LAHORE, June 9: The government’s increased reliance on indirect taxes, as indicated by the measures like imposition of 1 per cent surcharge on all imports proposed in the finance bill for 2007-08, will trigger inflationary pressures and put further burden on the lower income segments of society, tax and financial experts said.
Though no major change in taxes has been proposed, but whatever changes have been suggested show that the government’s reliance on collection of indirect or presumptive taxes is increasing, former finance minister Sartaj Aziz told Dawn on Saturday while commenting on the budget for the fiscal 2007-08.
This (increased dependence on indirect taxes) will not only result in higher inflation, but also increase economic disparity, he said. The government itself has admitted in the Economic Survey that the gap between the rich and the poor has increased during the outgoing financial year, he commented.
Former Lahore Tax Bar president Shafqat Chohan said although the government had proposed to reduce the rates of presumptive tax on the utility (gas, telephone, electricity, etc) bills for retailers, it has withdrawn the facility of its adjustment in their final tax assessment.
The government has announced to slash presumptive tax rates for retailers showing annual turnover up to Rs5 million to 0.5 per cent from 0.75 per cent and for those with annual turnover of more than Rs5 million to 0.75 per cent from 3 per cent. Presumptive tax deducted at source will now be considered as the retailers’ minimum tax, he said.
Similarly, Chohan said, everyone, including individuals, will be denied refund of presumptive tax deducted at source through their utility bills even if they do not fall in the tax net.
The proposed measure is unconstitutional and signifies the government’s attempt to tax everyone, he said. It also shows the government’s maximum reliance on recovery of indirect, presumptive taxes, he said.He, however, said the introduction of the concept of group taxation will be advantageous for the business groups and conglomerates.
Textile industry leaders say the imposition of 1 per cent surcharge on all imports will increase their cost of production because it will also cover imported cotton, the basic raw material for the textile industry.
Leading knitwear exporter M.I. Khurram said the government’s decision to reduce presumptive tax on textile exports to 1 per cent from 1.5 per cent is nullified by the imposition of surcharge on raw material imports for the industry and 15 per cent increase in wages.
While reduction in presumptive tax is insignificant, he said, the increased wages and imposition of surcharge on import of raw materials will raise the cost of doing business for the textile exporters, who are already unable to compete in the world markets on account of their high prices.
All Pakistan Textile Mills Association Chairman Shafqat Elahi described the reduction in presumptive tax on textile exports, inclusion of man-made fibres in the DTRE scheme and proposed reduction in the interest rates on loans for the spinning sector as positive measures. But, he said, the increase in wages and imposition of surcharge on cotton will leave negative impact on the textile industry.
All Pakistan Textile Association Chairman Adil Mahmood said the inclusion of import of polyester fibre in the DTRE scheme will cover only a few textile manufacturers. On the other hand, he said, the imposition of surcharge on imported cotton will affect the entire industry.
He said it was not yet clear if the government proposed to give relief on interest rates to the spinning sector on its long-term or short-term loans. Once it becomes clear, then we shall know how many people or unit are going to benefit from this proposal, he said.
