Textile sector gasping for tax refunds

In recent days, the textile industry has been desperately appealing for their pending sales tax refunds as well as outstanding incentive claims under the PM Textile Incentive Package. Only last week, the Pakistan Textile Exporter Association (PTEA) drew attention to the fact that not even one processed sales tax refund claim has been paid in the last eight months, while a large amount of sales tax RPOs is also pending payment.

The association also highlighted the government’s inability to honor the duty drawback of taxes under the incentive package with only 20 percent of the amount being paid. The Pakistan Hosiery Manufacturers and Exporters Association (PHMA) has also complained about the billions stuck in previous drawback of local taxes and levies (DLTL) with some going as far back as 2011.

In an interview with Business Recorder in February this year, the All Pakistan Textile Mills Association (APTMA) Chairman put the pending sales tax refunds alone at a massive Rs120 billion. Ideally, these should have been cleared within ninety days since the date of export but have been pending for years now. On the other hand, the commitment for rebate processing was to be made as soon as goods are exported, but the fate has been similar to that of sales tax refunds.

The stakeholders are understandably trying to get pending refunds cleared before the change in set-up but that does not seem likely. In the budget speech, Miftah Ismail announced that currently pending refund claims will be cleared in a “phased manner” over the next twelve months starting from July, 2018. He went on to say that all new refund claims will be paid on a monthly basis with no delay.

But industry sources believe it to be a string of empty promises by a government that has failed to deliver any pragmatic relief to the textile sector. Many textile players are of the view that the government simply does not have the fiscal space to deal with the huge quantum of piled up sales tax refunds and export rebates. The strategy is to simply pass the ball to the next government just as it will be when it comes to other liabilities like the power sector circular debt.

However, it goes without saying that delays in sales tax refunds has constrained the liquidity needs of textile exporters, particularly ones in the small and medium enterprise segment. Many are struggling to process new orders while falling behind on existing export commitments. All the best to the next government in tackling the situation!