LAHORE: The manufacturing sectors of the country have urged the government to restore the description of ‘greenfield industry’ as mentioned in Finance Supplementary (Second amendment) Act 2019 of March 11, 2019.
The industry insiders said that the reinstatement of earlier introduced and well-thought law has now become a necessity of the country after the outbreak of the coronavirus pandemic and visible downward trends in the economy. They recalled that the present government introduced a new law on March 11, 2019 in the name of ‘Finance Supplementary (Second amendment) Act 2019’. The industry insiders said that this law proved pivotal in attracting local investment and to promise the increase in employment opportunities and economic activity.
They maintained that the said law had promised the complete relief of three taxes liable to be paid at import stage for ‘Greenfield industry’ i.e. custom duty (completely waived), sales tax (zero at import stage; deferred till start of sales) and income tax (exempted for 5 years). “It was a major relief in terms of cash flows for the ‘Greenfield industry’ (i.e. new projects),” they claimed.
They shared that the act prescribed three conditions for ‘greenfield industry’ that include; it is incorporated after July 1, 2019, it was not formed by (a) splitting up or (b) re-constitution of an existing industrial undertaking or (c) a transfer of machinery/plant from any other industrial undertaking in Pakistan before the commencement of new business.
“Any industry complying with these conditions was also declared entitled for exemption of income tax for five year under clause 126 O of the said Act,” the informed sources added.
They further recalled that a number of companies were incorporated after the introduction of this law. However, in the last week of December 2019, a new law was introduced in the name of ‘The Tax Laws (Second Amendment) Ordinance 2019’. The industry insiders added that this ordinance changed the definition of ‘Greenfield Industry’ and it has created a lot of confusion and complexity for the new projects; it has become impossible to avail tax exemptions first on the import stage and then on profits.
“This extra burden on the cash flows will force the new projects to halt the planned investment and the promised employment generation may be stopped,” they said.
Talking to Pakistan Today, Noreez Abdullah, Chief Financial Officer (CFO) at Hyundai Nishat Motor Private Limited (HNMPL) said that the income tax holiday becomes an eyewash in the face of levy of turnover tax u/s 113 of the Income Tax Ordinance.
“It is a notorious litigation subject for tax exempt entities. The irony of this section is that the effective tax rate for newly established enterprises could well be higher than a non-tax exempt entity,” Abdullah said. The industry insiders said that the manufacturing units that planned to establish plants after the introduction of this Act in March 2019, should not be a victim of subsequent change in policy by the government.
Agreeing with them, Abdullah added that the federal budget should explicitly expunge greenfield and special economic zones (SEZ) enterprises from the application of minimum turnover tax. “This will take away the excuse from tax authorities for not granting the exemption from advance tax as they keep declining applications for advance tax exemption in view of the application of turnover tax u/s 113,” he said.
