February 04, 2007	Sunday	Muharram 15, 1428

ISLAMABAD, Feb 3: The zero rating of sales tax on supply of electricity and gas to five major exportable industries across the country is causing more than Rs700 million loss to the national kitty per month, Dawn has learnt.

The government had zero rated sales tax on supply of electricity and gas since September, 2005 to the five leading export-oriented industries — textile, leather, sports, surgical and carpets - in a bid to reduce their cost of production to make these products more competitive in international market.

A senior tax official told Dawn on Saturday that more than Rs7.822 billion loss to the national kitty occurred due to the zero rating of sales tax on electricity and gas to these five sectors during the last 15 months.

According to the official, this loss in revenue was one of the major reasons for the shortfall in sales tax collection at domestic stage during the period under review. The fall in over all imports also resulted in decline in sales tax collection at import stage.

Though the government was losing a huge amount of revenue but the zero rating of sales tax was not linked with any increase in export proceeds from these industries as statistics reveal that export of leather, sports, surgical and carpets were steadily on decline for the last couple of years. Moreover, the export of textile products also did not register any tangible growth.

Official statistics available with Dawn indicated that the zero rating of sales tax on electricity supplied by Wapda and KESC to these units resulted into a loss of more than Rs2.802 billion during the last 15 months (September 2005-November 2006).

Of these more than Rs2.333 billion loss occurred to the kitty on supply of electricity by Wapda to these units.

Similarly, the total revenue loss on account of zero rated supply of gas by SNGPL and SSGC to these five sectors was more than Rs5.020 billion.

The logic behind the zero rating of sales tax was to do away with delay in refunds processing and to reduce the cost of doing business of these sectors.

The data confirmed that the measure of zero rating on gas and electricity has resulted into lowering the over all collection of sales tax at domestic stage though the exports from these sectors were not picking up in a way it should be.

The official said that there was a need to re-visit the incentives offered across the board to all these industries whether these are efficient or not. There was a need to link this exemption with performance like increase in exports or employment etc to stop the misuse of the facility.

It would also push the manufacturers to modernise their instruments for reducing the cost of production, added the official.