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: info@fcci.com.pk 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:

PROPOSALS TO CHANGE IN INCOME TAX TARIFF:

PROPOSALS TO CHANGE IN SALES TAX TARIFF:

5). Rafhan Maize & Co

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

8) Power Chemical

Industries Limited