Imposition of supertax: Prgmea conveys its reservations to Miftah

ISLAMABAD: Pakistan Readymade Garments Manufacturers and Exporters Association (Prgmea) on Thursday conveyed its reservations to Finance Minister Miftah Ismail over the imposition of the supertax on the industry, pleading that now the industry will pay a total of 39 percent tax including 29 percent corporate tax and 10 percent supertax.

Federal Minister for Finance and Revenue Ismail held a meeting with the delegation of Prgmea headed by its Chairman Shaikh Luqman Amin at the Finance Division on Thursday.

Rana Ihsan Afzal, coordinator to the PM on Commerce and Industry, the FBR chairman, and senior officers from the Finance Division and the FBR attended the meeting.

The industry was also represented by Ijaz Khokhar and Mubashir Naseer Butt before the Ministry of Finance.

The delegation highlighting the contribution of garments in the exports of Pakistan apprised about issues related to taxation on value-added garments, refund of sales tax, etc. Issues of defer payments, the DLTL, and GSP plus status were also discussed in the meeting.

The apparel sector lies at the apex of the textile value chain and exporting up to $7.6 billion apparel products and the sector has a huge scope of expansion.

Ismail expressed the resolve of the present government to promote business activities and facilitate the business community to attain sustainable growth in the country. He assured the delegation to resolve their issues at priority and also stressed the delegation to enhance export base.

The minister was informed that a new tax under the caption of “Supertax on high earning persons” has been imposed under section 4C which shall now be applicable to all taxpayers, individuals, AOP and companies. The industry requested to remove the imposition of 10 per cent super tax on large industries; which already pay hefty corporate tax of 29 per cent and generate millions of jobs in the country as well. No country in the world can charge 39 per cent tax to corporations and still keep the economy afloat. Additionally, new private-sector and foreign investments dry up completely in an uncompetitive market.

As it will simply affect a huge number of end-users of the garments industry. Therefore, the government should broaden the tax net instead of burdening the existing ones. Exporters should be given an exemption for the growth of the economy and exports.

All stuck-up claims of the exporters (DLTL, DDT, Customs Rebates, Sales Tax rebates, etc) should be released. The liquidity crunch is a major stumbling block in the way of improving exports. The whole industry may break down amid a delay in the release of sales tax refunds. Exporters are suffering a lot for no payment of already issued RPO’s for sales tax, the finance minister was informed.

An important amendment targeting the final tax regime businesses, particularly for exporters, is made. A new section 4A has been inserted which provide that the exporter shall not be entitled to take credit of any sum as in excess of imputable income. The imputable income on work back formula as devised under section 2(28A) ranges from three per cent to five per cent of export. If profit of any exporter exceeds three per cent to five per cent range then he is required to submit the financial statements duly audited by a Chartered Accountant. Even after the submission of audited accounts, the officer has the authority to make sure that ‘the excess amount is reasonably attributed to the business activities’. This amendment shall have far-reaching effect on exporter and Sialkot being an export city shall be the main target by the FBR. This amendment resumed already omitted the infamous section 169(4) which compels the taxpayers to take credit of the imputed income rather than actual, industry explained to the finance minister.

The textile industry is faced with countless opportunities to capture greater market share, but reforms in energy, technological upgradation, diversification and value addition will be necessary in order to enhance the potential of the sector and facilitate economic growth at unprecedented levels.

One thing is very crystal clear that if we want to increase exports of our country, we must need a level playing field as per our regional competitor countries, then we will be able to compete in the international market.

The DDT notification issuance is pending for the period from 1st July 2021 to onward. To realise the objective of facilitation/promotion of exports, we request to issue the DDT notification at the earliest. It will boost the exports of the textile industry. Pakistan’s textile sector especially SMEs have seen to go through different challenges. So, the government must provide some relief to the SMEs.

Furthermore, the industry requested the finance minister to announce a decent percentage of drawback rate of incentive without a condition of increment with simple procedure and paperless working instead of other subsidies as it will reduce the cost of doing business and will provide relief to the industry to make them regionally competitive.

The industry also informed that the markup rate for exporters has been increased by 235 per cent under export refinance. This is a major source of expense for exporters, Pakistan needs exports to bridge the current account deficit and with such massive increases in expenses it would become extremely difficult.

GSP+ is the lifeline for the exports of Pakistan, it needs a lot more from the government to maintain the status for the future. We need to build the image of Pakistan internationally and Foreign Ministry should be involved in this as well. We simply cannot afford any problems with the GSP+ status, and the Pakistani Government should be actively lobbying for this.

Though the present status will expire in December 2023, Pakistan can face its destructive effects from next year because the international buyers will start searching for other regional suppliers for placing new orders, leading to export loss of around $3 billion for Pakistan. The extension in the European Union’s status has played a great role in enhancing Pakistan’s exports. The government will have to act immediately to push the EU countries for extension of GSP Plus facility to Pakistan for another 10 years.

The FBR has abolished the final tax regime (FTR) u/s 115(4) through Finance Act 2019-20, now exporters are falling in the minimum tax category. They have submitted their tax returns for the year 2020-21 in normal tax u/s 114(1) hence, the government should review the amendment and re-instate the FTR with immediate effect.

Exporters should be facilitated so they can focus on growing their businesses and earning foreign exchange rather than being involved in dealing with unnecessary labors at home.

The government should diligently work on bringing around significant improvements in ease and cost of doing business for the export industry. The government has not announced the policy regarding energy tariff for the textile sector. A clear vision is necessary for any business and without a clear-cut government policy, we cannot even book orders for the future with certainty.

Moreover, the PRGMEA request to the government to take quick action, taking notice of forced load shedding in the export industry. Exporters would not be able to meet timely shipments due to closure of one shift while local supplies of goods would also face problems. Closure of the night shift would hit over 30 percent of total production of the manufacturer. The industry requested the government for exemptions from power outages for exporting SMEs, as the power crisis across Pakistan has intensified.

Copyright Business Recorder, 2022