Textile export sector: 'Rs 189 billion refund claims erode financial viability'

Pending refund claims of Rs 189 billion have eroded the financial viability of textile export sector which is tantamount to butcher the only available "Golden Egg Laying Hen" in addition to expected unemployment which will trigger a new wave of lawlessness amid prevailing complex and highly volatile political mess in the country.

These views were expressed by Zafar Iqbal Sarwar Senior Vice President Faisalabad Chamber of Commerce & Industry (FCCI).

He told that textile industry has supported government's drive to enhance tax collection through documentation and transparency of economy. "Textile industry is convinced to double the export from US$ 13 billion to US$ 25 billion in line with Prime Minister's vision," he said and added that facilitation is imperative to achieve this cherished goal. He pointed out three major irritants including sales tax refund, CDC bonds and payment of all other pending refunds which are hindering our exports.

Quoting statistics, of sales tax refunds, he told that Rs 80 billion are regular ST refund claims pertaining to July 2019 to October 2019. Another amount of Rs 10 Billion and yet another Rs 30 billion claims are pending respectively under section 66 (Pending since 2014) and deferred since 2012. About other pending refunds, he told that among these include Rs.15 Billion from the head of Duty Drawback, Rs 19 billion from income tax, Rs.15 Billion from income tax credit and Rs 5 billion from the head of provincial sales tax.

Explaining the practical complications of sales tax refund, Zafar Iqbal Sarwar told that in recent 2019-20 budget the government has introduced new sales tax regime and refund filling procedures for export oriented textile industry. As a result of these measures, the exporters have paid an estimated amount of Rs 60-80 billion as input sales tax but they are unable to file refund claims due to procedural bottlenecks. "Now the industry is facing serious liquidity crises due to inability to file claims of huge stuck-up refunds," he added.

Regarding major hindrances in filling of sales tax claims, he pointed out that FBR has made the procedure of sales tax refund filling so complex that it is impossible for export sector to file the claim and fulfils all the requirements and conditions imposed by FBR coupled with complications and complexity of Annexure-H. "The purpose of this annexure is to ensure automatic stock reconciliation and refund calculation", he told and added that it has been experienced that in most of the cases this annexure is being rejected without any details of discrepancies. "Even RTO is unable to provide the reasons or details of any discrepancy," he told and said that ERPO is unable to proceed and thus refund cannot be granted unless online Annexure-H is accepted electronically.

About complexity in HS codes, senior vice president FCCI told that HS Codes must be filled by both buyer In Annexure-H and by supplier In Annexure-C and thus a single mismatch in HS codes leads to discrepancy and ultimately rejection of sales tax claim. This procedure has been made so complicated that even large textile units with the team of qualified accountants and consultants find it difficult to properly fill out the claim and matching of HS Codes. He also pointed out other discrepancies and told that toll manufacturing sales tax refund claim cannot be filed because GST on services is collected at the provincial level while there is no coordination between PRA and FBR.

He said that in order to support the government in tough monetary conditions, some export oriented textile units had opted for Promissory Bond option but they are still in quandary and waiting for any discounting mechanism where as other units are getting cash in full settlement. He further told that bonds are not guaranteed by Government of Pakistan and do not carry sovereign guarantee. "Under these circumstances and without a sovereign guarantee no bank is willing to accept these bonds", he said and added that bonds must be declared acceptable to pay or adjust Govt. dues in the form of income tax or sales tax liabilities. "Similarly, interest on these bonds should be compound and linked with Kibor / treasury bills rather than simple 10%", he demanded, adding that maturity and encashment date with proper mechanism must be announced and printed on these Bonds. He further demanded that in order to improve current liquidity and survival of export sector, accrued DLTL, TUFF, deferred sales tax and income tax refunds must be settled immediately.