End of zero-rated facility to raise business cost
It will lead to capital flight and dent country’s exports
Representational image. PHOTO: REUTERS
KARACHI:
The removal of zero-rated status for the five major export-oriented sectors is contrary to the government’s policy of improving the ease of doing business as it will increase the cost of doing business and have an adverse effect on the country’s exports.
This was stated by representatives of export industries at a joint press conference held at the Pakistan Hosiery Manufacturers and Exporters Association (PHMA) House, Karachi on Tuesday.
The five zero-rated sectors, which were already documented, contributed 70% to national exports and generated 50% of the total employment, the businessmen said. The removal of the zero-rated status could result in flight of capital to foreign countries and further increase in the import-export gap, which would eventually impact jobs in the country, they said.
“Federal Board of Revenue (FBR) officials are trying to improve their cash flow by extracting Rs1,500 to Rs1,800 billion from the exporters,” remarked Karachi Chamber of Commerce and Industry (KCCI) former president Zubair Motiwala.
“The government doesn’t know that this decision can have an adverse impact on exports,” he said. “The decision can cause 30% decrease in exports.”
End of zero-rated facility may push down exports to $21b
The production cost of the export industry had already increased due to the interest rate hike as 60% of raw material of the export industry came from foreign countries, Motiwala said.
In this situation, the industry can acquire finance from banks at an interest rate of 14% to 15%, and the industry’s cost of doing business will increase if the government imposes the proposed 18% sales tax by eliminating the zero-rated facility.
“Adviser to PM on Commerce, Textile and Industry Abdul Razak Dawood agreed in talks with us that the zero-rated facility should not be withdrawn from the exporting sectors,” said the KCCI official.
Talking about some positive steps taken by the government, he said provision of gas and electricity at discounted rates had helped the exporting industries due to which they were expected to take exports to $24-25 billion this fiscal year whereas next year the exports could touch $30 billion.
So far, the exporting industries are paying only 2% tax on the packaging material, which has created a backlog of Rs200 billion in refunds which the government has to pay back to the exporters.
Indeed, the withdrawal of the zero-rated facility will help the government collect Rs1,500-1700 billion, but eventually the government will have to refund that amount to the exporters. “If the government could not refund 2%, how will it be able to refund 18%?” he asked.
All chambers of commerce in the country agreed with the idea that zero-rating should not be removed, said PHMA Chairman Javed Bilwani. “The government is burdening us just to show increased revenue to the IMF. We will go against this decision and will take every legal step,” he said.
“The government claims to be improving the ease of doing business and reducing the cost of business, however, this decision is not in accordance with this policy,” commented KCCI President Junaid Esmail Makda.
The government has made a target of 34% increase in tax revenue this year, which has never happened in Pakistan’s history, he said. “In pursuance of this impractical target, the government is extracting money by hook or by crook.”
Published in The Express Tribune, May 29th, 2019.
The removal of zero-rated status for the five major export-oriented sectors is contrary to the government’s policy of improving the ease of doing business as it will increase the cost of doing business and have an adverse effect on the country’s exports.
This was stated by representatives of export industries at a joint press conference held at the Pakistan Hosiery Manufacturers and Exporters Association (PHMA) House, Karachi on Tuesday.
The five zero-rated sectors, which were already documented, contributed 70% to national exports and generated 50% of the total employment, the businessmen said. The removal of the zero-rated status could result in flight of capital to foreign countries and further increase in the import-export gap, which would eventually impact jobs in the country, they said.
“Federal Board of Revenue (FBR) officials are trying to improve their cash flow by extracting Rs1,500 to Rs1,800 billion from the exporters,” remarked Karachi Chamber of Commerce and Industry (KCCI) former president Zubair Motiwala.
“The government doesn’t know that this decision can have an adverse impact on exports,” he said. “The decision can cause 30% decrease in exports.”
End of zero-rated facility may push down exports to $21b
The production cost of the export industry had already increased due to the interest rate hike as 60% of raw material of the export industry came from foreign countries, Motiwala said.
In this situation, the industry can acquire finance from banks at an interest rate of 14% to 15%, and the industry’s cost of doing business will increase if the government imposes the proposed 18% sales tax by eliminating the zero-rated facility.
“Adviser to PM on Commerce, Textile and Industry Abdul Razak Dawood agreed in talks with us that the zero-rated facility should not be withdrawn from the exporting sectors,” said the KCCI official.
Talking about some positive steps taken by the government, he said provision of gas and electricity at discounted rates had helped the exporting industries due to which they were expected to take exports to $24-25 billion this fiscal year whereas next year the exports could touch $30 billion.
So far, the exporting industries are paying only 2% tax on the packaging material, which has created a backlog of Rs200 billion in refunds which the government has to pay back to the exporters.
Indeed, the withdrawal of the zero-rated facility will help the government collect Rs1,500-1700 billion, but eventually the government will have to refund that amount to the exporters. “If the government could not refund 2%, how will it be able to refund 18%?” he asked.
All chambers of commerce in the country agreed with the idea that zero-rating should not be removed, said PHMA Chairman Javed Bilwani. “The government is burdening us just to show increased revenue to the IMF. We will go against this decision and will take every legal step,” he said.
“The government claims to be improving the ease of doing business and reducing the cost of business, however, this decision is not in accordance with this policy,” commented KCCI President Junaid Esmail Makda.
The government has made a target of 34% increase in tax revenue this year, which has never happened in Pakistan’s history, he said. “In pursuance of this impractical target, the government is extracting money by hook or by crook.”
Published in The Express Tribune, May 29th, 2019.