Since the 1st of July this year, an across the board sales tax of 17% has been imposed on most manufactured items. The exports which are "zero rated" all over the world are supposed to be zero rated in our country also. So the government has announced that it will refund the sales tax paid by exporters on their inputs. We have had this system fail in the past 20 years on three separate attempts. The poor genuine exporters were left begging for their refunds but fraudsters made up bogus documentation and decamped with huge amounts, unpunished and unquestioned.
To avoid fraud and misuse, the FBR decided to automate and computerize the whole system. An extremely complicated computer programme was made and a new system called "fast" was introduced. Exporters were promised refunds within 72 hours by the FBR. An exporter has to fill his refund application online and without manual intervention the computer will process it within 72 hours and pass on the refund worked out to the State Bank of Pakistan to be paid to him within the next 72 hours. All this automatically and without any discretion to any person, thereby hoping to eliminate graft and misuse.
A very complicated system was introduced in July. The system is so complicated that a normal educated person cannot fill its Form-H on which the whole system rests. This form is such that if you are unable to fill it properly and make any error it will not accept your application. The error, maybe yours, or maybe of the system itself. Even after six months the system is not working and there are some of the glaring lacunae:
1) A local supply vendor, who is registered and has a valid sales tax registration; does not pay his own sales tax to the government on the due date will put all his customers into trouble. The system will reject or deduct all such amounts from exporters' claim. In essence, if the FBR is unable to collect its sales tax dues it will penalize exporters and not the firm that has skipped the payment. In essence, 'punish the one you can get hold of - rather than the offender!' the situation reminds this writer of a jokes regarding the justice of the yesteryears rulers. When the Chief Sardar was advised that the hangman's noose would not fit the neck of the offender the Sardar Sb replied: "then hang the person whose neck will fit into the noose!" In effect punish the exporter for the delays or non-payments of your own registered vendors of sales tax.
2) As none of the parameters has been fixed or discussed and announced so when an application is rejected the applicant does not know why it has been rejected. There are basic parameters particular to each industry or firm. The towel industry which this writer knows uses locally produced materials, which are taxed, and adds 20/25% by value in terms of salaries and wages, financial charges, profits or losses.
The factors for which our applications are rejected are not revealed. Consequently the applicant is left guessing what went wrong. For sure any fair system will advise the recipient of a denial or rejection the reason for his punishment. This as a matter of justice and fairness as well as to the improvement of the system. There must be a means of redress. Maybe the applicant would like to explain his case and present justifications for his appeal. All recognised systems of governance allow a full avenue for appeal to a neutral umpire. So if you are accused of a crime, civil or criminal, there is a set course of appeal to the initial verdict. Here the FBR provides you with none. The FBR is the judge, the jury and your adversary. It is their job to collect as large a volume of tax as possible from the taxpayers. Obviously, a refund to them is anathema, the last thing they wish to do. Consequently, it is in their interest to delay, reduce, and withhold refunds to exporters.
The results are obvious. There is a tremendous hue and cry for refunds. Refund applications for July were largely rejected. Why? No one knows. Then the system was relaxed, and some applicants got their August applications passed. Most are still awaiting the results of their July applications. A survey by the towel manufacturers association of its members in November showed that out of the 70 who applied, only 9 got their refunds as per their application. Another 8 got partial refunds, 12 applicants were rejected outright, and 41 did not know what happened to their applications. This means that 61 out of 70 exporters will have to cease or curtail their business. Surely this would not be a very good measure to promote exports.
A shroud of secrecy surrounds the whole system. There seems to be distrust by the FBR, not only of the exporters but also of their own staff. Surely rules of good governance must apply. A transparent easily understood system must be introduced. A system of redress and appeal be made in which members of the trade bodies be included. If there are any frauds then criminal proceedings should take place - not only against the concerned applicant but also of the official who collaborates and facilitates. All this must be done soon or our exporting industry will be injured, particularly those who are small size and not so well versed in computers.
(The writer is Chairman, Towel Manufacturers Association of Pakistan)