FCCI
FEDERAL BUDGET PROPOSALS
FOR THE YEAR 2020-2021
PRESENTED TO
NAUSHEEN JAVED AMJAD
CHAIRMAN FEDERAL BOARD OF REVENUE
BY
RANA MUHAMMAD SIKANDAR AZAM
KHAN PRESIDENT
THE FAISALABAD CHAMBER OF COMMERCE & INDUSTRY
THE FAISALABAD CHAMBER OF
COMMERCE & INDUSTRY
FCCI-COMPLEX, EAST CANAL ROAD, FAISALABAD
Tel: +92 41 9230265-67, Fax: +92 41 9230270
Email: [email protected] URL: www.fcci.com.pk
FCCI FEDERAL BUDGET PROPOSALS
FOR THE YEAR 2020-2021
IN COLLABORATION WITH
❖ All Pakistan Cotton Power Looms Association ❖ All Pakistan Textile Sizing Industries Association ❖ Foundry & Engineering Industry Association ❖ Chlor Alkali Chemical Sector – Sitara Chemical Industries
LTD ❖ Rafhan Maize & Co LTD ❖ Sultan Trading Industry ❖ Pakistan Aluminium Beverage Cans Ltd ❖ Power Chemical Industries LTD
COMPILED BY
RESEARCH & DEVELOPMENT DEPARTMENT
THE FAISALABAD CHAMBER OF
COMMERCE & INDUSTRY
THE FAISALABAD CHAMBER OF COMMERCE & INDUSTRY
BUDGET PROPOSALS FOR THE YEAR 2020-2021
Executive Summary
Pakistan economy, with some exceptions, was already suffering crisis after crisis in the
previous years while pandemic Corona Virus Lockdown has brought the global economy to a
standstill. It has produced devastating effects on our industrial and trading sectors. Pakistan
economy, according to rough estimates may incur initial economic loss of Rs.1.3 trillion due
to COVID-19.
The Planning Commission has estimated that the size of the country’s GDP stood at Rs.44
trillion and one/fourth of it stood at Rs.11 trillion, so the disruption caused by corona virus is
expected to cause at least 10 percent losses in the last quarter (April-June) that would stand at
Rs1.1 trillion at least.
Therefore, there is immediate need to
· emphasize on Pakistan's gross financing needs which have been projected at
51.2 % of Gross Domestic Product (GDP) in 2020 by the International Monetary
Fund (IMF). It is the point of serious attention as according to the Federal Minister for
Planning, one million SMEs will be closed down while 18 million people will lose
their jobs. The worst effects would have to be borne by the daily wagers as 47 percent
workforce in service sector such as marriage halls, hotel industry and others belonged
to this sector.
· As IMF/World Bank has frozen the payment of Debts for Pakistan for one year
due to COVID-19; these funds must be used to establish the large-scale employment
projects under Public-Private Partnership (PPP). The Private Sector should be invited
for the project proposals and selected Projects should be financed by the Government
to create permanent employment at large scale in the country.
· Contractionary policies should be avoided but instead flexible policies be
adopted to promote industrial economy.
· Serious efforts should be made for promoting Un-interrupted services to run the
business activities smoothly in order to minimize huge economic losses incurred
during the devastation of Covid-19.
• The services sector is not contributing in the national exchequer in proportionate to its
potential. The FBR should carry out profiling of the persons engaged in providing
services and also introduce incentives to the taxpayers to encourage them to
demand receipts / bills against the services received.
• Agriculture sector enjoys exemption from payment of Federal income tax. The
provincial tax collected on agricultural income is disproportionate to the potential
of this sector mainly due to inefficient tax machinery and lack of enforcement
capacity. Hence the federal income tax may be imposed on Agriculture income to
collect reasonable tax from this sector.
• Prospective tax payers should be identified on the basis of assets and expenditure. The
database available with FBR may be used effectively.
· Attitude of tax authorities need to be changed and taxpayer friendly culture
should be developed to attract more tax payers.
· Tax evasion is a crime equivalent to theft & fraud and this message should be
spread by electronic media. PEMRA should make law to introduce 1 minute dialogue
on tax evasion in every drama episode being aired by our TV channels.
· Potential tax evaders should be dealt with strictly. Tax responsibilities should
also be introduced in syllabus as a subject.
