FY23 budget: EFS may be amended to restore GST-free procurement of inputs

ISLAMABAD: The government is expected to make major amendments to the Export Facilitation Scheme (EFS), 2021 in coming budget to restore sales tax-free local procurement of packing material, raw materials or components/parts by the registered exporters.

Sources told Business Recorder here on Monday that the exporters have strong reservation over omission of serial No.15 of the Fifth Schedule of Sales Tax Act, 1990 through Finance (Supplementary) Act, 2022, keeping in view the EFS 2021 were introduced to facilitate the exporters to enhances the exports for more foreign exchange.

In this connection, different export associations of small and medium size exporters have approached the Federal Board of Revenue (FBR) for restoration of the facility deleted through the Finance (Supplementary) Act, 2022.

Sources added that the proposal is under consideration of the FBR to be incorporated through the Finance Bill 2022.

Presently, the exporters are operating under the Export Facilitation Scheme, 2021 (EFS licensee) were entitled for zero-rated purchase of raw materials, components, parts and machinery in terms of Serial No. 15 of the Fifth Schedule of the Sales Tax Act, 1990.

Exporters informed that the referred serial was omitted vide the Finance (Supplementary) Act, 2022. As of today, exporters are constrained to procure all raw materials, components, parts etc.

on payment of sales tax. Since exports are zero-rated, therefore, input tax paid on purchase of these goods is claimed as refund. It is pertinent to mention that EFS Licensees are entitled for duty and tax free import of these items.

The duty and tax free import of EFS Licensee will cause drainage of foreign exchange of the country. In the current economic situation of the country, Federal Government is adopting drastic measures to retain foreign exchange to boost foreign exchange reserves of the country. Recently, the government has banned the import of certain items vide SRO 598(1)/2022.

Exporters have requested that the local purchase of EFS Licensees may be zero-rated to encourage exports and to support the national cause of boosting the foreign exchange reserves of the country.

The local supplies of packing material or components to registered authorized person under Export Facilitation Schemes, 2021 may be restored the serial No.15 of Fifth Schedule of the Sales Tax Act 1990, so the exporters can buy the packing material locally under the EFS 2021 for exports.

For example, the exporters of fruit and vegetables falls in small and medium category of exporters as compare to textile sector and have limited cash flows to export fruit and vegetable items.

The season of such export product is limited 2-3 months and very hard to manage the cash flows and transaction in a very limited period, whereas the grower always received maximum payment in advance. The packing material is one of the major components (almost 30-35 percent cost) for fruit and vegetable exporters.

The exporters purchase the packing material locally, to avail the benefit of zero-rated sales tax for exports under the DTRE/EFS 2021, can save the cash flows to increased their exports through maximum rotation.

These exporters are required to either to buy the packing material under the sales tax from local market or import the packing material. They are not in a position to import the packing material for re-export under EFS 2021 due to limited resources, as banks required mortgage of assets as collateral to open LC or CAD.

The small and medium size exporters are not in position to import the packing materials and they don’t have assets to mortgage with bank for import facility as well as don’t have working capital.

The small and medium exporters will not in a competitive position, when they buy the material locally under GST instead of EFS/zero-rated schemes, whereas the large exporters have arrangement with banks for imports against mortgage of assets, so the level playing field is not existing for small and medium enterprises, they added.

Copyright Business Recorder, 2022