Karachi, July 18, 2024 – The Institute of Cost and Management Accountants of Pakistan (ICMAP) has identified an overall negative impact of the 2024-25 budget on the country’s exports. In its comprehensive review of the budget’s impact across various sectors, the ICMAP highlighted several key concerns that could significantly affect Pakistan’s export performance.
A major point of contention is the shifting of exporters of goods, Export Processing Zone (EPZ) entities, and indirect exporters from a final tax regime to a minimum tax regime. The ICMAP emphasized that moving from a 1% turnover-based Final Tax Regime (FTR) to a 29% tax on taxable profit could have devastating consequences for the export sector. This shift is expected to increase the financial burden on exporters, potentially reducing their competitiveness in international markets.
Furthermore, the ICMAP noted the removal of zero-rating on local supplies under the Export Facilitation Scheme (EFS). This change is anticipated to negatively impact exporters by increasing their operational costs. The removal of zero-rating means that local suppliers will now have to charge sales tax on goods sold to exporters, which could disrupt the supply chain and increase production costs.
The Finance Act 2024 introduced a new provision in section 147 (Advance Tax) of the Income Tax Ordinance, 2001. This provision requires specified withholding agents to collect 1% advance income tax from exporters of goods (both direct and indirect) at the time of realization of export proceeds. The ICMAP criticized this measure, arguing that it adds an additional layer of financial strain on exporters, further complicating the export process and potentially deterring future export activities.
However, the ICMAP did acknowledge a positive aspect of the budget: the proposed increase in allocation for the Export Finance Scheme (EFS) under the Export-Import (EXIM) Bank of Pakistan. The allocation is set to rise from Rs. 3.8 billion to Rs. 13.8 billion, which is expected to promote exports by providing more accessible financing options to exporters. This increase is seen as a supportive measure that could help mitigate some of the negative impacts of other budgetary changes.
In summary, while the 2024-25 budget includes provisions that could support export financing, the overall impact on exports is viewed negatively by the ICMAP. The shift to a minimum tax regime, the removal of zero-rating on local supplies, and the introduction of advance income tax on export proceeds are all seen as measures that could hinder the growth and competitiveness of Pakistan’s export sector. The ICMAP urges the government to reconsider these changes and take steps to support the country’s exporters in order to sustain and enhance their contributions to the economy.