· Every income should be taxed equally. It may be from any sector of the country.
· 80 percent global tourism has been reduced while in Pakistan, the efforts
initiated by Prime Minister Imran Khan to promote tourism on solid grounds have
also gone to drain. However, we must prepare ourselves to fully exploit this most
promising segment of economy during post corona period by helping the travel
agencies across the country. Government must announce a relief package for this
sector so that it could play its role immediately if the corona lockdown is over. The
re-financing scheme of SBP to pay wages and salaries of three months to the different
productive units in addition to other tax relief measures should also be announced for
the travel industry.
THE FAISALABAD CHAMBER OF COMMERCE & INDUSTRY
BUDGET PROPOSALS FOR THE YEAR 2020-2021
SR#
SECTOR/
ORGANIZATION
PROPOSALS
1).
All Pakistan
Cotton Power
Looms Association
• Power looms is one of the largest small and medium industry in Pakistan.
Millions of people directly and indirectly engaged with it. This sector is un-
operational due to prolonged lockdown for the previous two month. Relief
package in the form of three months exemption of electricity bills, SBP facility
for the program of wages and salaries of workers and Employees and Rs.12000
assistance to the unemployed workers.
• Electricity charges be reduced to 30% in order to cut the cost of production of
this sector.
• Duties & Taxes on Import of polyester yarn should be abolished.
• Surplus cotton and cotton yarn should be allowed to be exported and their duty
free imports should also be granted.
• The whole chain of textile industry should be provided, subsidize rates of
Electricity @ 7.5 cent per unit and Gas @ 6.5 cent per MMBTU to domestic
sectors.
• QTR and other surcharges from the electricity bills should be abolished.
• The rate of sales tax should be reduced to single digit i.e. @ 5 %
• Further tax should be abolished.
• Condition of CNIC should be abolished until the registration of whole chain of
textile industry.
• The government should strictly stop the misuse of the DTRE.
2).
All Pakistan
Textile Sizing
Industries
Association
• Sizing industries falls in local sector. It has major issue of unregistered
consumers, which is creating problems for this sector.
• Textile Industries chain is not complete in all sector. We recommend
completion of textile chain.
• Electricity rates are increasing every month which are multiplying our cost of
production.
• Zero rate facility should be reinstated at once.
• Textile industries (small units) should be allowed facility of fixed tax in all
Government Departments.
3).
Foundry &
Engineering
Industry Owners
Association
The government had imposed 7 percent sales tax on agricultural machinery and
instruments just for a little revenue instead of sacrificing their non development
expenses.
• In other countries sales tax is not imposed on the manufacturing of agricultural
machinery and instruments rather they are providing free electricity to
encourage export of agriculture machinery.
• Punjab Government had stopped the supply of subsidized agricultural
machinery to the farmers due to shortage of funds. This facility should be
restored.
Sales Tax:
• Sales tax exemption on agriculture machinery and equipment be allowed.
Similarly sales tax exemption be allowed on the Pakistan Steel Mills products
used for the manufacturing of agriculture machinery and equipments.
• Sales tax be made single i.e. @ 2%.
• General sales tax should also be reduced to single digit as it will increase the
economic activities.
• Sales Tax Registration should be enhanced from Rs.5 million to Rs.50 million.
• Utility bills limit may also be increased from Rs.8 lac to Rs.25 lac.
• In previous budget government had bound all industrial electric connection
holders to register in sales tax regime. Government should re visit this
mandatory condition.
• Condition of providing ID card should also be abolished immediately.
• Section 38, 40 and 40 B be abolished
Income Tax:
• Direct deduction of Tax @ 4.5% be reduced to 1% on agriculture machinery
• WHT on Banking transactions should be abolished.
• Limit of Payment by Cheque be increased to Rs.200,000/-.
• Dividend Income be exempted from Tax.
• Corporate firms may be allowed same facility as enjoyed by the proprietor ship
firms in the form of basic exemption on income.
• Employees may be exempted for payment of salaries through cross cheque.
• WHT limit on cash payment be increased from Rs.25,000 to Rs.200,000/-.
• Compulsory income tax deduction be abolished on sales.
• Previous rate of Turnover Tax be reinstated for retailers.
