Export-oriented sectors: government's intention to withdraw zero rating criticised

Chairman Site Association of Industry (SAI), Salim Parekh has criticised the government's intention to withdraw zero rating from five export oriented sectors. He was of the view that discontinuity of zero rating will lead to another circular debt for Pakistan.
He said that the intention of the present government to withdraw this zero rating of sales tax and implementation of VAT would be a step backward and ruin the backbone of the nation's economy-the textile sector. Talking to newsmen, he found it surprising that despite experiencing the great advantages of the zero rating facility, the Government is again going backward.
Parekh said that today the textile sector is undergoing the worst ever crisis with yarn prices doubled, power shortage, gas load shedding, and frequent increase in power and gas tariffs. He said that in war like situation in the country due to heavy floods and severe law and order problems the government's intention to withdraw zero rating from five export-oriented sectors would push this foreign exchange earning sector to the wall.
He said business community was in favour of increasing tax net and extending tax levy on services and other non-taxed sectors. Criticising bureaucracy, he said it appears that bureaucracy has found a simple way by withdrawing zero rating facility on major foreign exchange earning and export-oriented sector. Parekh feared that the government's move may create serious liquidity problems for this sector.
Referring to Federal Board of Revenue (FBR) performance in refund cases, he said FBR had introduced electronic refund system and made several claims of quick processing of refund cases but all these measures failed miserably in effecting timely refunds. Citing Member FBR, he said that VAT cannot be implemented before clearing all pending cases of refunds, and added refund cases were shifted to RTO in November 2009 but since then hardly any claim has been cleared. Opposing move of reintroducing refund regime, Parekh said that reintroducing refund regime will only open floodgates of corruption.
He is afraid that the country may see serious negative outcome of any such action including sharp drop in exports besides large job cuts in this industry. Replying to a question, Parekh said that the Government should charge Sales Tax on retail sale which is not paid back and must exempt the manufacturers-cum-exporters because Sales Tax is taken and then given back which involves large Government machinery and proves to be an exercise in futility.