Expressing serious concern over huge blockage of sales tax refunds of textile sector, Commerce Minister Khurram Dastagir Khan on Thursday announced that the ministry strongly advocates restoration of sales tax zero rating regime for leading export oriented sectors to enhance country exports.
The Federal Board of Revenue (FBR) is not timely paying refunds to exporters resulting in piling up of huge backlog and exporters working capital is drying out, said the minister while briefing the Senate Standing Committee on Textile Industry. The committee which met with Mohsin Aziz in the chair was informed that sales tax rate is nominal on textile industry but it is on big industry and resultantly the impact is huge.
The industries stakeholders are of the view that many of their genuine claims were rejected to reduce the quantity of refunds, said the minister, adding that zero rate regimes are the best option. The FBR needs to ensure the financial ability for timely refunding, then there would be no issue, otherwise the government should go for zero rating regimes for export oriented sectors, the minister added.
FBR representatives informed the parliamentary panel that the government has decided to withdraw all concessionary SROs and the zero-rating to textile industry could not be reverted. The board also turned down the committee recommendation of collecting sales tax at retail stage, while saying that it envisages a paradigm shift in the existing VAT mode. The probability of single stage sales tax at the retail stage only possible in the fully documented economies and the indigenous economic environment of the country do not favour any such major change considering the revenue implication for the country.
The committee expressed serious reservations over the withholding tax on banking transaction while saying it is negatively affecting industry as 95 percent of their dealers are non-filers and they have ultimately to pay the price. The parliamentary panel recommended the government to reconsider the withholding tax on banking transactions.
The body also expressed concerns over increase in gas prices while observing that it incurs 40 percent impact on industry. Aziz said that high cost of doing business including high power and gas prices, making the industry uncompetitive in the region.
However, the Ministry of Petroleum and Natural Resources said that since 2013 gas prices were not increased which resulted in loss of Rs 47 billion to SNGPL and Rs 30 billion to SSGCL. Despite the increase in gas prices both the companies are still in deficit as the purchase price is higher than the sale price. Currently, average purchase price is Rs 4.64 per MMBTU against the sale price of Rs 4.45 per MMBTU, hence the recommendation of the committee to withdraw increase in gas price is not viable, the ministry official added. However, they failed to convince the committee on prescribed price determined by Ogra and asked the authority to attend next meeting and brief.
Representatives of All Pakistan Sizing Industry Association, Pakistan Yarn Merchant Association and All Pakistan Cotton Power Looms Association apprised the committee of the challenges they are facing and incurring huge losses to the industry. They said that energy crisis; increase in duty on import of yarn withholding tax on bank transactions and not giving sales tax zero rating in electricity bills to newly registered power looms units are negatively the industry to earn foreign exchange earnings. The committee recommended giving priority in power and gas provision, withdrawing sales tax on starch, raw material of sizing industry and reconsidering the withholding tax on bank transactions.
The minister said that imposing duty on yarn was a balancing act to give protection to local industry. He said that major sectors should contribute in tax to generate revenue. The committee expressed serious concerns at the Pakistan Textile Company limited and Karachi textile city project and directed the authorities concerned to brief the committee in next meeting.