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KARACHI: The cement manufacturers have demanded from FBR to either

exclude cement from “Third schedule” of Sales Tax act or if the said
procedure must continue then the fixation of MRP must be allowed on the
basis of two different zones in the upcoming budget of 2014-2015.
In a letter to Chairman FBR, the Cement manufacturers said that the
dynamics of every province and region is different in Pakistan therefore,
collection of sales tax on the basis of single MRP across the country is
anomalous which will ultimately force the manufacturers to restrict the
sales only to nearby markets.
It added that this would mean stopping sales to the far flung area where
there are increased chances of parallel market getting established which
will impede FBR’s revenue collection.
As an alternate, cement industry proposes a zone based maximum retail
price as it will save the consumers of the nearby areas from paying
excessive amount while also protecting the manufacturers from incurring
losses on cement sales in remote areas.
All Pakistan Cement Manufacturers Association (APCMA) in a letter has
asked FBR to introduce uniform tax rate for corporate sector besides
some other measures in the upcoming budget for the year 2014-15.
Cement is one of the most taxed industries of the country and is currently
subject to the following taxes and levies: Corporate Income Tax — 34%
of taxable income; Workers’ Profit participation Fund — 5% of profit
before tax; Workers’ Welfare Fund — 2% of profit before taxation or 2%
of taxable income whichever is higher; Minimum tax: 1% of Turnover (in
case of losses; Withholding Tax — Multiple and cross withholding; FED —
Rs. 400 per tonne; and Sales Tax — 17% of the maximum retail price.
The letter stated that Pakistan has the highest tax rates in the region and
among the developing world. It is universally accepted that higher
corporate taxes are a major impediment to rapid economic development
and employment generation. The corporate tax rate in some countries is
as under: Turkey20%; Iran 25%; Bangladesh 29.50%; Sri Lanka 28%;
India 30%; Malaysia 25%; China 25%; United Kingdom 23%; Asian
average 22.50%; European average 20.60%; Global average 24%.
The association also proposed step wise abolishment of FED, which
amounts to Rs. 400 per ton, in order to encourage cement off-take.
In addition to this, cement industry is subjected to 17% GST, imposed on
MRP instead of ex-factory, which is comparatively very high from the
global rates. The reduction of GST to 12.5% will encourage the
registration of the unregistered taxpayers to avail the benefits of the
input adjustments.
The cement industry is experimenting with different options for reducing
fuel cost by using alternate energy resources such as pet coke and
shredded rubber tires to enhance its competitiveness in the global
market. Therefore, government should reduce the duty on alternative
fuels to 0%, as has been the case with coal, from current 5% and 10% of
ad valorem.
APCMA has also suggested that the 50% rate of initial allowance on plant
and machinery should be restored from the current 25% which in turn
will result in gearing up investment in BMR and capacity enhancement of
existing industries.
It further proposed that withholding tax rate on import of raw materials,
spare parts, stores and capital goods by industrial undertaking for its own
use, be reduced from 5% to 1% as this initiative would strongly support
the industrialization base against commercial importers.
Moreover, Withholding Tax on electricity bills should not be made from
cement sector because most of the companies have to file for refunds of
the tax.
APCMA proposed that 210 days should be set for filing duty drawback
claims which were not accepted by the custom department pertaining to
the period July 2005 to June 2011 due to unavailability of original Afghan
Custom documents as the original document is retained by the Afghan
Custom authorities.
In view of the high level of inflation, the limit of Rs. 50,000/¬ for a bank
transaction under single account head under Clause (I) should be
increased at least up toRs. 250,000; and Rs. 15,000/¬ per month set for
the payment of salary under Clause (In) of the Section 21 needs be
increased up to Rs. 25,000, the letter said.
APCMA opined that levying of 5% Workers’ Profit Participation Fund and
2% Workers’ Welfare Fund effectively means that the industry is being
subjected to 41% corporate tax. Even though this was brought down
from 42% to 41% through the last budget, i.e. a meager 1%, the rate is
still nearly double of the Asian average of 22.50%. It is recommended
that tax burden be significantly reduced to a reasonable level for
accelerating economic growth which attracts foreign investment, he
added.
As far as multiple withholdings/extra taxation on the supply chain, he
said, responsibility of collection of withholding tax from the retailers 0.5%
and wholesalers 0.1% has been imposed on cement manufacturers.
Further, the wholesalers are also required to collect income tax 0.5% on
sales made to the retailers. Thus a retailer receiving goods through
wholesaler is subject to 0.1% more tax having negative impact on
wholesale business.
Multiple and cross Withholding and collection of income and sales taxes
has caused undue blockage of funds, excessive Works and extra
documentation/reporting within industry and tax authorities. Taxes are
blocked in the shape of refundable taxes, negatively affecting businesses
and thus hurting the economy, he added.
As far as custom duty on sack Kraft paper is concerned, packaging cost is
a major component of Cement sold in Pakistan. Kraft paper bags are still
a medium of choice. In order to boost economic activity in Pakistan, we
request to reduce the duties 0f sack Kraft paper under PCT Code
48042100 and 480429070 from 15% t0 10%.
APCMA said the FBR should immediately de-notify the services which are
now chargeable under the provincial legislation after the 18th
constitutional amendment with effect from date of promulgation of
provincial legislations, for those provinces which have promulgated laws
on sales tax on services.
Provincial input tax on services should be allowed against output tax by
FBR (Federal) through monthly sales tax return. In this connection we
would recommend to remove the ambiguity in the laws made by Federal
and Provincial Governments in respect of sales tax on services. This
ambiguity severely affects the cash flows of the companies paying
provincial input tax on services, he concluded.