• Section 177 of Income Tax Ordinance 2001 be abolished.
• Powers given to Commissioner Income tax for selecting cases for audit be
withdrawn.
• Self Assessment Income Tax scheme 2001 be reinstated.
• Section 236H, 236G, 236-I and Section 165-A be abolished.
• Tax deduction on Share income be abolished.
• Import of Agriculture Machinery from India may be banned.
Increase in Exports:
• Export of agriculture machinery be facilitated to African countries.
• TDAP should encourage the participation of SMEs belonging to Foundry &
Engineering sectors in International Trade Fairs. Also to activate the Pakistan
commercial sections abroad for activated to help the exporters from Pakistan.
• Equal playing field be provided to domestic agriculture engineering industry as
India is already subsidizing the cost of its agriculture engineering sector.
4). Sitara Chemicals
Industry Limited
1. Freight Subsidy on Inland Transportation for Export Goods of Chlor-Alkali
Chemical Sector:
Chlor-Alkali industry of Punjab is around 1,200 KM away from Karachi Port and we
are paying very heavy transportation cost for our export consignments. In order to
facilitate export of chemical sector, it is requested to please allow 50% inland
freight subsidy on each export consignment of chemical Industry. It is suggested
that Government may develop a standard transportation rate on Export quantities
after consultation with the stakeholders and should reimburse Export Inland
Transport subsidy to Exporters through State Bank of Pakistan.
2. Pakistan Railway Cargo Services:
It is suggested that a regular Cargo Train must be operated from this city. This will
not only reduce the cost of transportation but also ensure the availability of cargo
well on time at sea ports and industrial estates.
3. Implementation of Axle Load Regime on National Highways & Motorways &
Its Impacts on Industry:
With the Implementation of Axle load Regime on the National Highways and
Motorways by Ministry of Communication the Industry is badly suffering. The
transportation cost is almost doubled both for raw materials and transportation of
finished goods to end user industry and have a significant impact on finished goods
costs. This has not only hampered the national industry but also contraction our
exports as we became uncompetitive in the international markets. We do propose
that the implementation of Axel weight may be done in the national interest in
upcoming five years step-wise gradually i.e. 10% reduction in Axel load on yearly
basis.
4. Transit Trade to Central Asia through Afghanistan:
Government should take up the matter with all stakeholders to ease out the trade to
central Asia through Afghanistan transit route by trade friendly rules and cost cutting
measures i.e. elimination of transit fees, one window operation for customs and other
formalities at borders along with development of better infra-structure at this route.
5. Revamping of Trade Model with Afghanistan Similar to Wagha – Lahore
Border Trade Model with India:
It is suggested that trade model Similar to Wagha – Lahore Border Trade Model with
India should be adopted to ease out the export and import trade with Afghanistan.
Below are the Pakistan exports figures to Afghanistan which depicts that Pakistan
exports are showing declining trend:
Year 2013 2014 2015 2016 2017 2018
US$ Billions 1.998 1.879 1.722 1.369 1.390 1.350
This will help:
a) To boost the trade activities and reduce the cost of transportation.
b) Help to reduce the chances of smuggling and better border trade management.
6. Addition of “INCOTERM” Ex-Work in Customs Books/GD Filling System:
It is pertinent to highlight here that all INCOTERMS 2010 are recognized and
implemented across the world in international business and trade but in Pakistan, the
following “INCOTERMS” are being used in export/import business:
1) CIF 2) C&F 3) FOB
As per customs officials that INCOTERM “Ex-Works” does not exist in Pakistan’s
Customs Books/GD Filling System, due to this reason exporters cannot use
INCOTERM “Ex-Works” on export documents. It is suggested that INCOTERMS
2010 “Ex Works” may kindly be incorporated in Pakistan’s Customs Books/GD
Filling System in the upcoming budget to grow business and trade activities so that
such apprehensions in future may be avoided.
7. Electricity Tariff for Chemical Sector (Chlor-Alkali Manufacturers):
Caustic Soda is an energy intensive product, wherein the electricity is contributing
about 55~60% of the total cost. Unfortunately, the rate of electricity in our country is
very high as compared to other Caustic Soda manufacturing countries of the world.
