Economic Coordination Committee (ECC) of the Cabinet has reportedly put on ice Commerce Division's proposal to clear pending tax refunds of exporters, well informed sources told Business Recorder.
Commerce Division, sources said, prepared its proposal in consultation with the line Ministries on the request of private sector which is running from pillar to post to get their claims. The volume of verified claims is Rs 36 billion.
Pakistan finds itself in a high growth region but remains out of sync with the regional export growth pace. Pakistan's exports have increased from $ 6.1 billion in 1991 to $ 23.2 billion in 2017 at a compound annual growth rate of 5.1 per cent compared to around 16 per cent in the regional countries.
"Had Pakistan's exports grown at the pace of regional competitors, its annual export in FY 2018 would have been $ 55 billion," the sources added.
The swift recovery of exports in 2018 at a growth rate of 14 per cent underscores the potential of the export sector to bounce back in case its competitiveness is restored. Similarly, the slowdown in export growth during the last four months underscores the fragility of export recovery.
According to sources, Pakistan's low export growth is primarily due to structural distortions, anti-export bias in the policy paradigm and eroding competitiveness. The government has recently taken initiatives for improving competiveness of the export sector by allowing reduced energy prices to the five export oriented sectors. One of the major impediments faced by the export-oriented industry is the liquidity crunch due to the held up tax refunds and non-release of budget for the Drawback of Local Taxes and Levies (DLTL) under Prime Minister's Export Package.
For restoring the competitiveness of the export sector, Commerce Division proposed short-term export enhancement measures: (i) to improve liquidity of the exporting enterprises, the backlog of refunds of sales tax and duty drawback may be cleared as contained in the Government's 100 days agenda;(ii) the refunds for drawbacks of DLTL, allowed under the Prime Minister's Export Package, may be released by Finance Division within one week. The verified claims worth around Rs 36 billion are pending with State Bank of Pakistan and ;(iii) sales tax refund claims and customs duty drawback may be paid by State Bank of Pakistan through the authorised dealers immediately at the time of realization of export proceeds. The Treasury Rules, 1977 may be amended for this purpose, if needed.
When contacted Secretary Commerce, Younus Dagha said "it has been deferred with directions to develop a mechanism to implement Commerce Ministry's proposal for prompt payment to exporters on Sales Tax refunds by Federal Board of Revenue (FBR and DLTL payments by SBP".