Revival of sales tax zero rating suggested to ease liquidity problem

KARACHI: Business community has recommended revival of zero rated sales tax for the export sector in the wake of difficulties faced following COVID-19.

Pakistan Business Council (PBC) has suggested sales tax proposals for budget 2020/2021 to ease the pressure on the industry.

It said that the proposal for bringing the five export sectors under the ambit of normal sales tax regime has clearly not worked.

Sales tax refund claims continue to accumulate with the FBR while export industries have faced massive liquidity in the past nine months on account of this move.

Exporters liquidity as well as net operating results / losses have taken a strong negative hit from the two-edged sword; once after withdrawal of zero rating regime resulting in piling of sales tax refunds and thereafter, due to cancellation of existing orders post the COVID-19 pandemic.

Restoration of Zero rating will allow some relief on the liquidity front for the major export sectors

It further said that at present, local sales to DTRE license holder has been provided the benefit of sales tax zero rating, however, local supplies to EOUs / manufacturing bond is chargeable to sales tax at 17 percent, which is an apparent anomaly between the DTRE, EOUs and Manufacturing bond rules.

In order to remove anomaly and considering the fact that material / goods being purchased by DTRE / EOU / Manufacturing Bond are used for the purposes of exports and are subject to strict scrutiny, it is proposed to allow zero rating on local purchase of goods by EOUs / Manufacturing Bond in line with the benefit given to DTRE.

Under the Sales Tax Act, Section 8 – B, a company is not allowed to adjust input tax in excess of 90 percent of the output tax for that period. Further, commercial importers paying 3 percent minimum Value Addition sales tax at import stage are totally exempt from the applicability of minimum tax under section 8B.

All manufacturers be allowed 100 percent adjustment of input tax instead of the current restriction of 90 percent

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