It is (3) three times higher than China, South Korea and Japan; (6) Six times higher
than Middle East countries including Saudi Arabia and Approx (3) three times
higher than USA. Similarly, it is (2) two times higher than European Union
countries.
As per “.IHS Chemical Market Advisory Service” Following table shows the
electricity rates in the international market.
Sr.
No.
Country/Region
Average Electricity Price
in the CY 2019 Unit: US
Cents/Kilowatt Hour
1 USA 2.80
2 West Europe 4.17
3 Middle East 1.81
4 North East Asia 3.54
5 Pakistan 9.00
b. Natural Gas: is a primary source of energy and the industrial sector consumes a
sizeable share of it, whereas we are making it expensive through unpopular measures
like GIDC (Gas Infrastructure Development Cess) etc.
It is suggested that LNG subsidy of 28% may be restored for the industries.
It is requested that Government may consider a special reduced electricity tariff for
Chemical industry keeping in view the importance of this sector. With subsidized
electricity tariff, we can provide cheaper raw material to the allied domestic industry
and contribute our share in the economy. It will not only help to increase the export
potential of allied domestic industry but also enable us to export our surplus
production in overseas markets.
List of our exportable products is as follows:
Sr. No. Product Name PCT Heading
1 Caustic Soda Liquid 2815.1200
2 Caustic Soda Flakes/Solid 2815.1100
3 Hydrochloric Acid 2806.1000
4 Ferric Chloride 2827.3900
5 Calcium Chloride 2827.2000
6 Magnesium Chloride Hex hydrate 2827.3100
8. Customs Tariff on Chlor Alkali Products:
Caustic soda is one of the most basic chemical industries of Pakistan and this
product along with its co- products is being utilized in 85% industries of the
Pakistan. Major raw material of Caustic Soda industry is Electricity and its share in
the manufacturing cost is 55~60%.
Unfortunately, the rate of electricity in our country is very high as compared to other
Caustic Soda manufacturing countries of the world.
We suggest implementing the below mentioned tariffs on Caustic Soda:
a. The Import duties for Caustic Soda Flakes, Caustic Soda liquid, Hydrochloric
Acid and Liquid Chlorine should be maintained at same rate for the Fiscal
Year 2020-21:
Sr.
No
Product
Description
PCT
CODE
Current Customs
Duty (%)
Suggested Tariff
Rate (%)
1 Caustic Soda
Flakes 2815.1100 20 20
2 Caustic Soda
(Liquid) 2815.1200 Rs.4,000/LMT Rs.4,000/LMT
3 Hydrochloric
Acid 2806.1000 10 10
4 Liquid Chlorine 2801.1000 10 10
9. Implementation of Regulatory Duty:
Due to nominal custom tariff in the year 2019-20 or zero Customs Tariff under
FTA’s with some countries, Imports of these products are hampering local industry.
We hereby request that Regulatory duty should be imposed to safeguard the interest
of national Industry. List of items are as follows:
S.
No. Product HS Code
Customs
Duty
(FY
2019-20)
Existing
Regulatory Duty
(FY 2019-20)
Proposed
Regulatory
Duty
FY 2020-
21
1
Bleaching
Powder 2828.1010 3%
5%
15%
2
Calcium
Chloride 2827.2000 3%
5%
15%
3
Nickel
Chloride 2827.3500 3%
5%
15%
4
Magnesium
Chloride 2827.3100 3%
5%
15%
5
Ferric
Chloride 2827.3900 3%
5%
15%
6 CO2 2811.2100
3%
5%
15%
7
Magnesium
Sulphate 2833.2100 3%
5%
15%
10. Elimination of Under-invoicing and Mis-declaration in Imports:
It is being witnessed that Pakistan does not offer any substantial protection to its
manufacturing/ industrial sector, specially the industry which deals in the products of
international trade.
a) The government may fix values of imported goods on standard values rather
than declared values by importers. Through this measure mis-declaration by
importers could be discouraged.
b) It is very easy to share information through web-based portals between
trading countries at Government level to eliminate the under-invoicing and
mis-declaration related matters.
This will not only protect the local industries but also help to increase the tax
collections.
