Liquidity crunch, volume of refunds: FBR, textile industry directed to come up with authentic data

Prime Minister Imran Khan Sunday directed Federal Board of Revenue (FBR) and textile industry to come up with authentic data on liquidity crunch and volume of refunds following proposed abolition of zero rating regime for textile and other export oriented sectors during the next budget for 2019-20. Prime Minister Imran Khan convened special meeting on Sunday to discuss issues relating to the abolition of zero rating regime.
Reportedly, Adviser to PM on Finance Dr Abdul Hafeez Shaikh had told the textile industry in Lahore that zero rating would be done away with in the next budget.
"Now the PM would take final decision on this as PM has asked the both sides to present their facts", sources said. They said that the PM has directed both sides to come with facts and then he would take final decision on it. "We will sit again to find out solution" official added.
There are differences between the FBR and textile sector over exact size of liquidity crunch and volume of refunds in case of abolishing of zero rating regime for textile and other export oriented sectors during the next budget for 2019-20.
Sources said that the Bangladeshi model can be replicated where the exporters' refunds will be instantly issued when the proceeds of exports will be cleared through banking channels. The central bank will issue refunds instantly and a mechanism can be devised in this regard.
An expert opined that the total sale of textile sector was estimated at $23 to $24 billion including $12 to $13 billion exports and remaining $8 to $10 billion domestic consumption. In rupee term total value of textile sector stood at Rs 3.4 trillion. Differences have emerged as the textile sector argued that its domestic sale was much less and major chunk was utilized for exports. With abolishing of zero rating regime that will translate into imposition of 17 percent General Sales Tax (GST) will result into liquidity crunch of Rs 700 billion with effect of stuck up refunds. However, the FBR has estimated that the stuck up refunds with 17 percent GST on whole value chain of Rs 3.4 trillion will result into liquidity crunch of maximum amounting to Rs 150 to Rs 200 billion on basis of time lag of two months. If the stuck up refunds could not be cleared in two months then the FBR could be held responsible.