FAISALABAD: With the withdrawal of Zero-Rating (SRO 1125) and the implementation of a 17 percent General Sales Tax (GST) on export-oriented sectors, the cost of doing business has increased to unsustainable levels, as a consequence of the liquidity crunch has increased said Khurram Mukhtar.
In a statement here on Tuesday, Patron-in-Chief Pakistan Textile Exporters Association (PTEA) Khurram Mukhtar expressed serious concerns over unnecessary delay in payment of exporters’ sales tax refunds. “Textile industry is the backbone of economy and has always played a pivotal role in the upward trajectory of foreign exchange.
After witnessing a historic hike, it is now nose diving by 15.23 pc in October 2022, from $1.60 billion to $1.35 billion, over the corresponding month of last year, the textile exporters are witnessing extreme liquidity crisis.
Despite all the commitments, FBR had failed to pay the sales tax refunds of zero rated sectors within 72 hours as payment of exporters’ refund claims have been stopped from over a month.
Billions of rupees, which should be utilized as a working capital in industry is stuck with FBR at all times as a result of tax collection and refund mechanism. Consequently, It is affecting their working capital, putting their business to halt by hampering their export activities. It is ultimately affecting the country’s foreign exchange reserves which are continuously declining.
Requiring businesses to first pay taxes and then later struggle to obtain refunds is an irrational policy measure for several reasons. Sales tax is consumption based, which inflates inventory and capital costs, serving as an impediment to new projects as capital cost increases by 20 percent and refund can only happen after commercial operations.
Referring the Rule 39F of the Sales Tax Act 2006, he said that sales tax refund claims for which approved ERPOs are issued will be paid within 72 hours but funds have been stopped for more than a month.
He said textile exports are expected to increase from $19.35 billion (FY 22) to $ 25 billion this fiscal year and $50 billion over the next five years. Considering that our currency has depreciated by 60-70% in the last year, exports have climbed to over Rs. 3 trillion, but working capital has not increased. To bridge the gap, industry requires double the amount of working capital that is currently available.
Under these circumstances, the restoration of zero-rating (no-tax, no-refund) is imperative to improve exporters’ liquidity position, improve competitiveness and act as a deterrent to cheating and smuggling, and as a result, the market will remain documented and largely made in Pakistan.
He further stated that the pace of competitiveness and modernization in the global textile market is progressing exponentially. In order to effectively compete, we must lower our cost of doing business and make it comparable to our regional competitors such as India, Bangladesh, and Vietnam.
To achieve the targeted exports, business-friendly policies should be ensured for the industry to grow and further achieve increased targets on a yearly basis. There is immense potential in the textile industry to engineer an economic turnaround and achieve targets not only in exports but in economic growth, through consistent policy support.
He further stated that the Pakistan textile industry is likely to lose markets internationally because of various taxes, levies, presumptive taxes and surcharges, making the exports 10 to 15 percent costlier against the regional competitors.
Hence, it is the need of the hour that government should adopt pro-export policies. The textile industry in Pakistan can only be viable if the government extends a zero rate regime in true sense throughout the complete chain and restore the SRO 1125 to its original status as zero-rating regime applicable in the past, so that country could continue its journey to development and prosperity.
Copyright Business Recorder, 2022
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