Budget Proposals 2017/2018: Massive under-invoicing by commercial importers destroying domestic industry

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KARACHI: Federal Board of Revenue (FBR) has been urged that status of Final Tax Regime (FTR) for commercial importers should be withdrawn, and final tax at import stage should be made adjustable.
In its budget recommendations for fiscal year 2017/2018, Pakistan Business Council (PBC) pointed out massive under-invoicing especially by commercial importers, which is destroying the domestic industry.
It said that across the board massive under invoicing and dumping of imported products has been increasing. Information regarding values at which various custom check posts clear import consignments is not publicly available.
“This encourages unscrupulous importers to under-declare the value of consignments to evade government revenues,” the PBC said.
Moreover, the information regarding the Sales Tax and FED deposited by various units is not publicly available. “This leads to massive evasion of Sales Tax and Income Tax,” it added.
In order to resolve the issues, the PBC recommended:
a) Values at which import shipments are cleared through PRAL or CARE need to be publicly available.
b) Depending on industry, the import values be fixed e.g. on the basis country of origin, weight, volume etc. after discussion with the stakeholders. ITP’s may be fixed for most of the items prone to mis-declaration such as consumer goods and margins of commercial importers be monitored to assess the value of subsequent supply of imported goods. A certificate to this effect should be issued by auditors of commercial importers.
c) For items, prone to under invoicing and mis-declaration, FBR should designate one or two ports (including the dry ports) for clearing of import consignments. This will allow better monitoring of the import consignments where chances of mis-declaration are on a higher side.
d) Additionally, the old Customs General Order 25 needs to be revived with a provision that local manufacturers be given the option to buy at a 15 percent premium, any consignment which appears undervalued.
e) Taxes and duties deposited by local manufacturers and commercial importers should be published.
f) The rate of tax collected from commercial importers be increased by at least by 2 percent. Presently, tax collected from commercial importers is treated as Final Tax. In order to avoid burdening of genuine commercial importers, It is recommended that the income tax collected at import stage should be made adjustable.
g) In order to allow commercial importers to claim adjustment of taxes deducted at import stage, commercial importers should be asked to present certificate from auditors that at least 70 percent of imported items have been exported or sold to registered manufacturers. This will also help in increasing the overall tax base.
h) Monthly sales declared by commercial importers should be matched with sales declared in annual income tax return as well as the credit entries in all business bank accounts. In case of any discrepancy, a reconciliation with justifiable reasons should be submitted by the commercial importers
i) Online CREST system must be amended in a way to trace sales along with value addition thereon of person to whom supplies were made by Commercial importers.
Transparency in collection of taxes will discourage mis-declaration, evasion of taxes and duties help industry to fairly compete with unscrupulous imports and also the Government to benefit from the increased indirect taxes revenues. It will also help in accountability of the customs staff and will reduce the incidence of Sales Tax & FED evasion and increase government revenues.
The proposed change will help in boosting the manufacturing base of Pakistan.

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