The country’s cement sector which incurred heavy losses in the 3QFY20 has urged the government to reduce the federal sales tax from 17pc to 15pc in the upcoming federal budget.
All Pakistan Cement Manufacturers Association (APCMA) Chairman Azam Faruque in his letter to Prime Minister Imran Khan’s Adviser on Finance and Revenue Abdul Hafeez Shaikh has proposed that the standard sales tax rate should be reduced to 15pc and gradually brought it down to 10pc by reducing 2pc each year at least for the mega government projects like sales to small and medium enterprises (SMEs), sales for dams, five million housing scheme and China Pakistan Economic Corridor-like projects.
Faruque said that this rate of 17pc is very high considering the rate of sales tax in other developing countries i.e. the rate in Malaysia is in the range of 5pc to 10pc whereas in Bangladesh, it is 15pc.
“The change will bring cash flow advantage for the companies by reducing hectic refund processing exercise and will ultimately give benefit to the end consumer,” he noted.
The cement manufacturer added that presently, coal and petroleum coke or pet coke is being used as raw material for various manufacturing concerns and it attracts customs duty on import at 5pc, which has increased the cost of doing business.
Faruque said the customs duty on coal and pet coke should be reduced to “zero” percent as is the case of other fuels i.e. LNG which is exempted from customs duty at import stage and is also subsequently used as a fuel by the industries. He added that this would not only support the option of using coal and pet coke as alternative sources of energy for the industry but will also support the government in terms of reduced load on the already burdened national grid. He proposed that in the next federal budget, the government should increase the custom duty on import of clinker and cement to a uniform rate of 35pc in order to support the local cement industry.
“Moreover, import of cement should not be allowed until Pakistan Standards and Quality Control Authority (PSQCA) certifies the quality of cement being imported into the country,” he said. The cement player added that this would not only increase the capacity utilisation of the local industry but would also safeguard the market from dumping of low-grade quality cement by regional players like Iran. He added that the cement industry of Pakistan is in the phase of capacity expansion. Clinker and cement is abundantly available in Pakistan.
“Iranian cement is being dumped into Pakistan without payment of duties and taxes resultantly incurring loss to national exchequer,” Faruque opined. He proposed that in the upcoming budget the government should impose the international trade price (ITP) regime on import of Iranian cement.
It is pertinent to mention that Pakistan was exporting cement to India via Wahga Border and was adhering to the ITP regime on export from Pakistan.
Faruque added that SRO.250 dated February 26, 2019 has been introduced for the electronic monitoring and tracking of the goods mentioned therein i.e. goods of tobacco, beverages, sugar, fertiliser and cement industries. He added that the fee for the operation of this Statutory Regulatory Order (SRO) will be recovered by the licensee (private firms) from the companies in the above mentioned industries. The cement manufacturer advised the government that in the next budget this SRO be amended suitably to ensure that the administrative cost of operation and activities in this SRO should not be borne by the manufacturers of goods.
Faruque stated that it is mentioned in the SRO that the cost of activities in relation to this SRO will be borne by the manufacturers of goods. He added that this is against the main objective of the current government to provide ease of doing business for the manufacturing industries since, as per this SRO, the teams operating these electronic monitoring equipment will sit at the manufacturing premises of the companies and the cost of the operating such equipment along with licensee marking fee will be recovered from the manufacturing companies which is not justified and will unnecessarily increase the cost of doing business for the taxpayers.
He added that according to income tax section 65B-Tax credit for investment where a taxpayer being a company invests any amount in the purchase of a new plant and machinery, credit equal to 10pc of the amount so invested shall be allowed against the tax payable till 2021. Faruque maintained that for the purpose of investment in balancing, modernisation and replacement (BMR) of the plant and machinery already installed credit is curtailed till June 30, 2019 and only 5pc is allowed for 2019 instead of existing 10pc.
He proposed to the finance adviser that this change through the Finance Act, 2019 may be withdrawn and the credit be made available at 10pc till 2021 or at the very least should be allowed in respect of plant and machinery (P&M ) already purchased or imported or for which letters of credit have already been opened up till June 2019.
The cement player maintained that investors had already planned for making new investments and expansions, orders for purchase of P&M have already been placed and letters of credit have already been opened. He added that curtailing the already promised credits would not help in reversing de-industrialisation in the country. Keeping intact the available credit would encourage industrialisation and job creation in the economy. He said that initial allowance on buildings has been abolished through the Finance Act 2019. “It is proposed that the rate for initial allowance be kept available as building and P&M are not separable in many cases,” Faruque requested. He opined that the change is unfortunate at a time when the country needs to reverse the de-industrialisation.
Where the intended benefit of initial allowance is justified in other categories of business assets, buildings are equally important business assets due to either their direct involvement with P&M or otherwise supervision, analysis, data backup and other necessary back-up support, Faruque added. He added that as per Section 59B of the Income Tax Ordinance, holding company can purchase the loss of its subsidiary provided there is continued ownership of five years as mentioned in sub-section 2 of Section 59B.
In his letter, he proposed that at the end of sub-section 2 of Section 59B, an explanation be added as below:
“Explanation: For the removal of doubt, it is clarified that the holding company can adjust the losses of its subsidiary during the aforesaid period of 5 years.” Faruque highlighted that subsection 2 of Section 59B is misinterpreted by the tax department that purchase of loss by the holding company is allowed in the sixth year i.e. after the end of continued ownership of five years.