informal sector.
Suggestions for Improving tax governance & automation:
a) Tax Exemption Certificate: At present Section 159 empowers the Commissioner IR to issue
withholding income tax exemptions u/s 153 and u/s 235. The FBR has not implemented the auto
issuance of tax exemption in IRS in terms of Second proviso of Section 159 which states that in case
Commissioner fails to issue order within 15 days, the IRS shall automatically issue the exemption
certificate. This anomaly can be solved by allowing the IRS system to automatically calculate the
eligibility of taxpayer and issuing tax exemption certificates without any involvement of the
Commissioner as data pertaining to advance tax and sales is readily available in existing ITMS
system employed by FBR.
b) Automated Refund Processing u/s 170A: Despite lapse of five years, no refund has ever been processed under section 170A. As a result, the income tax refunds are being delayed or adjusted arbitrarily by raising frivolous tax demands. Pertinent to mention that under Section 170(4), the Commissioner is required to process the refund applications within sixty days. Unfortunately, both provisions of law have been made redundant by inaction from the executive. Unfortunately, both provisions of law have been made redundant by inaction from the executive. The FBR should implement the auto tax refund mechanism as prescribed u/s 170A in letter and spirit and discretionary powers of the Commissioner/ IRS Officers for pick & chose the tax refund cases and time-consuming processing of tax refunds may be done away with. By automating the systematic issuance of Refunds and Tax Exemptions certificates, the transparency in tax system could be achieved with elimination of backlash, transfers or corruption allegations on taxmen.
c) Monitoring of Quality of Assessment Orders: It is proposed that a scheme for the quality of tax assessments be devised, ensuring that the assessment notices must clearly identify the issues, AO has to give sufficient opportunity to the taxpayer to give his response, has to evaluate and analyze the response in detail and accordingly give his finding and conclusion in accordance with provisions of the law. The most important aspect to be considered in judging the performance of an assessing officer is the frequency of success of assessments orders in appellate forums, passed during a particular period. So proper punitive action may be taken against the officials involved in framing frivolous and substandard assessment cases. In such cases deterrence may be established in the form of penalties and compensation to the victim taxpayers, so that tax machinery only focuses
on sustainable revenue growth measures.
