Textile sector has opposed the proposed value added tax (VAT) and said the zero-rated sales tax regime must continue to protect the ailing sector from a financial collapse. Representatives of around 16 different associations of textile sector disapproved the government's planned move of imposing 17 percent VAT upon export oriented textile sector to be implemented from October 1, this year.
"Discontinuation of zero rating of sales tax will yield no benefits whatsoever to the government's treasury rather it will break the backbone of already struggling textile sector," said Chairman of Council of All Pakistan Textile Association (CAPTA), Zubair Motiwala at a press conference held at PHMA House. He urged the government to revisit its decision of introducing VAT and abolishing zero rating facility, expressing fears the move would ruin the textile sector. "Despite experiencing the great advantages of zero rating facility the government is again going backward," he maintained.
Motiwala observed the textile sector was facing the worst ever yarn crisis, as the commodity's prices went up two folds presently, which caused the cost of input to mount phenomenally. He cast doubts whether the tax authorities would be able to clear VAT refund claims on time, saying there are fears that the generated amount from the tax around $750 million would remain held up with the government as interest free liquidity- a loan of the exporters.
He said the sales tax authorities were unable to timely pay the sales tax refund claims, which was causing financial disruption to exporters. He said the exporters were also facing additional expenses to clear the claims. "Discontinuation of zero rating of exports will open floodgates of corruption and encourage a large number of fake firms to make flying invoices and make easy money," Motiwala said.
Chairman CAPTA also lauded the Foreign Minister's effort at Brussels for seeking duty free access for Pakistani goods to EU markets but warned VAT implementation would make the country's trade growth into Europe meaningless. He said banks were not ready to lend money to textile sector and the proposed tax would further deprive the exporters of capital.
Co-ordinator CAPTA, Javed Bilwani said the government did not have any liquidity and held up textile exporters' sales tax refund claims of Rs 12 billion since 2005. He warned the tax enforcement would increase the shift of textile units to other countries including Egypt and Bangladesh. Acting Chairman APTMA Yaseen Siddiqui said the textile sector would resist the enforcement of VAT and termed it a "backward step" of the government. He said VAT implementation was not viable and urged the government to renounce its tax programme, as it would render not much amount to the national revenue. He said textile sector was already fighting soaring cost of power and gas besides other utilities and VAT implementation would "crush" the sector.