The Karachi Chamber of Commerce and Industry (KCCI) has submitted proposals to the government for the upcoming Budget 2024-25, advocating for a more equitable tax system for commercial importers. Their primary concern is the current tax treatment at the import stage, particularly for those importing raw materials.
KCCI’s Key Proposals:
- Adjustable Withholding Tax: KCCI proposes an adjustable withholding income tax (WHT) on imported raw materials. This tax would be based on the importer’s actual tax liability, not a fixed percentage.
- Minimum WHT Abolishment: The concept of minimum WHT on raw material imports should be eliminated. KCCI argues that the current minimum tax system unfairly burdens compliant importers.
- FTR for Finished Goods: KCCI recommends including finished good imports under the Final Tax Regime (FTR), potentially simplifying the tax process for commercial importers.
- Distinguish Importer Types: KCCI urges a clear distinction between importers of finished goods and documented importers of raw materials for industrial use. This distinction would ensure fairer taxation based on business activities.
Current Challenges for Importers:
- High Withholding Tax: KCCI highlights the current WHT on raw materials, ranging from 2% to 5.5%, as excessive. This tax assumes a profit margin much higher than the reality for raw material imports, typically between 2% and 3%.
- Unfair Burden: KCCI argues that the current system unfairly burdens documented importers with the responsibility of collecting taxes from undocumented entities through WHT.
- Focus on Compliance: The chamber proposes that the FBR should prioritize identifying non-compliant entities instead of imposing additional burdens on existing taxpayers.
Benefits of KCCI’s Proposals:
- Fairer Tax System: Adjustable WHT and abolishing minimum WHT would create a more equitable tax environment for commercial importers.
- Increased Compliance: A fairer system could incentivize better tax compliance among importers.
- Reduced Burden on Businesses: Adjusting the tax system to reflect actual profit margins would alleviate unnecessary financial strain on documented importers.
- SME Growth: Streamlining the tax process could support the growth and development of small and medium enterprises (SMEs) involved in importing.
- Revenue Enhancement: A more efficient tax system with better compliance could potentially lead to increased revenue collection for the government.
Looking Ahead:
The KCCI’s recommendations will be considered by the government as they finalize the Budget 2024-25. If implemented, these proposals could significantly impact the tax environment for commercial importers in Pakistan, potentially leading to a more streamlined and equitable tax system that fosters business growth.
