All Pakistan Textile Mills Association (APTMA), the country's largest industrial association, has said that an “extreme liquidity crunch” has engulfed the textile sector, which would hamper exports.
In a letter to Prime Minister Shehbaz Sharif, the trade body urged to review the zero-rating for the export-based industry.
APTMA said approximately 60% of the industry has closed or is on the verge of closure primarily due to an extreme liquidity crunch.
APTMA said the liquidity crisis has occurred due to demand destruction at the onset of a recession in export destinations, abandonment of the FASTER system commitment to pay refunds within 72 hours, foreign buyers extending their payment period against shipments, currency depreciation, and an accumulation of 'Deferred Sales Tax' which has not been refunded for the last 3 years.
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APTMA said that it had held a series of meetings with Ministry of Finance, Ministry of Commerce and FBR since June 2022 over the restoration of SRO 1125 (zero rating).
It said that the GST system has been counterproductive as it has distorted the level playing field for local manufacturers and now heavily favors sales tax free imports.
“It appears that the government policies do not take into account the need to develop and support domestic industry and are actively substituting local production with imports. Consequently, the economy has been undergoing premature de-industrialisation and capital is rapidly draining from the country,” said APTMA.
It added that the government already owes refunds worth over Rs300 billion to exporters and has no fiscal space for making that payment.
“Secondly, there is no reason for exporters to believe that they will get their sales tax refunded in due time while their prior refunds still remain unpaid, thereby depriving them of liquidity and of their own resources in order to tax local consumption of less than 20% of the industry's output.
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APTMA urged the government to review its decision on revoking zero rating, which was rescinded for the export-based industry in the June 2019 budget announcement.
“Back in 2019, the government assured industrialists that they will examine the issue in 6 to 8 months, but no such review has been taken even after the passing of 3 years,” said APTMA.