Islamabad : Pakistan PolyPropylene Woven Sack Manufacturers Association (PPWSMA) has sent an SoS to State Minister , Mr Ali Pervez Malik, highlighting problems being faced by it in the existing withholding tax regime.
Pakistan Polypropylene Woven Sack Manufacturers Association chairman , Iskander M. Khan, in his letter to the State Minister , Ali Pervez Malik , said Pakistan Polypropylene Woven Sack Manufacturers Association pays billions of rupee in taxes annually, besides meeting demand of the local consumers to save huge foreign exchange , but unfortunately this industry has been put at sheer disadvantage by imposing undue withholding tax on it in the last budget.
Iskander M Khan added that anomly- based withholding tax regime has helped local commercial importers to cause huge tax evasion through flying invoices which is ultimately hurting to the local polypropylene industry. Pakistan Polypropylene Woven Sack Manufacturers Association Chief has proposed to the government to put an end to anomly in withholding tax to save the polypropylene industry from further disadvantage against commercial importers. He also highlighted cumbersome exemption certificates issuing process and demanded a hassle-free tax exemption certificates issuing process.
Mr Iskander M. Khan in his SoS to Mr Ali Pervez Malik said
“Dear Sir,
Reference to captioned subject we, being the representative of Polypropylene Industry, would like to
highlight anomalies in withholding tax regime of plastic industry and its solution, for your favorable
consideration:
1. The Industry being the major contributor to the national exchequer in form of Custom Duty,excise duty, sales tax & Income Tax and key employer, is being treated unfairly through
imposition of multiple withholding tax regimes. The Industry Manufactures Polypropylene Woven Sacks for which major component of Raw Materials (PPG, LDP, PP Coating grade) are
being imported.
2. The industry, being import oriented, suffers heavy taxation due to anomalous tax structure. Itpays income tax at the rate of 2% u/s 148 of Income Tax Ordinance 2001(the Ordinance) on
import of PP raw material and 5.5% income tax on import of Spare parts and machinery items. Pertinently, like the commercial importers, it’s tax at import stage falls under the ambit
minimum tax regime u/s 148(7A) of the Ordinance. Due to its heavy reliance on electricity consumption, it also suffers from huge withholding tax on electricity bills u s 235 of the
Ordinance.
3. The polypropylene sack being the industrial packing material, unlike commercial importers, the major customers of the industry are registered corporate entities which are withholding agentsin terms of u/s 153(1)(a) of the Ordinance.
4. That due to cumbersome processing of tax exemption certificates and un-necessary delayingin processing of applications of exemption certificate u/s 153(1)(a), the Industry heavily suffersfrom withholding tax/ accumulating tax refunds burden. Tax exemption that expires on every
quarter is being used as tool to harass the taxpayers for vested interests.
5. The legislature introduced Second proviso in Section 159 which prescribed automatic issuanceof withholding tax exemption certificate, by fiction of law, in case the Commissioner fails to
conclude exemption request within 15 days. Despite this prescribed mandatory provision forissuance of exemption certificate, the FBR has not incorporated auto issuance mechanism in
the IRS system.
6. As a result of recent budgetary amendments in Section 153 (4), wherein full tax exemptionhave been restricted to 80%, the industry is now facing another challenge of increase in 1%
withholding tax. That means that even after having tax exemption u/s 153, the industry isforced to pay 1% withholding tax in addition to the minimum tax paid u/s 148(7A), that wouldresult in refundable income tax each year, equivalent to minimum of 1% of turnover, adding to the misery, the FBR is not issuing any tax refunds to the industry. The effect of applicable withholding taxes ratio on sales of the industry is calculated to be around 7% and even
considering highest average Net profit of 10%, the effective tax rate comes to 70%, which ishighly unreasonable and unsustainable for the growth of the industry.
That contrary t o above, the Commercial importers o f Polypropylene raw materials enjoyblanket withholding tax exemption u/s 153(5)(a), with reduced rate of 3.5%, thus this
discrimination is putting Industry in disadvantageous & uncompetitive position. In addition tothat the Commercial importers also indulged in flying invoices business and supplies importedraw material to unregistered/tax evading manufacturers, thereby causing a huge damage tothe national exchequer.
Recommendations:a. In order to eradicate the anomalous withholding tax structure, it is proposed that theIndustry may be given a generic exemption from withholding tax u/s 153(1)(a) of the
Ordinance at parallel with the Commercial Importers by incorporating “Plastic Industry” in Section 153(5)(a) and under clause 47A Part IV of Second Schedule.
b. In compliance with Second Proviso of Section 159, the IRS System may be allowed toautomatically calculate the eligibility of taxpayer based on given criteria in law and issue 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. These
automations will eliminate the windows of corruption & abuse of power associated with discretionary powers”.