Withdrawal of SRO 1125: Chemical & leather industry facing severe crisis: PCMA

The Pakistan Chemical Manufacturers Association (PCMA) has said that the local chemical industry is witnessing severe crisis after withdrawal of the facility to import tax free raw material for producing intermediary goods for export oriented industries like textile and leather.
These views were expressed by PCMA chief executive officer and secretary general Iqbal Kidwai in a joint statement here on Sunday. "Before the announcement of the federal budget, the local chemical industry under the SRO 1125 was allowed to import raw materials to manufacture goods used by zero-rated industries without payment of sales tax. However, after withdrawal of the SRO 1125 in the budget, the chemical industry became unable to maintain tax free import of raw material despite having a valid reason for continuity of the facility," said Kidwai.
He added that most of the chemical units in Pakistan were erected to meet needs of the export oriented units (EOUs) which have now been allowed under SRO 327 to import all raw materials free of sales tax. Surprisingly, he lamented, the government has also withdrawn exemption of sales tax in case the EOUs buy the similar raw materials from domestic chemical industry. "In this scenario, the local chemical industry is unable to understand the approach of the incumbent Pakistan Tehreek-e-Insaf (PTI) government towards encouraging foreign chemical suppliers and discouraging their own domestic manufacturers," he expressed.
Kidwai regretted that the non-professional approach of the PTI government has provided undue financial advantages to the foreign suppliers as the imported raw materials have become cheaper than the locally produced raw materials. Explaining the scenario, he said, when a company holding a DTRE, bond or EOU license needs to buy (import) raw materials, it does not have to pay sales tax or duties whereas if the company buy the same material from domestic industry, it is required to pay 17 percent GST and wait for its refunds after the exports which entails a minimum wait for nine months. "Under these circumstances, the domestic industry has no chance to compete with imported raw materials. In the past, since the entire sector was zero-rated, the domestically produced goods had a commercial edge on imports because of rapid availability and assurance of timely delivery and quality. In this situation, the EOUs have started giving preference to procure imported input goods which are available to them without payment of custom duty, federal excise duty, income tax and the sales tax," said Kidwai.
He said this discriminatory treatment between the imported and the locally produced goods has pushed the local chemical units towards destruction, threatening thousands of the workers to be unemployed and also increasing further pressure on precious foreign exchange reserves available to the country. Therefore, the secretary general said the government should remove the disparity and discrimination between the procurement of imported input goods and the local input goods by the EOUs, particularly in respect to the levy of sales tax. "Either, the sales tax should be levied on both imported and local input goods or both the sides should be charged with equal sales tax," he suggested and wondered that if the anomaly is not removed at the earliest, billions of the investment involved in the chemical manufacturing industry would be ruined and thousands of the factory workers would become jobless.