SBP’s intervention sought to bankroll tax refund bonds

KARACHI: Traders on Friday urged the central bank needs to ensure acceptance of sales tax refund bonds as collaterals by the banks and financial institutions as this would help them meet financial needs amid liquidity crunch.

Karachi Chamber of Commerce and Industry (KCCI) President Agha Shahab Ahmed said the Federal Board of Revenue (FBR) issued bonds to the tax refund claimants. The bonds are to be traded freely in the country’s secondary markets and accepted by the banks as collateral under a section (67-A of the Sales Tax Act 1990), he said.

“However, despite specific directions in the relevant act, these bonds are neither being traded freely in the market nor being accepted by the banks, creating severe liquidity problems for the exporters who are unable to finish their export orders,” Ahmed said in a letter to SBP Governor Reza Baqir.

“Hence the situation is likely to shrink the overall exports and may also result in further depreciation of the desperately foreign exchange reserves of the country,” he said.

Seeking State Bank’s governor intervention into the matter, Ahmed said he needs to ensure compliance of the statutory provisions as soon as possible.

“Almost a month has passed so far but no relief has been provided to minimise the grievances being faced by the exporters,” he said in the letter seen by The News.

In December last year, the government decided to issue bonds worth more than Rs100 billion to the exporters in lieu of stuck tax refunds.

Ahmed said the exporters are already going through the toughest time due to ‘creative destruction’, which has made many Pakistani products obsolete in the international markets whereas they are terribly suffering due to high cost of doing business, stagnant industrial activities, the highest ever inflation and many other issues particularly the stuck refunds. The issue needs to be resolved and the claimants must get their legitimate refunds on top priority, he said.

KCCI president urged the SBP governor to issue necessary instructions to the banks and financial institutions to immediately start accepting the sales tax refund bonds

“Timely acceptance of sales tax refund bonds would widely be welcomed by the business community as it would surely provide a huge sigh of relief to perturbed exporters who are struggling really hard for survival in the ongoing era of intense competitiveness, high cost of doing business and inflation.”

Ahmed said the situation has intensified the hardships for the export-oriented industries due to severe liquidity crunch, leaving no other option for them but to curtail their production and somehow try to maintain their share in the existing international markets.

“The situation has worsened to such an extent that our exporters simply cannot explore any new markets to raise the exports due to lack of funds which, if not timely addressed, is likely to have a negative impact on Pakistan’s economy which is already under immense pressure and is struggling hard to narrow the current account deficit,” he added.