KARACHI: All Pakistan Textile Mills Association (APTMA) on Wednesday demanded restoration of sales tax zero rating as authorities failed to fulfill commitments of repayment of refund under new online refund system.
In a letter sent to Abdul Razzaq Dawood, Advisor for Commerce, Textile, Industry & Production and Investment, the association informed that since domestic sales constituted 50 percent of textile output, zero rating led to sales tax evasion to the tune of $12 billion sales.
At the time, APTMA had proved that this was a false assertion and this fact has now been admitted by FBR. This FBR has now stated on record that the domestic sales of the textile sector only account for 20 percent of the overall value of textile production of the country.
The APTMA said that the misplaced withdrawal of zero rating, the entire textile industry has suffered immensely and the levy of sales tax in its present form and design has led to almost Rs20 billion (5-6 months total impact Rs100 billion) liquidity moving from the industry to FBR.
It is further informed that prior to July 2019, the industry had become competitive and profitable and if the zero rating scheme would have continued these funds would have been spent on new projects, upgradation and expansion of the industrial base and resulted in increased exports for the country. The economic cost of the withdrawal of zero rating has been colossal.
The amount of sales tax being paid by the industry is even more that the annual profits of most companies. Many companies have had to borrow from banks to finance this unjustified levy resulting in an increase in their cost of production.
“Thus, negating the government claims to move on a policy of reducing the cost of doing business in Pakistan.”
At the time of withdrawal of SRO 1125, the government had assured the industry that it would review the situation in 6-8 months’ time. More than nine months have now passed, and it is evident that the Sales Tax system is not contributing significantly to the FBR kitty.
On the other hand, the entire government, FBR and the entire industry is constantly holding meetings and wasting precious time and money on resolving the issue of refunds.
Sales Tax refunds are not forthcoming as per the promised and unequivocally stated claims that payments would be made would be paid within 72 hours of filing of H forms.
This has not happened and the sales tax claims even after filing of H forms have remained unpaid for months on end.
In fact, the flow of quantum of refunds was very tightly regulated by the Ministry of Finance/FBR and processing of payments limited to the quantum/value predetermined by the Ministry of Finance.
The Sales Tax returns/H forms were routinely deferred or rejected by FBR on artificial limits established by them which had no basis in reality of the industry.
In other words, nothing had changed from previous years in terms of refund processing.
The situation post-Covid19 has changed drastically for the industry, as export orders have been cancelled, payments due against LCs delayed, and fresh orders not forthcoming.
This is because of a complete collapse of markets and demand for textiles in Europe and USA. Circumstances are not expected to return to normalcy for quite some time.
It is not possible to expect the value chain to keep on paying Sales Tax with little chance of obtaining their refunds in a timely and agreed manner from FBR.
This delay results in affecting the entire supply chain as the exporters delay payments to their suppliers who in turn are forced to delay down the line.
This has resulted in severe cash flow problems in part owing to the banks reluctance to finance these payments.
Under these circumstances, the association demanded the immediate restoration of SRO 1125 i.e zero rating for the textile supply chain. “Should government still wish to collect sales tax on domestic sales, from a market that is already in dire straits, then it should collect the Sales Tax at the Point of Sale.”
In the foreseeable future the continuation of the Sales Tax regime applicable to an industry with 80 percent exports is counterproductive and will make recovery of exports to any significant level post-COVID very difficult and even make it impossible.