Exporters resent withdrawal of zero-rated regime

Updated June 12, 2019

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“This will not benefit exporters nor government because criminal elements will once again enter the trade." — Dawn/File
“This will not benefit exporters nor government because criminal elements will once again enter the trade." — Dawn/File

KARACHI/LAHORE: Dismayed over the government’s decision to rescind SRO1125 in budget 2019-20 ending sales tax exemption under the zero-rated regime for five sectors, the industry on Tuesday rejected the move saying it will be disastrous for the country’s exports.

Talking to Dawn Zubair Motiwala, a leading Karachi-based business leader, said during recent negotiations with government officials and minister it was clearly stated that it will not work because already two attempts were made in the past to do away with zero-rated regime, but did not work.

At 17 per cent sales tax for exporters, with a refund of 17pc as well, they can’t pay me the money they already owe me and now they are asking me to pay more? They can’t manage things at zero per cent, now they want to tax me at 17pc?

Pakistan Readymade Garments Manufac­turers and Exporters Association Patron-in-Chief Ijaz Khokhar said the withdrawal of zero-rated regime would make their exports unviable and wipe out many small- and medium-sized exporters.

He regretted that during negotiations it was also suggested by the government officials to reduce the sales tax rate to 7.5 per cent against standard 17pc, but unfortunately even this has been ignored and feared that it would turn out to be disastrous for exports.

“This will not benefit exporters nor government because criminal elements will once again enter the trade as was the case in the past and start using flying or fake invoices to claim million of rupees refunds,” he lamented.

He said the SMEs could not afford to get their cash stuck in refunds with the government for years and this could result in export losses of $1-2bn next fiscal year.

He said the government had agreed with the industry to impose 7.5pc GST on the exporting industry but it has deviated from its commitment.

All Pakistan Textile Mills Association acting chairman Naveed Gulzar termed the federal budget for the next fiscal year as a revenue mobilisation effort under the IMF programme, expressing abolition of zero-rated status and imposition of 17pc sales tax on them will lead to liquidity crunch for them.

He said they had proposed to the government to bring down the cost of doing business, ensure uniform and regionally competitive energy prices across the country, and minimum burden on liquidity of the industry.

Pakistan Textile Exporters Association chairman Khurram Mukhtar said the export industry will make the entire supply chain run into cashflow problem. He said the government should have taxed the unregistered sector instead of burdening the documented industry.

He demanded a robust and sustainable sales tax claim refund system to ensure that exporters did not face liquidity crunch following the withdrawal of sales tax exemption for them.

It said the refund claims of exporters amounting to Rs300 billion were already stuck up, creating liquidity crunch for the industry, while uncertain economic environment has slowed down the investment to almost zero. Moreover, the rupee devaluation by more than 30pc has failed to increase exports.

The Pakistan Hosiery Manufacturers Asso­ciation in a press statement said that the the withdrawal of this facility would increase the cost of doing business due to 17pc sales tax and high utility cost.

Published in Dawn, June 12th, 2019