Sales tax collection from textile sector jumps six-fold

ISLAMABAD: The collection of sales tax from textile sector registered a six-fold increase in fiscal year 2019/2020 owing to elimination of zero-rated tax regime.

According to official statistics released by Federal Board of Revenue (FBR) the sales tax collection from textile sectors sharply increased to Rs61.2 billion during fiscal year 2019/2020 as compared with Rs8.7 billion in the preceding fiscal year, showing a growth of 602 percent.

The unprecedented growth in sales tax collection from this sector can be attributed to elimination of zero-rated scheme through Finance Act, 2019.

In the budget 2019/2020, the government decided to eliminate zero-rating scheme for textile sector and imposed normal 17 percent sales tax on all supply of textile products, except for those subject to exports.

The FBR issued Circular No. 01 of 2019 dated July 26, 2019 and explained that SRO 1125(I)/2011 dated December 12, 2011, relating to zero-rating of five export-oriented sectors, had been rescinded since July 01, 2019 through SRO 694(I)/2019 dated June 29, 2019.

From July 01, 2019, the items listed in the said SRO had been charged to sales tax at 17 percent at import and local supply. However, in case of integrated retail outlets, sales tax on finished textile and leather items were subject to 14 percent sales tax, according to the circular.

Further, all Sales Tax General Orders (STGOs) granting zero-rating on supply of electricity, gas, diesel, furnace oil and coal had been rescinded through STGO 100/2019 dated June 29, 2019.

The decision to eliminate the zero-rating was taken due to gross misuse of the scheme. The scheme also attracted issuance of bogus refunds on back of fake and flying invoices resulting huge monetary losses to the national exchequer.

However, in order to resolve the issue of exports in obtaining refunds under new schemes from July 01, 2019 the FBR introduced Fully Automated Sales Tax e-Refund (FASTER) system with a commitment that the refunds would be issued in 72 hours.

Sources in the FBR said that the collection of sales tax from textile sector would have been much higher but it was restricted due to economic slowdown after COVID-19.

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