Zero rating worries

Exporters and industrialists are worried that the removal of zero-rated status for five major export-oriented sectors is going to hit their bottom lines and the country’s overall exports. It is believed that the government will be imposing an 18 per cent sales tax as a means to generate up to Rs2 trillion in additional revenue. The Karachi Chamber of Commerce and Industry has already claimed that the only reason the government is doing this is to impress the IMF while warning that the additional revenues will come at the cost of a 30 per cent decrease in exports – something amounting to more than Rs1 trillion. They have also highlighted the government’s inability to pay out tax refunds in a timely manner which will only be exacerbated when the total refunds payable increase.

In addition, devaluation of the rupee has already been hitting their bottom lines, as 60 per cent of raw materials used in export-oriented industries are imported. Given that bank interest rates stand at around 15 per cent, the situation is not desirable, to say the least. There has also been criticism of the government’s claims to be improving upon the ease of doing business and reducing the cost of business.

Yet, with all the complaints must come introspection. The fact that so many businesses were apparently only profitable because they weren’t being taxed or were living off virtual subsidies is particularly worrying. The problem goes beyond export-oriented industries and into numerous other domestic manufacturing sectors. Even some sub-sectors of agriculture have become dependent on subsidies, which does not bode well for the economy.

While the government needs to shore up revenues, it can’t keep squeezing industry to do so. Alternatively, industries should expect special treatment given the fact that every citizen seems to be feeling the squeeze of the economic slump. If the current state of the economy is a correction, as some have referred to it as, then industries which benefited from the ‘incorrect’ economy need to correct themselves as well.

Published in The Express Tribune, May 31^st, 2019.

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