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Budget proposals: Computer industry strongly reacts to FBR’s response

The computer industry has strongly reacted to the Federal Board of Revenue’s rejection of all budget proposals of the industry without realising the revenue implications involved in each taxation measure. Munawar Iqbal, Chairman, Pakistan Computer Association (PCA) told Business Recorder here on Wednesday that the FBR has merely rejected all the proposals without carrying out any specific analysis or research on the said proposals.

The FBR has also not given any logic behind rejection of all budget proposals. It seemed that the FBR relevant wings have not been properly consulted before rejection of all proposals. The FBR can effectively benefit from the taxation proposals of Pakistan computer industry to increase revenue collection, expand retail base and end smuggling of the IT-related products during remaining two quarters of 2015-16.

The FBR letter addressed to the Chairman PCA said that the proposals of Pakistan Computer Association have been examined in the Board and the Association is advised to take up the issue of fixing/ revising valuation rulings with the Directorate General of Customs Valuation, Karachi. The proposal for withdrawing of PTA type approval may be taken up with Pakistan Telecommunication Authority. The proposal for levy of fixed duty and taxes can not be acceded to, FBR added.

Munawar Iqbal said that the FBR is losing huge amount of revenue on daily basis due to not incorporating taxation proposals of the computer industry. If policy and enforcement measures suggested by the industry have been implemented, the FBR’s revenue loss from the industry would drastically reduce and sudden rise in tax collection in the remaining period of 2015-16 would occur. The industry had a number of meetings with the tax authorities including Special Assistant to Prime Minister on Revenue Senator Haroon Akhtar Khan, but so far no action has been taken by the FBR. Surpassingly, rejection letter has been issued by the FBR to the industry.

Industry has requested Special Assistant to Prime Minister on Revenue Senator Haroon Akhtar Khan to take up the issue with the association for consultation and implementation of viable proposals with the help of the said industry. The FBR can increase revenue collection from the industry through measures suggested by the industry. It is not clear that why the Board is not taking proposals of the industry seriously despite the fact that the registration of the vendors would substantially increase following implementation of the proposals, he said.

The Tax policy proposals presented by the PCA focus on withdrawal of multiple taxes and imposition of fixed duties/taxes on IT products to encourage the legal imports of IT products, as against the ills of ‘Khepia’ in the country and removal of GST charges, to provide the IT industry with a level-playing field without any hindrance.

The PCA has submitted a comprehensive Datasheet to supplement its tax proposals which cover almost all the areas of IT products. This sheet shows proposed fixed charges applied on the respective products to give yearly, quarterly and monthly estimate of the cost it will yield in order to discourage smuggling and promote genuine and documented trade. The Datasheet shows that the fixed duties if applied on each item will give the government a revenue collection of more than Rs 5 billion as compared to the lower level of collection formerly. In addition, the cost of the smuggled IT products as against the documented imports in the market show huge anomaly thereby not only hampering the IT business and losses to IT traders but also depriving the FBR of the missing revenue from the sale of genuine IT products.

Apart from the Datasheet, the PCA has also suggested proposals on other important issues hitting the IT industry including the Import Trade Price(ITP); undocumented IT sector; PTA Type proposal, Increase in Limit of GST Registration charges and revision of Valuation of Guidelines for IT Imports as per the following: Import Trade Prices on IT Products: The PCA stakeholders believe that there are several lacunas in the current import trade prices on IT products and suggests changes in the applicable tax regime by fixing ITP on lower side at its import stage which will increase number of legitimate importers and discourage undocumented persons in the market and entice them to join the tax net.

Documented Computer Sector: The existing tax structure on computer IT equipment, including laptops and notebooks, particularly at import stage has created serious distortion between the legal import and informal channels. The cost of smuggled IT products like laptops and others is much lower as compared to the legal imports which are subjected to heavy taxation and irrational application of taxes. The computer sector is paying a wide range of taxes to ensure documented imports along with the payment of taxes at domestic stage. There is a need to tackle the menace of smuggling in the country on priority basis to save the IT industry.

PTA Type Approval: Another issue of concern for the PCA stakeholders involves the production of PTA Type Approval certificate by customs officials for clearance of the government on every networking product which is unnecessary and required only for few wireless products working on restricted frequency band. Consequently, many of the networking products are now coming by illegal means causing the loss of revenue to the government. The customs authorities must also stop the entry of those particular products into the country which are banned in Pakistan instead of disallowing a wide range of the product segments leading to loss of precious time of the importers and revenue loss to government. It is for the FBR and Pakistan Telecommunication Authority to clear the ambiguity about these products and define and specify their features to enable the importers to safely apply for the type approval equipment. The PCA suggests that PTA’s “Type Approval” should be withdrawn.

Increase of Limit for the GST Registration: Currently the minimum limit for GST Registration is Rs 5 million which is too low and is difficult for a vendor to run his business as the profit margins is less than 3 percent in the laptop, HDD, Memory, USB & Processor business and not more than 5-6% on the rest of the products which means that he can hardly earn Approx. 200K PKR per annum at the sale of Rs 5 million per annum and cannot run his business keeping himself as non-filer. So it is suggested that the limited of 5.0 million PAKR should be increased to PKR 20.0 million to benefit the

Valuation Guidelines: The issue of implementation of the Valuation Guidelines for IT Imports which have higher values for clearance of consignments at Karachi Port and causes delay in the clearance of the IT imports as well as loss of precious time and the market access. The proposals would have also encouraged the legal imports of IT products as against the “Kepi Mafia’ which is causing huge losses to the national exchequer. Therefore, all IT products should be brought under the full and final import settlement bill as per attached sheet.

The PCA has constantly followed up the issues faced by the IT industry and subsequently submitted their proposals and recommendations to the government as well as to the print media for incorporating it in the federal budget 2016-2017 making it a truly representative and reflective of the demands and aspirations of the IT business community and for the growth of the information technology in the country, they added.

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