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PAMA proposes tax measures to reduce cost of locally produced vehicles

Pakistan Automotive Manufacturers’ Association in its budget proposals has proposed some tax measures to reduce the cost of locally produced vehicles and make these more affordable to consumers.

PAMA has said that 1% additional duty through amendment in SRO 1178(I) 2015 is negatively impacting the highly cost sensitive sector.

“By exempting the imports made under SRO 655(I)/2006 and SRO 656(I)/2006 from additional custom duty under SRO 1178(I)/2015, the government can help reduce the cost of vehicle being produced locally,” suggested PAMA.

Moreover, 5% to 30% regulatory duty on steel being imported under HS codes 72.08, 7209, 7210, 7213, 72.14, 7305 and 73.18 has been imposed. These steel items are basic raw materials of the auto industry that are not being manufactured locally and continued imposition of RD at such a high rate is rather unbearable as per vehicle Cost impact is around 3,000 ~ 5,000 rupees.

“It is proposed to include imports made under SRO 655(I)/2006 as exempt from regulatory duty under SRO 1035 (I)/2017, (RD notification) as such exemption has also been given to various other sectors under clause of the said SRO,” said PAMA.

PAMA also suggested amendment of Section 148 of income tax ordinance to reduce the withholding tax rate on import of raw material, plant and machinery back from 5.5% to 1% which was gradually increased over the years. Though rules for exemption certificate were introduced in Finance Act 2014 but stringent rules made it difficult to avail the facility. “The criterion for issuance of exemption certificate should be made more rational,” suggested PAMA.

Pama further suggested that Withholding tax on the proceeds of exported good @ 1% should be reduced to 0.5% as recommended by the Engineering Development Board to make the exports more competitive in the international market and achieve export target.

“Automobile sector is not zero rated and the whole chain is already heavily taxed so this withholding tax is very harsh for export. Since, this deduction is mandatory and considered as final payment, the exporters of the engineering products have to bear this cost even when they are exporting on marginal profits or making a loss,” said PAMA.

The PAMA also pleaded for removal of Regulatory Duty on Aluminum Alloy (PCT 7601.2000) & Carbon steel round bar (PCT 72.28) from sr. no 457 & 478 of SRO 1035(1)2017 dated; Oct 16, 2017. RD was imposed in order to protect the local steel industry. This primarily included CRC sheet and deformed bar (Sarya) manufacturers for construction grade steel. RD was however imposed across the board on all kinds of steel related items including carbon steel round bar (auto grade steel) used by the forging industry as raw material.

PAMA implored upon the government to abolish Super Tax that is discriminatory and unjust for the large corporate sector and should be eliminated from 2018-19 in order to rebuild confidence with the foreign and local investors. It pointed out that in the past three years, basic corporate tax rate has been reduced by one percent each year, but imposition of Super Tax @3 to 4%, has not only negated the impact of the reduction but has actually increased the effective tax rate.

It also demanded that the rate of initial allowance should be restored to earlier rates of 50% for plant and machinery and 25% for buildings. It regretted that through Finance Act 2013 & 2014, the rates of initial allowance in respect of addition to Fixed Assets were revised. The rates substituted by the aforementioned Finance Acts should be restored in order to encourage investment in fixed assets.

Moreover the PAMA said that Section 65A, which provides tax credit of 3% of tax payable to person registered under Sales Tax Act, 1990 subject to condition that at least 90 percent of total sales are made to persons registered under aforesaid Act, was withdrawn vide Finance Act, 2017; it should be restored.

Finally the PAMA said that if the purchases are made from a duly registered sales tax supplier verified by FBR website the onus of sales tax not paid by registered supplier should not fall on the buyer. This is an FBR related administrative issue and penalizing buyers is against norms of justice.

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