End of zero-rated facility may push down exports to $21b

PRGMEA chief says exporters are already facing hike in raw material prices due to rupee fall

LAHORE: Sialkot-based export-oriented manufacturers have urged the government to continue the sales tax zero-rated regime in the budget for fiscal year 2019-20, otherwise, they fear, the country’s exports might drop back to $21 billion from the existing around $24 billion.

Exporters of five zero-rated sectors, including value-added textile, leather, carpets, surgical instruments and sports goods, in a meeting hosted by the Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA), expressed concern over the proposal of withdrawing the zero-rated regime by the finance ministry.

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It would have an adverse impact on the prime minister’s plan of generating 10 million employment opportunities over five years, they said.

Chairing the meeting, PRGMEA Chief Coordinator Ijaz Khokhar said textile exports from Pakistan had already recorded a flat growth and stood at $11.1 billion in first 10 months of the current fiscal year. However, the value-added garment sector showed some improvement in the wake of positive measures taken by the commerce ministry.

However, he said, these were now being reversed by the finance ministry to generate interest-free liquidity of Rs2,000 billion at the cost of plummeting exports.

All exporting associations, on the occasion, unanimously decided to hold a meeting with the prime minister to inform him that if the facility was withdrawn at this stage, the businesses would collapse as they were hardly being sustained.

“The withdrawal of the zero-rated tax facility will hit the export industry, especially the struggling small and medium enterprises (SMEs), which are the base of the Sialkot industry and contribute more than 97% to total exports of $23.7 billion,” the chief coordinator said.

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He said the exporters were already facing tough conditions like a hike in raw material prices due to the rupee’s depreciation, with rates of cotton yarn going up more than 20% over the past six weeks. It dispelled the impression that the exporters were benefitting from the change in rupee-dollar parity.

The zero-rated facility was withdrawn twice in the past, but could not prove successful due to hurdles in the way of sales tax refund, Khokhar said.

“Why is it being reconsidered the third time by the finance ministry when refunds of over Rs200 billion have already been pending for the past many years,” he asked.

The FBR wanted to end the facility just to correct its balance sheet, the PRGMEA chief said, adding the balance sheet might show enhanced revenue collection, but the industry would collapse if the “no tax no refund” system was withdrawn, which was already not being implemented properly.

Published in The Express Tribune, May 28^th, 2019.

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