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ISLAMABAD: The Commerce Ministry has reportedly proposed to the government to allow Ministry of Energy to formulate policy for periodic monitoring of previous and newly registered units along with procedure to penalize them in case of misrepresentation, official sources told Business Recorder.

The Ministry of Commerce submitted a summary on procedure for registration under concessionary regime of electricity, RNLG and gas under export-oriented sectors (erstwhile zero-rated sectors) for consideration of the ECC. The summary was discussed in the ECC of the Cabinet meeting held on October 19, 2020.

The decision of the ECC in case No. ECC-387/48/2020 did not reflect discussions during the meeting and to link the concessionary regime with actual exporters that would have repercussions on the entire value chain, the Ministry of Commerce submitted a comprehensive reply to the Cabinet Division with a request to amend the decision.

Moreover, during the Cabinet's meeting before ratification of the ECC decision, the Minister for Energy and Advisor to Prime Minister on Commerce and Investment requested the Prime Minister to hold ratification of said decision for further deliberations on the matter. The Cabinet, accordingly, deferred decision of ECC of the Cabinet.

In this regard, a meeting was held on November 02, 2020 chaired by the Advisor to PM on Finance and Revenue and attended by the Advisor to Prime Minister on Commerce and Investment, Minister for Energy, SAPM on Revenue, SAPM on Power and Secretary Finance Division.

Ministry of Commerce argued that the direction given in the above mentioned ECC decision is in contradiction to the spirit of earlier decisions on concessionary utility regime which aims to reduce input cost.

Further, government provided concessionary utility rates to manufacturers or exporters of erstwhile zero-rated sectors registered with FBR under STGO-117 in accordance with condition and of SRO-1125 and there has been no distinction between manufacturers or actual exporters.

Other arguments of Advisor to Prime Minister on Commerce and Investment on the decision were that units carrying out the outsourcing work would not be able to differentiate that purchase orders they have to process or completed is for actual exporters or local suppliers. Utility consumption is negligible for actual exporters i.e. commercial exporters and standalone stitching units, as prices of their inputs i.e. yarn, fabric and processed fabric would not be reduced; and up-stream industry may initiate export of raw/semi-processed input materials to take advantage of concessionary rates. Yarn, greige and processed fabric segments of the textile sector cannot be segregated as actual exporters and local suppliers. Last but not the least, with this decision, only beneficiaries will be Chinese and Bangladeshi who would be purchasing our yarn, greige and processed fabric or the big domestic composite units.

Revenue Division maintained that support may be provided through drawback of local taxes scheme directly to the exporters and importantly, zero rating of electricity and gas was their internal arrangement and they would be liable to re-establish paraphernalia to initiate registration again.

It was also discussed that status quo may be maintained for FY 2020-21 and no new units be registered. Finance Division noted that status quo may be maintained for FY 2020-21 and further proposed that the FBR, Petroleum Division and Power Division may conduct an exercise to review the previous list of beneficiaries.

In reply to the observations rendered by Revenue Division and Finance Division, Ministry of Commerce pointed out that since July 2019 no new unit has been registered under the concessionary regime resultantly, discouraging investment and depriving new units. Moreover, FBR was registering new units till June 2019 and they can restart the exercise as Power and Petroleum Divisions have refused to register new units under the said regime. It was decided that FBR would start registering new units and matter of linking concessionary regime with actual exporters would be considered under Subsidy Review Exercise for FY-2021-22.

After explaining the whole scenario, the Commerce Division has submitted the following proposals; (i) previous list of manufacturers or exporters declared zero-rated by FBR under condition (xii) of the SRO 1125 may be adopted in export oriented sectors; (ii) FBR may register new manufacturers or exporters of five export oriented sectors (erstwhile five zero-rated sectors), in accordance with past precedents of STGO-117, under Commerce Division's O.M. No. 1(18)/2019 dated December 13, 2019 in manner specified by the FBR and; (iii) FBR, Petroleum Division and Power Division may formulate periodic rechecking/monitoring/withdrawal strategy for previous and newly-registered units along with procedure to penalize in case of misrepresentation and misuse.

Copyright Business Recorder, 2020