LAHORE – Pakistan Autoparts Manufacturers and Exporters Association (PAMEA) Chairman Tahir Javaid Malik has urged the government to do away with Withholding Tax (WHT) on exports of engineering industry claiming the sector has immense potential to drag the country out of its economic malaise.
Malik said that section 154 of the Income Tax Ordinance, 2001 deals with withholding income tax on exports, which is to be deducted by the authorised dealers in foreign exchange at the time of realisation of foreign exchange proceeds on account of export of goods at the rates specified in Division IV of Part III of the First Schedule to the Ordinance. As per the Schedule, the rate at which tax so deducted is one percent of export proceeds.
This deduction is considered payment towards final liability of income tax. Since this deduction is mandatory and considered final payment, the exporters of engineering products have to bear it even if they are exporting on marginal profits or making a loss. He said that such situations of marginal profits or incurring of outright loss arises especially in cases where market entry barriers are to be overcome through reduced first cost offers as a marketing tool or through sunk investments in marketing and creating after the establishment of sale service. Even otherwise, if exports of products of engineering industry are to be encouraged and promoted, the government needs to extend all possible fiscal incentives in this regard. The withdrawal of withholding income tax out of realisation of foreign exchange proceeds of engineering industry exports would be a desirable step in this direction. It is therefore proposed that Division IV of Part III of the First Schedule to Income Tax Ordinance, 2001 be amended to remove the withholding tax on exports of engineering industry. Malik also called on the authorities to allocate resources for the engineering industry out of Export Development Fund as the industry remains in dire need of a special package to receive a boost and help exporters explore new markets for Pakistan.