11. Framework for Managing Risks of Trade Based Money Laundering &
Terrorist Financing:
FE Circular No. 04 dated: 14th October 2019 State Bank of Pakistan regarding the
Framework for Managing Risks of Trade Based Money Laundering & Terrorist
Financing and prohibited third party Export Advance Payments should be abolished
and previous model of payments should be considered. Because due to the
imposition of the above regulation the business community facing issues in doing
export business and export is suffering, hence, there is ultimate decline in exports.
12. Condition of NOC / Registration for Precursor Chemical, Hydrochloric
Acid:
Like identical models of India and other six neighboring countries (Bhutan, India,
Maldeves,Nepal, Sri Lanka and India ) who have signed the UNO convention, there
should not be any quota allocation & NOC restriction on domestic industry. We do
propose that NOC & Quota may be abolished at domestic level along with the
condition that the Manufacturers and end-user industry should submit the
Hydrochloric Acid data for Manufacturing/ Distribution/Utilization/Purchase on
quarterly basis to the concerned authorities.
13. Trade Policy:
Trade policy plays an important role in economic growth. A consistent long term
trade policy should be framed for sustainable economic growth and for short term
objectives it can be framed for 3 years and its objectives can be spilt on yearly basis.
The mission of new trade policy will be to transform Pakistan from a factor-driven to
an efficiency-driven economy integrated into the global and regional value chains in
the medium term and innovation-driven economy in the long term.
14. Impact of High Interest Rate and Investments:
Currently, Interest rate in Pakistan is on higher side and is in double digit i.e. more
than 14%. Consequently, increased borrowing costs which has shrunken the
investments and slow down the economic activity in the country. To encourage the
investment and boost the economic activities in the country our policy makers must
reduce the Interest rate to some single digit level.
15. Free Trade Agreements:
While undergoing to the FTAs with every country, it would be prudent for Pakistan
to examine the experiences gained from its one of the most important FTAs, namely
the China-Pakistan FTA to learn lessons before finalizing its FTAs with the other
countries. It is also suggested that before going into FTA negotiations, authorities
must consult all the stakeholders at national level.
16. China Pakistan Economic Corridor (CPEC) and Interests of Local
Industry:
To get the maximum benefits of this mega project and to safeguard the interests of
local industry of Pakistan, we do suggest that projects which will be set up in the
Economic Zones under CPEC i.e. (Joint ventures/Direct Chinese Investment) should
be bound to purchase the locally-produced raw material rather than importing the
raw material to ensure the 100% production or supply capacity utilization of local
manufacturing units through some legislation or agreements since abundant
production capacities are available in the local industries. This will boost the
economic activity in the country which is an ultimate goal of the whole nation.
17. Proposals to Curtail Smuggling:
In order to overcome the smuggling and to safeguard the local industry following is
suggested to overcome this issue.
1) Documented Economy.
2) Establishment of Special Law Courts: for speedy trial of smuggling cases.
3) Some extra arrangements for border management are required to be taken with
collaboration of neighboring countries.
4) Afghan transit trade is taking place via various land routes of Pakistan. There
may be a chance that the material may slip during transit and penetrate in the
Pakistan market illegally. Therefore, to stop this illegal slippage of cargo, a
comprehensive centralized system of check and balance should be designed and
implemented.
18. Reforms in the General Sales Tax (GST):
Direct tax net needs to be broadened Instead of increasing the General Sales Tax
rate as done in previous years. Sales Tax Rate applicable in Pakistan is already at
higher side as given below in the table:
Country GST Rates Pakistan Higher by
Pakistan 17.0% -
India 12.36% 4.64%
Indonesia 10.0% 7.0%
Hong Kong 0.0% 17.0%
Singapore 7.0% 10.0%
19. Single Taxation System for General Sales Tax:
Single taxation system should be implemented in the country because dual taxation
system in the country is hampering trade activities i.e. Sales Tax is being
implemented by both Federal Government and Provincial Governments.
20. To improve liquidity constraints faced by export oriented textiles withdrawal of
SRO 1125(i)/2011 be reversed as it will further suppress Textile Export business
as the quantum of Input Tax refund is very much minimal then the cash flows
blocked due to extra output tax.
21. The implication of 10 % WHT sales tax of Ginners is further an extra burden on
Spinning Industry cycle, it is proposed to reduce this tax.
