Pakistan Businesses Call for Withdrawal of SRO 350

Pakistan’s business community, represented by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), is urging the government to reconsider recently implemented tax regulations that they believe are hindering compliance and stifling economic activity. Here’s a breakdown of the key issues and proposed solutions:

FPCCI Challenges SRO 350(I)/2024:

  • Burdensome Compliance: The FPCCI argues that SRO 350(I)/2024, introduced in March 2024 to combat “flying invoices” (fake invoices used for tax evasion), has created excessive compliance burdens for registered taxpayers.
  • Redundant Requirements: One point of contention is the mandatory submission of a balance sheet for businesses with a single shareholder (excluding manufacturers). The FPCCI argues this duplicates information already provided in income tax returns.
  • Lengthy Registration Process: Amendments to sales tax registration rules, including yearly biometric re-verification and pre-registration verification, are seen as cumbersome and potentially discouraging new business registrations.
  • Unfair Sales Tax Filing Conditions: The FPCCI criticizes the requirement for prior approval from the Commissioner to file returns if sales exceed five times declared capital. Additionally, holding buyers accountable for supplier compliance is deemed unjust.
  • Cumbersome Credit Note Issuance: The FPCCI views the need for prior Commissioner approval for issuing credit notes as a potential source of corruption and delays.

FPCCI Recommends Withdrawal of SRO 350:

  • The FPCCI proposes a complete withdrawal of SRO 350(I)/2024, advocating for alternative solutions developed in consultation with stakeholders to address flying invoices without harming compliant businesses.

FPCCI Seeks Revocation of Section 8B of Sales Tax Act:

  • Cash Flow Challenges for Importers-cum-Manufacturers: The FPCCI argues that Section 8B, which restricts input tax adjustments to 90% of output tax, creates cash flow problems for businesses involved in both importing and manufacturing.
  • Inconsistent Implementation with IRIS System: The FPCCI highlights inconsistencies between Section 8B and the Federal Board of Revenue’s (FBR) online tax return system (IRIS). For example, IRIS doesn’t recognize exemptions for fixed assets and capital goods from the 90% restriction.
  • Limited Functionality for Carry-Forward and Refund Mechanisms: The FPCCI criticizes the IRIS system for not adequately supporting carry-forward mechanisms for excess input tax and hindering the process of claiming refunds.
  • Unfair Default Surcharges: The FPCCI claims that tax officials impose default surcharges on businesses with pending tax refunds, creating a financial burden due to the need for borrowed funds to cover shortfalls.

FPCCI Proposes Solutions for Section 8B:

  • Complete Revocation: The FPCCI proposes a complete repeal of Section 8B to eliminate the 90% restriction and simplify tax calculations.
  • 100% Input Tax Adjustment: Alternatively, the FPCCI suggests an amendment allowing businesses to claim 100% input tax adjustments when justified.
  • Elimination of Surcharges on Businesses with Pending Refunds: The FPCCI recommends that default surcharges should not be imposed on businesses waiting for legitimate tax refunds.

Impact on Businesses and Consumers:

The FPCCI emphasizes that these regulations create unnecessary complexities, increase compliance costs, and ultimately lead to higher prices for consumers. Their proposals aim to streamline tax processes, improve cash flow for businesses, and ultimately stabilize consumer prices.

Looking Ahead:

As the Pakistani government prepares the budget for the 2024-25 fiscal year, the FPCCI’s recommendations highlight a potential conflict between effective tax collection and fostering a business-friendly environment. Addressing these concerns through dialogue and implementing practical solutions will be crucial for achieving sustainable economic growth.

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