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Abolishing zero rating regime: Rifts between FBR, textile sector persist

Top Story

June 3, 2019

ISLAMABAD: Differences persist among the FBR and textile sector tycoons over the exact size of liquidity crunch and volume of refunds in case of abolishing the zero rating regime for textile and other export oriented sectors during the next budget for 2019-20.

Pakistan has agreed with the IMF to jack up tax collection target of Rs5,550 billion in the next budget for 2019-20 against revised projection of Rs4,150 billion. It will require a growth of 35 percent in tax revenues and it cannot be achieved with the status quo approach. Under the IMF programme, the government is committed to do away with zero rating regime for five export-oriented sectors, including textile, garments, carpets, surgical and sports goods.

Prime Minister Imran Khan convened a special meeting on Sunday in a bid to break the persistent deadlock over abolishing the zero rating regime as Adviser to PM on Finance Dr Abdul Hafeez Shaikh had plainly told the textile and business tycoons in Lahore on Saturday that zero rating would be done away with in the next budget. “Now the PM would take the final decision on it as he asked both the sides to present their facts,” official sources confirmed to The News here on Sunday.

One top official who is part of ongoing parleys between the FBR and textile sector told The News on Sunday night that total sale of textile sector was estimated at $23 billion to $24 billion including $12 to $13 billion exports and remaining $8 to $10 billion domestic consumption. In rupee term total value of textile sector stood at Rs3.4 trillion. Now here the differences emerged as the textile sector argued that its domestic sale was much less and major chunk was utilised for exports. With abolishing of zero rating regime that will translate into imposition of 17 percent General Sales Tax (GST) will result into liquidity crunch of Rs7,00 billion with effect of stuck up refunds. However, the FBR has estimated that the stuck up refunds with 17 percent GST on whole value chain of Rs3.4 trillion will result into liquidity crunch of maximum amounting to Rs150 to Rs200 billion on basis of time lag of two months. If the stuck up refunds could not be cleared in two months, the FBR could be held responsible.

“The Bangladeshi model can be replicated where the exporters’ refunds will be instantly issued when the proceeds of exports will be cleared through banking channels. The central bank will issue refunds instantly and a mechanism can be devised on this front,” said one top official of FBR.

When contacted FBR Chairman Shahbar Zaidi told The News on Sunday night that the premier directed both sides to come with facts and then he would take final decision on it. “We will sit again to find out solution,” he added.

One textile sector tycoon told The News last week that the liquidity crunch of at least Rs700 billion would burden the sector with imposition of GST at standard rate of 17 percent. He was of the view that he had fought this battle during the tenure of PPP-led regime and won after which the exports had touched $25 billion mark. Then he said the textile sector was not fully listened to in last five years and exports nosedived. Now again the exports are picking up at slow pace but the government was moving towards choking its growth so it would result into complete drop of exports in months and years ahead in case of abolishing of zero rating regime without consideration of our viewpoint.

Meanwhile, Prime Minister Imran Khan has said that industrialists are the forerunner country’s progress and claimed that imposing taxes is not objective of the government instead it aims at facilitating taxpayers.

Talking to a delegation of renowned industrialists and representatives of business community in Islamabad Sunday at his Banigala residence in the presence of his economic managers, the prime minister said that the government wants to take business community on board while formulating policies regarding industry and commerce so that impediments and bottlenecks in doing business can be removed.

He said that creating opportunities for ease of doing business is priority of his government.

Adviser on Finance Dr Hafeez Shaikh, Adviser on Trade and Commerce Abdul Razak Dawood, Federal Ministers Khusro Bakhtiyar, State Minister for Finance Hammad Azhar, Humayun Akhtar Khan, SAPM Zulfi Bukhari, FBR Chairman Shabbar Zaidi and Secretary Finance Naveed Kamran Baloch were also present in the meeting.

The prime minister said seeking confidence of business community is very important for him and that is why he occasionally meets with the business people. He said imposing taxes is not objective of the government instead it is aimed at facilitating taxpayers. He said information technology can play a vital role for good governance and welfare of the people.

Imran Khan said government desires Pakistani exports should be compatible in terms of quality and price with products manufactured by other countries. He said ease of doing business will attract not only investors but also strengthen economy.

The prime minister urged the business community to play a leading role in development of Pakistan economy and the government will facilitate. He said the business community should take advantage of government's Asset Declaration Scheme. He said reforms in FBR are being introduced to restore confidence of business community on government's system of tax collection.

The economic managers of the government also responded some queries made by the business community and industry of the country.

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