PRGMEA suggests disbanding FBR over indirect taxation

LAHORE: Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) on Thursday termed the Federal Board of Revenue (FBR) the biggest hurdle in the way of industrialisation and held it responsible for massive indirect taxation.

It said that the tax agency, instead of promoting industry, tries its best to discourage the manufacturing sector and exports, collecting more than 51 percent tax revenue from the manufacturing sector. It said that the manufacturing sector just holds 13 percent share in the GDP, but the agricultural sector, which constitutes more than 26 percent of the GDP, contributes a mere 2 percent of income tax in the country.

PRGMEA Central Chairman Mubashar Naseer Butt suggested the government to disband the FBR, as this tax department, having a burden of more than 23,000 employees, does nothing for the benefit of the national economy or industrialisation. He said this considering indirect tax collection by the FBR through sales tax or withholding tax by the industry.

The FBR, instead of facilitating the industry, which helps it to collect tax revenue through withholding taxes, creates problems for manufacturers as well as the exporters, he added.

“Commitment of the FBR to instantly release exporters’ tax refund claims through FASTER System seems just eyewash, as the tax collectors, instead of releasing timely refunds, have started sending audit notices to the exporters to refrain them from demanding their own payment,” he lamented.

On average, 10 audit notices are being served to almost every exporter, who presently needs payment but was fed up of the long delays of their refunds.

PRGMEA Vice Chairman Waseem Akhtar observed that the value-added textile exporters were facing severe liquidity crunch and needed the refunds in time. “It’s a question of survival amidst acute liquidity crunch and we need the help of the government to save the industry from bankruptcy by releasing its refunds,” he appealed.

Akhtar said that PRGMEA has been approached by various members informing that they have been facing inconvenience owing to delay in refunds payment despite the fact that their refund payment orders (RPOs) were generated as well as approved.

He asked for ease of doing business, lowering cost of production, solution of liquidity crunch through early refunds payment, long-term and consistent energy tariff policy and relaxed import policy for industrial raw materials so that industrialisation could be promoted and exports could be enhanced.

He noted that that the situation has worsened due to continued political unrest, import restrictions, and an unchecked dollar increase. These factors have increased inflation, undermined the rupee, driven up yarn prices, driven up the cost of electricity per unit, and, most importantly, harmed business confidence, he added.

Akhtar showed his concern over the cancellation of the competitive power tariff of 9 cents per KWH for the value-added textile export sector, expressing fears that discontinuation of the facility would hurt the economy.

PRGMEA Vice Chairman said the cancellation of regionally competitive power tariff would lead to further decline in textile and total national exports, terming the withdrawal very alarming. He said that the existing manufacturing cost is already higher in Pakistan as compared to the competing countries, with exporters fetching a very narrow margin of 2 to 3 percent on their deals.

PRGMEA believed that Pakistan’s current economic crisis did not happen overnight. In fact, careless and poor policies over decades have brought the country to the brink of default.

The country’s persistent twin deficits have driven it to a juncture where it cannot even pay for vital imports like fuel, medicines, and food without relying on IMF bailout packages, or loans.

Pakistan needs to widen its tax base to improve collection, it also needs to make the tax burden more equitable across sectors. Presently, Pakistan overburdens its manufacturing sector with taxes, while agriculture and services are taxed at low levels.