Pakistan’s textile value added industry has proposed to the Government that sales tax be restored to zero level, which withholding tax should be reduced and that the export of cotton yarn be controlled to build jobs as well as boost the exports from the country. Pakistan is facing unprecedented economic difficulties and global slowering due to the pandemic of coronavirus in all sectors of the economy, Pakistan is being confronted in its 2020-21 budget proposals to Razak DAWOOD, Prime Minister of Trade and Textiles, Pakistan Hosiery Manufacturers and Exporters Association (PHMA).
It is dire need of the time that the budgetary and policy measures for fiscal year 2020-21 must hold the key to economic prosperity to confront challenges and create conducive and enabling environment for investment and growth for industry and trade, through major structural changes in tax regime, policy revision focusing to incentivise commerce and industry to generate more employment and overcome the fiscal, current accounts and trade deficit. The PHMA proposed that it is imperative to revive SRO 1125 in its true spirit and reintroduce system of no payment and no refund of sales tax for the five export-oriented sectors. In the budget 2019-20, the government rescinded SRO 1125 and imposed 17 percent sales tax on erstwhile five zero-rated export sectors and exporters are required to apply for refund after export of consignment.
Exporters, who have filed their refund claims up to date, have received 35 percent of claims payment only, while 65 percent of the refund claims are stuck up with the government, which cumulate 12 percent amount of exporters’ running capital. However, the profit margin of exporters is around five percent to eight percent. Due to availability of liquidity and smooth cash flow, the confidence of exporters will be boosted to enhance their exports and cement their business ties with the foreign counterparts to capture true business potential. Currently, the WHT is charged at various levels and items such as import of raw material, registration of new vehicles etc, which is adjusted or refunded later. Exporters fall under final tax regime u/s 143(b) and should be exempted from payment of the WHT and be given exemption certificates. This will greatly benefit them and also lower workload on the Federal Board of Revenue (FBR) who is busy in a futile exercise.
For exporters fall under final tax regime withholding tax should be reduced from one percent to 0.50 percent. This would help exporters in using the cash liquidity for enhancement of the exports. Currently there is 11 percent customs duty, five percent regulatory duty, and two percent additional duty on import of the cotton yarn. This has created artificial shortage of availability of yarn, rendering the value-added textile exporters uncompetitive in the global market against regional competing countries. This will lead to decline in exports as local industries are hurting and closing down. Further, garment stitching units are not allowed to import yarn under Duty and Tax Remission for Exporters (DTRE). The PHMA proposed that whenever government desires to impose regulatory duty on import of cotton yarn, the government should also impose regulatory duty on export of cotton yarn, and there should be time limit/duration of imposition of duty.
The Government needs to explore and compare it with cotton-producing countries to reduce the cost to the spinners of business / oil. Yarn is a raw material which is necessary in order to produce value-added textiles for export, and it must be made available at affordable prices. Furthermore, under the SRO 327 model of the Export Processing Area export oriented units (EOU) are introduced where there are no taxes on the purchase of inputs procured locally and no tax on utility. EOU-registered industries are liable to export 80% of their production annually. The PHMA has suggested that the FBR remove its SRO 747(I)/2019 in order to provide input products to exporters operating under the EOU without taxes. It is also proposed to supply services – gas and electricity with no sales tax at zero rates – to industries registered with the EO U, which export their annual output to 80 percent of the total.
