- Rationalization of taxes on transportation should be carefully considered
Interview with Mr. Azeem Hussain Siddiqui — FCMA, FCA
PAGE: Tell me something about yourself, please:
Azeem Hussain Siddiqui: I am a Fellow Member of the Institute of Cost & Management Accountants of Pakistan as well as of the Institute of Chartered Accountants of Pakistan. Currently serving as Partner at Naveed Zafar Ashfaq Jaffery & Co. Chartered Accountants. Previously have served KPMG Taseer Hadi & Co. Chartered Accountants. Besides, I am Chairman of the Karachi Branch Council of ICMA Pakistan and Vice President of Pakistan Quiz Society International. I am also serving as a member of Governing Body of Marie Adelaide Leprosy Center (MALC), one of the largest international NGOs in Pakistan and holding the position of its Honorary Treasurer as well. I have been Guest Speaker and Lead Trainer at various seminars and workshops on topics relating to corporate, tax and other laws in Pakistan.
PAGE: What is your take on the logistics sector?
Azeem Hussain Siddiqui: Logistics sector involves a combination of activities like planning, coordination, and execution of activities related to transportation, storage and distribution of goods. It is a critical component in the global economy and is instrumental in playing its due role in facilitating the movement of goods and services across different regions and markets. The sector covers a wide range of activities including transportation, warehousing, supply chain and inventory management, etc. Effective logistics management is essential for businesses to maintain a competitive edge, meet customer demand, and optimize operational efficiency. In recent years, the logistics sector has undergone significant changes mainly due to advancements in technology, globalization, and changes in consumer behavior.
New technologies including artificial intelligence (AI) are now being integrated into logistics operations to enable greater efficiency, transparency, and flexibility. Like many other sectors, the logistics sector is also exposed to several emerging challenges and there are a number of irritants in the growth of this sector like rising fuel/transportation costs, supply chain disruptions, complex and somewhat ambiguous tax & other regulatory requirements and lack of governmental support. Consequently, there is a strong need for continued investment, a business-friendly environment and policies, innovation and sustainability of logistics operations.
Overall, the logistics sector is a critical component of the global economy, and its continued growth and evolution are of great importance for businesses and economies to escalate in the years to come.
PAGE: In order to promote the transportation sector, should taxation be rationalized on it?
Azeem Hussain Siddiqui: Taxation has always been a complex and multifaceted issue and depends upon various factors, including the specific goals and priorities of the country. The rationalization of tax on the transportation sector may have both positive as well as negative effects. Reducing taxes on transportation, on the one hand, can make it more affordable and accessible for people, leading to increased usage and promotion of transportation. However, on the other hand, it would result in a reduction in revenue for the exchequer and a negative environmental impact as increased use of transportation may lead to increased pollution. Thus, in my humble view, any decision by policymakers on the rationalization of taxes on the transportation sector should be carefully considered and based on a comprehensive analysis of its potential economic, social, and environmental effects.
PAGE: What is your perspective on the taxation issues of courier services?
Azeem Hussain Siddiqui: Taxation issues related to courier services may vary from one service provider to another depending upon the nature, scope & size of services they offer and the jurisdictions to which their business operations and transactions take place. One major issue being faced by these service providers is that they are not only liable for federal taxes but for provincial sales tax as well. At times, they operate in multiple jurisdictions within the country as well as outside Pakistan through their network partners and the tax implications become even more complex.
Not only taxation, but remittance issues also arise when courier service providers need to make payments to foreign network service providers for the services received from them outside Pakistan. Tax authorities also dispute the nature of these payments as being business expenses or franchise fees etc. Similarly, courier services also face complexities in withholding tax obligations and reporting. This becomes an even more complicated process if they operate in multiple local and foreign jurisdictions with different tax rules and rates. The claim of input tax suffered by their network services providers in different regions is also a cumbersome exercise.
PAGE: Regressive taxation is detrimental to the prosperity of trade. How would you comment on it?
Azeem Hussain Siddiqui: Regressive taxation system imposes tax at a higher rate on low-income taxpayers who are, generally, individuals and AoPs. The tax rate gradually reduces, however, as the income increases. Thus, regressive taxation results in decreased disposable income for taxpayers who are already in the low-income group. Low-income earners who pay a higher percentage of their income in taxes have less money at their disposal to spend and invest, resulting in lower demand for goods and services which in turn can lead to decreased trade activity and economic growth, as your question suggests. Regressive taxation, in other words, reduces consumer spending and investment, leading to a negative impact on trade as well as on overall economic growth.
It is pertinent to mention that regressive taxation also aggravates income inequality and social disparities which both have negative social and economic consequences. In such a situation, a small percentage of the population holds a large share of income and wealth and thereby leading to social unrest which can further hamper trade and economic growth. Pakistan luckily follows a progressive tax rate system for non-corporate taxpayers that places a lower burden on low-income earners and thus brings a sigh of relief to them, at least on this account.