THE new sales tax rules being implemented from next month to address the accumulation of tax refund claims of exporters, amid withdrawal of the ‘no tax no refund’ facility on their inputs under the zero-rating regime, are expected to somewhat ease pressure on their cash flows. It would also cut exporters’ costs on stocking raw materials. The new mechanism will ensure processing and payment of refunds on the basis of consumption through an automated system in 72 hours of filing of monthly returns, along with the declaration of stocks. The facility is, however, meant only for manufacturers-cum-exporters; commercial exporters will get their refunds after realisation of export proceeds. If implemented in letter and spirit, this decision will prove a step forward in the direction of easing liquidity pressures that exporters are facing amid the withdrawal of the ‘no tax no refund’ regime in the current budget to meet the conditions for the IMF’s Extended Fund Facility.

There is little likelihood of the government accepting the exporters’ demand for payment of refunds immediately after purchase of their raw materials, instead of consumption of their stocks as is the practice in many other countries. But we expect the authorities to devise a formula for quicker and hassle-free payment of other outstanding refunds of Rs155bn. These have been stuck for a few years on account of income tax and provincial sales tax refunds, duty drawback of taxes, textile policy incentive packages, etc to help exporters resolve their liquidity issues. Going forward, the government would be well advised to put in place a mechanism for early reimbursement of these payments as well. Additionally, the authorities need to address issues such as timely payment of subsidies on energy supplies for export-oriented industries, removal of anti-dumping duties on the import of certain raw material for re-export, etc. A rapid increase in exports is crucial for sustainable economic growth. Unless policymakers realise this, Pakistan will continue to depend on foreign loans and periodically return to the IMF for financial bailouts.

Published in Dawn, July 28th, 2019