LAHORE, Jan 19: Exporters of value-added products — apparels, carpets, etc., — are running from pillar to post in order to bring home to the Central Board of Revenue to withdraw SRO992(1)/2005, which allows raw material stocks acquired by them up to June 5 to be zero-rated only to the extent of exports made up to Sept 30 last year.
The SRO in question was issued months after the government declared in the budget for 2005-06 inputs purchased for the export of several industries exempt from payment of sales tax, and binds the exporters to consume their sales tax paid stocks of inputs before Sept 30 to claim refunds.
The exporters term this SRO illegal and in conflict with the sales tax law and rules as well as the country’s constitution. “No such limitation was imposed on exporters prior to issuance of the SRO in question,” a carpet exporter, who did not wish to be identified, told Dawn on Thursday.
“It is unprecedented. The sales tax refund rules, which were given in SRO575(1)/2002 on Aug 31, 2002, allowed the exporters adjustments/refund of sales tax of stocks up to eight months of exports. And on Sept 2004, through another SRO820(1)/ 2004, even this provision of eight months was withdrawn and adjustments/refund of sales tax on stocks was allowed for an unlimited period. This new SRO allowed sales tax refund to the exporters, whose exports of same-state goods did not exceed 20 per cent of their total exports in the preceding 12 tax periods to the extent of admissible input tax consumed or to be consumed for the making of taxable supplies within one month of submission of the supportive documents.”
The sales tax refund rules were again amended through SRO415(2005) in May last year. The amended rules allowed adjustment/refund against actual consumption and export. However, it too did not impose any condition regarding the period of consumption, which remained unlimited. Even after the government had exempted certain export industries from sales tax in early June last year, it did not make any change in the refund rules.
“But on Sept 21, a new SRO was issued by the CBR limiting the consumption period of stocks acquired up to June 5, or before the announcement of the budget, which exempted inputs used in the export of certain products from payment of sales tax, to less than four months and consumption and export was allowed up to Sept 30,” says Pakistan Hosiery Manufacturers Association (PHMA) Chairman Shahzad Azam Khan.
An official of the All Pakistan Textile Mills Association (Aptma), who spoke on the condition of anonymity, says the issuance of SRO in question is ultra vires of the sales tax act because under sections 7 and 8 of the Sales Tax Act, the exporters have a statutory right to claim refunds of sales tax paid on the raw materials purchased for manufacturing of goods for export if they have valid invoices, proof of payment of tax and other relevant documents.
“This right cannot be taken away from them (exporters) by issuing SROs, which is in conflict with the parent statute,” he says.
“The CBR cannot dictate the businessmen the pattern of consumption of raw materials for different industries. Exporters purchase inputs according to the orders in their hand, which may take up to one year or more, depending upon the nature of the product as is the case in the carpet industry, to be executed,” says another carpet exporter.
“The step to exempt payment of sales tax was taken to facilitate exporters. But the CBR’s SRO has created a new problem for us,” he says, adding the exporters of value-added products stood to lose millions of rupees they had paid as input tax at the time of purchase of their raw materials.
Mr Shahzad says the constitution protects private property, and the CBR cannot, and must not try to govern the export cycles of different sectors. “The measure to bind exporters to consume their input stocks before Sept 30, 2005, seems to have been taken by the CBR to pre-empt the possibility of any wrongdoing and fraud. But we have better proposal to pre-empt any such frauds without making the exporters suffer losses on account of non-payment of their sales tax refund claims. The refunds should be stopped on inputs bought after the new regime replaced the old regime.”
He says the CBR should withdraw what he calls as illegal SRO and allow refund of sales tax on stocks on actual exports made even after Sept 30 (and not on consumption) till the stocks (purchased up to June 5) are exhausted completely. “In cases where the CBR smells a rat, it should monitor the pattern of export and carry out an audit of the stocks. It is easier and feasible way out of the quagmire in which the SRO in question has landed us all — the CBR and the exporters,” he says.