KARACHI, Sept 12: Exporters have alleged that the Central Board of Revenue (CBR) is fleecing them in millions of rupees by deducting one per cent income tax on exports at gross amount of proceeds.

With growing tough competition in the world market in post-quota era exporters are looking for every penny they could save to keep them afloat.

There are many costs, which are part of the gross proceeds received by exporters, therefore, these should not be included while computing or deducting one per cent withholding tax on exports.

They expressed surprise that an institution like CBR, even after knowing that the exporters do not receive the entire bill paid by their foreign buyers, takes into account many recurring costs--such as freight (inland, sea or air), insurance and commission to foreign agents as well as bank charges, alleged a leading garment exporter.

The exporters have strongly demanded that one per cent withholding tax should by charged on net amount of export proceeds and not on gross. They further suggested that the income tax at one per cent and the export development surcharge (EDS) at 0.25 per cent should be deducted on FOB (freight-on-board) and not on CIF (cost, insurance and freight) and C&F (cost and freight) basis.

“If correct and honest computation is carried out on net export proceeds it could save millions of rupees to the export trade and give them some relief against mounting cost and competitive pressure presently faced in the world market,” they added.

Referring to the State Bank of Pakistan’s F.E. circular No.62, Chairman Pakistan Bedwear Exporters Association Shabir Ahmed said that it clearly implies that the CBR is responsible for depriving exporters of their hard-earned money on exports.

He said that the SBP after seeking clarification from the CBR over `withholding tax on foreign exchange proceeds’ issued the circular wherein it has clearly stated that tax has to be deducted from the gross proceeds.

Shabir Ahmed, citing an example as to how exporters are suffering on account of income tax deducted at gross export proceeds, said that if an exporter receives bill amount of 150,150 euro (Rs11,559,763.22 at the rate of Rs76.98 a euro) from the foreign buyer, the actual amount the local bank receives will be around 150,000 euro (Rs11,548,215) because 150 euro or Rs11,548.21 would be the difference due to the inter-bank charges.

However, as per CBR rules of deducting income tax or withholding from the gross amount of proceeds, the deduction of one per cent would be made on Rs11,559,763.22, which could come to around Rs115,597.63. whereas exporter have actually received Rs11,548,215 after deduction of Rs11,548.21 or 150 euro as the inter-bank charges.

There will be further deductions on account of the EDS at 0.25 per cent, which would come to around Rs27,331.74; commission on export bills deducted by local bank Rs130; commission on foreign documents bills in collection (FDBC) at 0.1 per cent amounting to Rs11,548.22, thereby taking the total deductions to around Rs154,607.59.

When this amount of Rs154,607.59 is deducted from Rs11,548,215, the gross amount received by an exporter would come to around Rs11,393,607.41.

If commission paid to foreign agent is also deducted at 5 per cent from Rs577,988.16 the net amount actually received by an exporter’s bank would be Rs10,815,619.25 and not Rs11,559,763.22 upon which one per cent income tax had been deducted, he added.

In nutshell, he said the exporters demand that the CBR should immediately remove this anomaly and issue a circular, which could give some relief to the exporters.

Zahoor Ahmed of All Pakistan Textile Mills Association (Aptma) said that there were many such costs, which were causing unnecessary financial burden on exporters, who are presently fighting a war of survival. Citing an example, he said that the Aptma was exorbitantly charging its members Rs100 for issuing export price check certificate.

After paying the membership fee there is no justification for taking such charges from the members, he added.