KARACHI: Federal Board of Revenue (FBR) has been proposed to restore zero-rating of sales tax with objective of ‘no payment no refund’.
The FBR received proposals for the upcoming budget 2021/2022 from Karachi Chamber of Commerce and Industry (KCCI).
It is highlighted that in the budget 2019-2020, the Federal Government rescinded SRO1125 and imposed 17 percent Sales Tax on erstwhile Five Zero-Rated Export Sectors and exporters are required to apply for refund after export of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.
It is observed that the exporters who have filed their refund claims to date have received 35 percent of claims payment only while 65 percent of the refund claims are stuck up with the Government which is approximately 12 percent amount of exporter’s running capital.
However, the profit margin of exporters is around 5 percent to 8 percent. Moreover, exporter can apply for refund only after export of consignment.
In this manner their liquidity is stuck. Likewise, the exporters make purchases for production of export products at least six months in advance which is consumed based on export orders causing financial hardships.
The KCCI 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.
Although the Government has streamlined the FASTER system, nonetheless, the exporters are facing liquidity crunch amid condition of filing claims only after dispatch of shipment which takes at least three months time. Consequently, the liquidity is held-up causing financial pressure on exporters.
The chamber explained the benefits of reviving zero rating that the government must consider to restore and revive Zero-Rating under SRO1125 in real spirit or consider reduction in rate of Sales Tax from current 17 percent to 5 percent to facilitate the exports ensuring availability of required/ adequate liquidity and smooth Cash flow, to boost the confidence of Exporters to enhance their exports and cement their business ties with the foreign counterparts to capture true business potential.
