Finance adviser says zero-rated regime intact for exporters

Insists businesses will have to pay tax on domestic sales

Sumaiya Kamani June 15, 2019
Shaikh said that to increase exports “we are offering the business community electricity and gas at lower prices, and the government is bearing the cost of those subsidies”. PHOTO: TRIBUNE

KARACHI: The government faces a mammoth challenge by way of bringing the economy back on track. A key priority in its agenda to push the country towards economic growth is addressing the twin deficits; fiscal and current account. Although it has considerably devalued the rupee against the US dollar, the level of exports has failed to rise.

Despite this development, the government is not ready to concede to the demands of the five zero-rated sectors to provide them complete relief by restoring SRO 1125 and withdrawing the imposition of 17% sales tax announced in the federal budget for fiscal year 2019-20.

While on one hand the exporting sector is rigorously protesting against the measure, Adviser to PM on Finance Abdul Hafeez Shaikh remains firm on his stance, saying that the zero-rated regime stays intact for the businesses if they export, while the 17% sales tax will be levied if they are making their sales domestically.

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The five zero-rated sectors will have to pay a 17% sales tax on their exports, however, these will be refunded. Nevertheless, the exporting sector feels burdened as their refunds are stuck with the government and the 17% tax is going to add to their liquidity crunch.

“At the external front, the growth rate of exports in the past 10 years has been zero percent,” acknowledged the financial adviser at a public dialogue, hosted by Karachi Council on Foreign Relations, in Karachi on Friday.

Putting his point of view across, he said, “There are a lot of businesses conducting exports and there is a misconception that somehow their benefits are being taken away. They’re not.”

He said that all exports will continue at zero rating and there will be no tax on them. However, these businesses will have to pay taxes like any other business if they are also selling within the country. “So we have to make a distinction between the company’s exports and the domestic sales.”

There are many businesses claiming zero duty, which is allowed on exports, on domestic sales as well.

Expressing his aggravation, five zero-rated export sectors Chief Coordinator Muhammad Jawed Bilwani told The Express Tribune the zero-rating facility is offered in every country and technically the government cannot abolish the regime.

“The zero-rated facility is available to every country, as we can never take tax from foreigners,” he enlightened.

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However, what the government is doing is that they are charging the 17% tax on exports, which are said to be refunded, he remarked, adding, “the problem is that they never pay the refunds.”

Minister of State for Revenue Hammad Azhar, in his budget 2019-20 speech said, “The objective behind the move is to resolve the problem of delay in refund payments. The zero-rating created a loophole and the benefit was being availed by unintended beneficiaries and non-exporters.” “We are protesting for the ‘no payment no refund’ policy, otherwise the sector will face a liquidity crunch,” Bilwani stressed.

Even the previous 1% tax on packing material has not being refunded yet, he said, adding that former prime minister Shahid Khaqan Abbasi had pledged to return the 1% refund after the court’s ruling, as taxes cannot be claimed from foreigners.

“The government is offering us loans in place of the refunds and even those loans cannot be cashed till three years,” he remarked. With the 17% tax our liquidity in one year will be stuck to 42%, he added.

Moreover, talking about the government’s approach towards exports, Shaikh said, “We want to increase exports, for which we are offering the business community electricity and gas at lower prices and the government is bearing the cost of those subsidies.”

He said that these measures reflected in the budget and an amount of Rs100 billion has been allocated for this purpose. “We show our appreciation by not taxing you anything.”

Published in The Express Tribune, June 15th, 2019.

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