ISLAMABAD: Textile value added has proposed the revival of zero-rating regime for the five export-oriented sectors, changes in anti-dumping duties regime, and provide a fair level-playing field and a conducive environment to exporters in the coming budget (2021-22).
The Pakistan Hosiery Manufacturing Association (PHMA) has submitted its proposals to the government for budget 2021-22, which stated that the federal government rescinded SRO1125 and imposed 17 percent sales tax on erstwhile five zero-rated export sectors and exporters are required to apply for refund after export of consignment.
Number of exporters has been decreased as compared to last year due to imposition of 17 percent sales tax which blocks exporters' precious liquidity. It is observed that the exporters, who have filed their refund claims to date have received 35 percent of claims payment only, while 65 percent of the refund claims are stuck up with the government, which cumulate approximately 12 percent amount of exporter's running capital. Exporter can apply for refund only after export of consignment.
In this manner their liquidity is stuck.
Likewise, the exporters make purchases for production of export products at least six months in advance, which is consumed based on export orders causing financial hardships. It is imperative to revive SRO 1125 in its true spirit and reintroduce system of No Payment and No Refund of Sales Tax for the five export-oriented sectors.
Although the government has streamlined the FASTER system, nonetheless, the exporters are facing liquidity crunch amid condition of filing claims only after dispatch of shipment, which takes at least three months.
Consequently, the liquidity is held-up causing financial pressure on exporters.
The government must consider to restore and revive Zero Rating under SRO 1125 in real spirit or consider reduction in rate of sales tax from current 17 percent to five percent to facilitate the exports ensuring availability of required/adequate liquidity and smooth cash flow, to boost the confidence of the exporters to enhance their exports and cement their business ties with the foreign counterparts to capture true business potential.
Currently, the taxpayers and filers, particularly, the industries are overburdened with multiplicity of taxes.
Overburden of taxes on already registered taxpayers deprives a level-playing field and business viability against non-taxpayers.
It is proposed that all the entities engaged in business having commercial and industrial utility connections but are out of tax base should be brought to the tax net making them taxpayers and filers.
According to the NEPRA, the State of Industry Report 2020 and the FBR Tax Directory Data 2018, the number of commercial and industrial consumers are higher as compared to registered taxpayers with a huge difference who must be brought into the tax net as they are commercial and industrial entities but out of tax net.
It will ease down the burden of taxes over registered taxpayers and shall also broaden the tax base resulting to further documentation of economy.
Currently, the WHT is charged at various levels such as commercial knitting and dyeing and items such as import of raw material, registration of new vehicles etc, which is adjusted or refunded later. Exporters whose customs rebate claims, sales tax claims, and WHT claims are pending, face severe liquidity crunch which is causing them great hardship.
Exporters fall under final tax regime u/s 154(3B) and should be exempted from payment of the WHT.
In case, exporters export volume is at par or increased from previous year then exemption certificate should not be required to obtain from the FBR.
In case, export volume is decreased then exporters may obtain an exemption certificate. This would also help our exporters in using the cash liquidity for enhancement of the exports of our nation.
This will greatly benefit them and also lower workload on the FBR, who are busy in a futile exercise. They will be getting more time to focus on broadening of tax base, which is a dire need of the time. The Withholding Tax should be reduced from one percent to 0.50 percent.
This would also help our exporters in using the cash liquidity for enhancement of the exports of our nation.
The FBR should withdraw its SRO 747(I)/2019 dated 9th July, 2019, so that exporters operating under Export Oriented Units (EOUs) can procure input goods without taxes. Further, it is also proposed that industries, registered in EOUs and export 80 percent of their annual production, should be supplied utilities - gas and electricity, without sales tax at zero rate.
Stitching units' manufacturers-cum-exporters, who do not have composite units but get the work done outside through vendors, are not allowed facilitation under the DTRE scheme.
The facility of import of raw materials/yarn under the DTRE scheme only allowed to composite units.
There is a clear discrimination within the country as composite units are allowed and manufacturers-cum-exporters, who do not have composite units, are not allowed.
Further, the FBR Department is disallowing the exporters to get their manufacturing-related work from subcontractors/outsource.
Application of import under the DTRE scheme should be processed within 24 hours, (the current processing time is 15 to 30 days). Also goods imported under the DTRE scheme should be allowed for export within 24 months, instead of the current 12 months' period.
The facility will encourage and boost the confidence of the exporters to enhance their exports and cement their business ties with the foreign counterparts to capture true business potential.
On demand of value-added textile sector, the government abolished five percent regulatory duty on import of yarn till 30th June.
Recently, the government also removed customs duty of five percent on import of cotton yarn but only for the period till 30th June 2021.
It is proposed that for manufacturer-cum-exporters, duties on import of raw materials and intermediate goods for re-exports must be zero percent.
The cost of manufacturing of export-oriented industries is still higher as compared to the regional competitors and the exporters are struggling hard to manage their exports in this strict cut-throat competing environment.
Copyright Business Recorder, 2021
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