Five leading sectors: Withdrawal of GST concession to have negative impact on exports

The government move to remove special treatment like special tax regime for five export-oriented zero-rated sectors in the coming budget 2019-20 would negatively impact the exports and lead to further accumulation of sales tax refunds. The Federal Board of Revenue (FBR) is in the process of identifying areas where special tax treatments have been given through SROs and notifications. The sectors/areas, which are subjected to the special tax treatments, are expected to be brought into the normal tax regime in coming budget. The sectors, enjoying special tax treatments, may be subjected to the standard rate of 17 percent sales tax. One of the major special tax treatments is the application of concessionary rate for textile, leather, surgical, carpet and sports sectors.
Talking to Business Recorder, representatives of different exports sectors said if the government curtails special treatments and eliminates exemption to meet International Monetary Fund (IMF) demands, it would directly affect the country' exports and local industry, which is already on the verge of collapse.
Zubair Motiwala, Chairman Pakistan-Afghanistan Joint Chamber of Commerce and Industry (PAJCCI) criticised the proposed imposition of sales tax on the zero-rated export sectors.
Any move to withdraw concessionary sales tax regime for five export oriented sectors would collapse the export industry, he said.
He said, "These five zero rated sectors were granted concessional status because the exports had become stagnant, as whatever sales tax we were paying to the government was supposed to be refunded, which the government never refunded since exports are never taxed universally."
He said there are around Rs 200 billion outstanding sales tax refunds. If the government imposes standard rate of sales tax, the government would have to refund the same at later stages. The government is not in a position to refund the amount of sales tax paid on inputs at different stages. This means, the exports will shut down eventually and any move to impose 17% sales tax on the exports would be the last nail in the coffin, he added.
He said textile sector was given incentives in previous governments too and Rs 180 billion were given during Nawaz Sharif's last regime, Drawback of Local Taxes and Levies (DLTL) was introduced, 7% incentive was introduced on the exports on goods, these all incentives have been given to the sector because the government knows that this sector cannot compete in the international market unless given support. Therefore, imposition of standard rate of sales tax would not be a wise decision.
"We are hovering around $11-12 billion of textile exports but we are potentially not less than $60 billion of exports," he further added.
Chairman Pakistan Apparel Forum (PAF) Javed Bilwani said that cost of doing business is already too high and the industry will not be able to bear another threshold. "If the government tries to change the zero-rated sectors, export sector would collapse," he said while adding that it will work as sinus (poison). The government had initially ensured that no changes will be made in export sector regime, he further added.
He said the cost of doing business is already too high with tariffs of electricity, gas and water, transport charges and even labourer's wage are too high and expensive. He further said that it is feared that industrial sector would stop production, which would render thousands of people jobless.