22. The quantum of sales to unregistered person fixed at 100 Million/ year through
2nd Amendment Ordinance 2019 is non justifiable. It is proposed to be revised
for ease of business
23. Custom duty on import of Polyester Staple & other manmade Fibers should be
abolished to encourage product and market diversification for the textile
industry.
24. It is suggested that turnover tax may be reduced from 1.5% for textile Sector.
This will help the textile taxpayers to better manage their cash liquidity. This
would not materially affect Govt. revenues as excess turnover tax payments are
adjustable against future corporate tax liability.
25. Previously Tax credit through Investment in BMR was allowed @ 10%. The said
tax credit was allowed to those companies which purchase and install plant &
machinery up to 30th June, 2019. Further, for the tax year 2019, the tax credit
was reduced from 10% to 5%; the said revision should be revised to enhance
further investments through BMR.
26. Further chargeability of PRA should be revised currently the tax is charged on
overall bill of service provider despite the fact there may include some other
items other then services and lump sum bill is considered as services.
27. The mark up rate for textile sector should be revised for better enhancement of
business opportunities.
28. The subsidy on energy bills, for previously five zero rated sectors, through
WAPDA or Sui Gas granted @ 7.5 cent and $ 6.5 respectively should be
continued.
TEXTILE SECTOR IMPACT:
29. Government has abolished SRO 1125 implications and removed zero rated sales
tax regimes on textile sector and introduced GST @17% and 10% on Raw
Cotton. Previously, according to SRO 1125 sales tax on locally manufactured
finished articles of textile were applicable at reduced rates was also increased. It
is very much evident from history that this procedural revenue measure will only
make textile situation more worsen as the refunds will pile up. The cash flows of
textile sector suffered a lot through last year fiscal changes and further market
credit terms will tighten the situation and current monetary policy rates along
overall market position are not very much lucrative for textile sector to inject
new working capital in the business.
30. The condition of CNIC for a registered manufacturer against supplies made to
un-registered person should be relaxed
31. Duty free import of raw materials may be allowed to minimize the input cost to
manufacture goods locally.
32. Duty free import of coal for Coal Based Power Plants may be allowed.
33. Special arrangements may be made for the transportation of coal via train to the
coal fired power plants at subsidized rates.
34. Necessary steps may be taken to promote regional trade in order to avail the
benefits of proximity.
35. Preference may be given to uninterrupted Gas supply to the industries as per
their requirement.
36. Privatization programme may be fully implemented to create more opportunities
for investment of the private sector.
37. Sale of surplus electricity of the Captive Power Plant to surrounding industries
may be allowed.
38. Industry may be facilitated in terms of special concession in duty/taxes to set up
and enhance the capacity of Captive Power Plants.
39. Special incentive may be announced for vocational/technical institutions.
PROPOSALS TO CHANGE IN CUSTOMS TARIFF:
6). Sultan Trading
Industry
INCOME TAX: 1. Income Tax rate under section 153 of the income tax ordinance. 2001 for all
Taxpayers should be equal to 4%. At this time tax deduction for individuals & AOP’s is 4.5% and for companies is 4%.
2. Income Tax deduction under section 153 should be visible to all taxpayers in his own login ID up to his own deduction.
3. Exemption from income tax deduction should be allotted to all taxpayers i.e Individual, AOP and Companies who deposits advance tax to FBR.
4. A distributor who sells goods of his principal companies without any value addition against commission, FBR should issue exemption from income tax deduction to this type of distributors because distributor is already paying 12% income tax on his commission receipts.
5. A new taxpayer files his income tax return for current tax year but FBR asks him to submit returns for last 5 years. This should be removed from law to demand previous year tax returns.
SALES TAX: 1. Sales tax revision is too difficult at this time. Every taxpayer should be allowed
to revise his sales tax return within 45 days without any approval from commissioner of income tax.
2. Sales tax rate should be equal to 5% as standard rate for all sectors and sales tax refund option should be removed for all expect exporters.
3. CNIC conditions should be removed for sales to un-registered person because un-registered person is already paying further sales tax @ 3%.
4. Tax should be charged on manufacturing stages as final tax and should not be transferred to further buyers. On time payment of sales to manufacturer should be included in the cost of buyer.
7)
Pakistan
Aluminium
Beverage Cans
Limited