Revamped zero-rating regime: commercial importers reject move

The commercial importers have outrightly rejected revamped zero-rating regime notified under SRO.1012 (I) / 2011, imposing 5 percent sales tax on imports of raw materials/inputs used by five major export sectors, which has created a serious distortion in the sales tax regime.
In this connection, Pakistan Chemicals & Dyes Merchants' Association (PCDMA) has written a letter to FBR Chairman Salman Siddiq on Thursday for immediate rectification in the SRO.1012(I)/2011 to save thousands of commercial importers from discriminatory treatment as compared to the manufacturers.
The PCDMA has categorically conveyed to the FBR that unilateral and discriminatory changes have been made in the zero-rated regime through SRO 1012(I)/2011. A serious distortion has been created in zero-rated regime by levying 5% Sales Tax upon commercial importers at import stage, which they have to claim later as refunds. This is despite the fact that the association has been writing to Chairman FBR and during last meeting held at Pakistan Hosiery Manufacturers' Association, Chairman FBR agreed to consult the stakeholders before bringing any change to zero-rated regime.
According to the PCDMA communication to the tax authorities, the commercial importers have been engaged in supply of goods to registered persons of these five sectors at zero percent and to unregistered persons and other registered persons at notified higher rates as the case may be. The creation of refund regime for commercial importers is unprecedented and nowhere commercial importers can claim refunds, the refunds are claimed by exporters. The creation of refund regime for commercial importers shall open floodgates of corruption and fraudulent refunds and at the same time shall create numerous problems for honest commercial importers. If the refund system was effective why there is zero-rated regime for industry.
The levy of 5 percent Sales tax on commercial importers and allowing exempted imports by manufacturers shall create an inequitable taxation rendering commercial importers uncompetitive. All the raw materials listed in SRO 1012 (I)/ 2011 are essential raw materials of these 5 export sectors and are mainly used in these sectors only. That's why they are included in zero-rated regime. Levying of 5% Sales tax on their import by commercial importers shall in effect render Small and Medium Sized industry in these export sectors uncompetitive.
The association supports the FBR's drive to tax local sales of these 5 export sectors. However, the chemical and dyes form only a fraction of the total inputs in these 5 export sector and if FBR is not getting expected revenue then it's the registered manufacturers in these sectors who are not declaring their local sales and paying due taxes. However, instead of putting checks there FBR is further rewarding them by throwing Commercial importers out of the competition.
The PCDMA has proposed levy of a uniform withholding sales tax @2 percent across the board on all products and raw materials and on all registered persons in these 5 export sectors on every stage of supply. The reason behind this 2 percent levy is as follows:
According to claim by textile industry, they export 70 percent of their production leaving 30 percent in local sales. Applying this on 5 percent rate of Sales tax on finished product, the liability of textile sector comes to around 1.5 percent of the total sales value.
However as Electricity, Gas and Labour components do not have any sales tax levy this rate should be adjusted to 2 percent to cover the Government revenue on textile sales. Secondly, this gradual shift from zero to taxable regime shall pave way for convergence of sales tax rates to a single uniform rate in coming years. A uniform levy shall ensure healthy competition and shall ensure survival of small and medium sized industry, which is the backbone of our economy and a major job provider, the association added.