Karachi, October 19, 2023 – Exporters in Pakistan are up in arms over the sudden suspension of online processing for sales tax refund claims by the Federal Board of Revenue (FBR).
The abrupt decision has left exporters, except for those belonging to the erstwhile zero-rated sectors, unable to utilize the online facility for submitting their refund claims, sparking outrage in the export community.
READ MORE: Pakistan Textile Exports Decline 10% in 1QFY24
This development follows the withdrawal of the zero-rated regime on July 1, 2019, and the subsequent launch of the FASTER system, which was introduced to efficiently and effectively process sales tax refund claims for exports. Since its inception, the FASTER system has been used to process sales tax refunds for both the five erstwhile zero-rated sectors and other categories of exporters without the need for human intervention.
Surprisingly, after more than four years of the system’s smooth operation, it has now begun rejecting sales tax refund claims from exporters outside of the erstwhile zero-rated categories, providing a rejection message as the reason for this sudden policy shift.
READ MORE: Turkiye Estimates Up to $25 Billion Bilateral Trade with Pakistan
While Rule 39B of the Sales Tax Rules, 2006 allows for the processing of sales tax refunds for only the five erstwhile zero-rated sectors, the FBR had been permitting the processing of sales tax refunds through the FASTER system for other exporters since July 2019. Tax experts argue that instead of restricting the processing of sales tax refunds through the FASTER system, the FBR should have amended the rules to provide legal coverage for the existing system-based procedure, which would have been in the best interest of the country.
Sources within the export industry have expressed concern that this abrupt halt to the processing of sales tax refunds will force exporters to seek manual processing of their refund claims through tax officers, leading to a substantial increase in interaction between tax authorities and taxpayers. This action appears to run counter to the FBR’s previous claims about adopting methods to minimize unnecessary human intervention.
READ MORE: Industry Faces Looming Challenges of Survival and Sustainability, Says Tahir Javaid
The move is met with confusion by tax experts and industry stakeholders, as the benefits of this action remain unclear, other than increasing the interactions between tax officers and exporters, potentially creating more challenges for genuine exporters.
The composition of the erstwhile zero-rated sectors, including Textile, Leather, Sports, Surgical, and Carpets, has remained unchanged for nearly two decades. However, recent studies indicate that exports from these sectors have evolved significantly compared to other sectors not included in the erstwhile zero-rated list. Some sectors, such as prepared foodstuffs, mineral products, and plastics goods, have recorded much higher export volumes than several categories within the erstwhile zero-rated sectors.
READ MORE: FPCCI Extols Army Chief’s Role in Easing Economic Uncertainties
Given the challenges already faced by exporters, including rising utility prices, exchange rate fluctuations, and decreased demand for goods, the FBR is urged to avoid creating further obstacles for exporters and instead incentivize them to contribute to the country’s foreign exchange earnings, a crucial need during these challenging times.
The method being adopted by the FBR, which appears to move away from technology and promote manual verification and interaction between tax officers and exporters, is raising questions and concern within the export community. A swift rectification of this policy shift is being demanded to support the vital export sector.
