Export Sector Association expresses deep concern about discontinuation of zero-rated exports

Karachi, May 28, 2019: The Chairmen of Value Added Export Sector Associations in a joint Press Conference held at PHMA House Karachi while expressing deep concern stated that discontinuation of zero-rated status will result in ruin and disaster of export-oriented industries, a flight of capital, mass unemployment, and huge foreign exchange losses. It will also lead to corruption in connivance with dubious FBR officials under the mode of flying invoices, over-invoicing, frauds in refunds, etc.

Further, due to significant volumes of liquidity being stuck in the form of sales tax refunds, export growth will be severely affected and we may even witness a decline in exports. More than 200 billion rupees of exporters in Refunds of Sales Tax, Customs Rebate, Withholding Tax, DLTL & DDT are already held up with Government. They also conveyed serious apprehension on the proposed abolition of Final Tax Regime (FTR) for exporters.

The Chairmen and Representatives of Council of All Pakistan Textile Mills Associations, Pakistan Apparel Forum, Pakistan Hosiery Manufacturers & Exporters Association, Pakistan Textile Exporters Association, Pakistan Bedwear Exporters Association, Towel Manufacturers Association of Pakistan, Pakistan Cloth Merchant Association, Pakistan Knitwear and Sweater Exporters Association, Pakistan Denim Manufacturers & Exporters Association, All Pakistan Textile Processing Mills Association, Pakistan Readymade Garment Manufacturers & Exporter Association, Pakistan Cotton Fashion Apparels Manufacturers & Exporters Association, The Surgical Instrument Manufacturers Association of Pakistan, Pakistan Leather Garments Manufacturers & Exporters Association, Pakistan Tanners Association, Pakistan Sports Goods Manufacturers & Exporters Association, Pakistan Carpet Manufacturers & Exporters Association, All Pakistan Bedsheets & Upholstery Manufacturers Association have fervently appealed to continue the Zero-Rating Scheme in the national interest to uplift exports. The five zero-rated sectors are already documented and contribute 70 percent of total Nation’s exports and generate 50 percent of the total Nation’s employment.

They added that collecting sales tax and then refunding is a futile exercise which creates hassles for exporters and also opens flood gates of corruption. No collection and no refund of sales tax from five zero-rated export sectors is a tried and tested formula for increasing revenue and exports. We must not forget that during the last two decades the Government had tried to undo zero ratings twice but miserably failed, hence, zero ratings was reintroduced. The zero-rated scheme, in consultation with stakeholders, can further be improved for a much better outcome.

They added that the Government rather than involving in the futile exercise of collecting sales tax and then refunding should focus its energy on increasing the number of taxpayers. According to FBR, in the year 2017, the number of active taxpayers was only 1.13 million only (0.51 percent of the total population).

They warned that the Government’s attempt to collect interest-free money in the shape of sales tax will put the country’s export at stake. Today, in this period of worst economic crisis, can we afford to do away with zero-rated status for the five export-oriented industries? they questioned. They cautioned that if the Zero-Rating Scheme is discontinued, 30 percent of the export will decline in the first year. They urged the Government to broaden the tax base rather than burdening the existing tax-payers and documented sectors of the economy.

Pakistan rupee has been devalued approx. 20.16 percent against the dollar from 123.6 to 149.07 in just 9 months. Such state of affairs when the dollar is appreciating and banks are also reluctant to fix dollar rates, the Textile Exporters will be aggrieved in case of BMR because some machinery is delivered in 6 to 8 months and cost of machinery is increased to 20 percent during the period. Previously, on assurances of the Government to continue zero ratings, exporters made a huge investment in the shape of BMR.

They articulated that the Government focused on enhancing exports and identified the Five Zero-Rated Export Sectors as the main engines of growth for this purpose whereby Power Division vide Notification SRO12(I)/2019 dated 1st January 2019 has revised the power tariff for zero-rated industrial consumers to net 7.5 cents / kwh and OGRA vide Notification dated 18th October 2018 has been fixed Gas tariff for Registered Manufacturers or Exporters of five Zero-Rated sectors and their Captive Power to Rs600/- per MMBTU but discontinuation of zero rating status from the five export sector will put all the hard efforts of the government in vain.

The Federation of Pakistan Chambers of Commerce & Industry, Karachi Chamber of Commerce & Industry, Lahore Chamber of Commerce & Industry, Faisalabad Chamber of Commerce & Industry & Sialkot Chamber of Commerce & Industry have also supported the stance and demand of Value Added Export Sector Associations to continue zero-rating scheme for the betterment of economy and export enhancement.

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