Budget 2015-16: OICCI suggests reduction in SIM card taxes

The Federal Board of Revenue (FBR) has received a budget proposal of the Overseas Investors Chamber of Commerce & Industry (OICCI) regarding reduction in activation tax on mobile phones from Rs 250 to Rs 150 and withdraw sales tax on SIM card issuance and IMEI tax to avoid double taxation on telecom sector.

According to the budget proposals of the OICCI submitted to the FBR for 2015-16, SIM card taxes should be reduced under Ninth Schedule of the Sales Tax Act, 1990.

The imposition of multiple taxes on SIMs and handsets directly restricts the investment in telecom sector. After the auction of 3G license heavy taxation is restricting new investment in infrastructure, therefore we recommend that SIM taxes should be reduced as follows:

Activation tax: It should be reduced from PKR 250 to PKR 150

Sales tax on SIM card issuance: It should be eliminated as this is a double taxation.

IMEI tax: It should be eliminated as this is a double taxation.

It has also asked the FBR to issue administrative instructions to the field officers to follow 7th Schedule (Banking Schedule) of the Income Tax Ordinance 2001 in letter and spirit and not disallow unrealised foreign exchange losses.

It also submitted budget proposals pertaining to the disallowance of unrealised loss on foreign exchange/derivative contracts and bad debts. It is proposed that the FBR to issue administrative instructions to the field officers to follow 7th Schedule in letter and spirit and not disallow unrealised foreign exchange losses as this is a timing difference only.

The Taxation Officer is interpreting total advances as ‘Advances’ shown on the face of the balance sheet (net of provisions), therefore an explanation should be inserted in Rule 1(c) of the Seventh Schedule that total advances means ‘Gross Advances’ before provisions for Bad & Doubtful Debts.

It proposed a thorough review of the custom regime should be done to take into account issues of counterfeiting; smuggling, rationalisation of duty structure and fixing of import Tariff prices. This should be done in consultation with brand owners. Unauthorised imports should be curbed by bringing at least three OICCI members representing the brand owners on the policy board of valuation, to enable verification of data on country of origin through local affiliates and ensure compliance of Intellectual Property Rights (IPR) laws in Pakistan. The government should review and revamp the Afghan transit trade (ATT) agreement with Afghanistan: In addition to recent introduction of structural checks to ensure transparency in the ATT, a sustainable solution in the interest of Pakistan could be developed if the following points are included in the ATT: Agreeing quantitative limits based on genuine Afghan needs based on the size of the population; harmonising duty and tax rates to remove the incentive for evasion and establishing a basis of collecting the levies, at the point of entry into Pakistan for the account of the Afghanistan Government.

All three steps are necessary, otherwise quantitative limits will result in Afghanistan importers re-routing imports from Iran instead of Pakistan, collection of taxes in Pakistan without harmonisation of rates will also result in smugglers bypassing Pakistan ports and without harmonisation, the incentive to evade taxes in Pakistan will continue, it proposed.

The sector-specific proposals revealed that the FBR should reduce Minimum tax u/s 113 of the Income Tax Ordinance, 2001, from 1 percent to 0.25 percent on turnover of authorised dealers of vehicle manufacturers, as being allowed to Motorcycle dealers, distributors of FMCG, Pharmaceutical, Fertilisers, etc. The withholding income tax u/s 231B be exempted on sale of vehicles by manufacturers to their authorised dealers to effectively implement wholesale-retail mechanism.

It has proposed reduction in import duty rates for large investments in the manufacturing sector. Significant investments have been made to set-up large Pure Terepthalic Acid (PTA) and Poly Vinyl Chloride (PVC) resin manufacturing facilities in the country. Both these industries are highly capital intensive and dependent on government incentives for sustainability and growth. It is therefore recommended that the PTA tariff regime be amended and import duty to be reduced to 5% on PTA and 10% on PTA catalysts, and packing materials. The duty concession on basic raw materials be restored to PVC resin manufacturing industry or alternatively the duty on imported PVC resin should be raised to offset the impact.

It has also submitted proposals regarding issues of pharmaceutical sector. Suitable amendments be introduced in the law to enable sharing of information relating to the company being taken as benchmark (eg bill of entries, drug analysis reports) in order to enable assesees to make appropriate appeals if they are of the opinion that transfer pricing rules have not been applied in a transparent manner.