Exporters grow disillusioned at FBR’s proposal

Tax authority has recommended withdrawing exemptions and increasing GST

KARACHI: In yet another development that indicates how disillusioned the business community has gotten from the government, representatives of five zero-rated, export heavy-weight sectors chastised the FBR for its proposal to increase general sales tax (GST) and withdraw exemptions from withholding tax on power bills.

Whether this move on part of the government would prove to be fatal for the struggling exporters remains to be seen, however, what is clear is that the move has caught nearly everyone by surprise.

History

Up till a few years ago, five export-oriented sectors - textile, carpet, leather, sports goods and surgical - were protected from numerous taxes by a zero-rated tax regime. However, the regime was called into question in a plea that argued that exporters had been selling their (tax protected) goods in the domestic market as well.

The somewhat convoluted solution was to start taxing these sectors, and to offer refunds upon verification of export receipts. However, these refunds would be blocked by FBR, at times for more than a year. This led to a chronic liquidity crunch that severely hampered the growth of the country’s exports.

In view of disastrous export growth, it was well understood in the business community that zero-rated regime would be resumed. Their confidence was further bolstered when Prime Minister Nawaz Sharif, on February 13, committed to resume the old regime come fiscal year 2017.

Response

“We were expecting the implementation of zero-rated regime facility for the five export-oriented sectors as per Prime Minister Nawaz Sharif’s announcement - the FBR’s proposal came as a shock,” said one of the representatives at Pakistan Hosiery Manufacturers Association (PHMA) House.

From FBR’s proposal, it was obvious that it was no longer interested into increasing the tax revenue by broadening the tax net and bringing new taxpayers in the tax net, especially retailers and shopkeepers, who were earning hefty profits but never pay tax, according to a press release.

Instead of hard work towards tax revenue generation, the FBR found it really easy to punish the registered taxpayers.

Published in The Express Tribune, May 26^th, 2016.

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