The Pakistan Tehreek-e-Insaf (PTI) government has decided to withdraw the zero rated facility, claiming the move will help them to prevent leakages and streamline revenue flow.
The decision comes despite the many appeals and protests of the five major zero-rated export sectors of the country, namely textile, leather, carpets, sports goods and surgical instruments. Previously, the Statutory Regulatory Order (SRO) 1125(I)/2011 had offered zero-rated sales tax on inputs and products of the said five sectors. However, this SRO has been withdrawn during the announcement of the federal budget for the fiscal year 2019-20.
“The objective behind the move is to resolve the problem of delay in refund payments. The zero-rating created a loophole and the benefit was being availed by unintended beneficiaries and non-exporters,” said Minister of State for Revenue Hammad Azhar while presenting the budget for 2019-20. “The reduced rates for finished goods are also harming revenues.”
The scrapping of SRO 1125, the main goal behind which are steadier revenue streams, would result in restoring sales tax at the standard 17% on the five zero-rated sectors. The state minister also said that the rate of sales tax on local supplies of finished articles of textile, leather and finished fabrics may be raised to 17%. However, the retailers opting for real-time reporting would be given a relaxation and will be charged 15% tax, he added.
The announcement has not been well recieved in the industry, and the withdrawal of zero-rated facility for the five exports is expected to push down exports by up to as much as 30% according to the exporters’ own estimations.
Speaking to the media, Pakistan Hosiery Manufacturers and Exporters Association (PHMA) Chairman Jawed Bilwani while criticised the budget saying “This decision is against the textile policy which the PTI government presented before general elections. Exporters reject the government’s decision on withdrawing the SRO 1125.”
“The government is taking these steps to meet IMF conditions,” the PHMA chairman said. “Pakistan is a sovereign country and the government should take decisions in its own interest and not give in to external pressure.”
The government already owed the exporters billions of rupees, how would it be able to pay new refunds, Bilwani asked.
“The withdrawal of zero-rating will definitely lead to the shutdown of small and medium export industries,” he said.