Withdrawal of zero-rated regime: Govt decides to impose 17pc sales tax on export industry

ISLAMABAD: With the announcement of federal budget just one day away, the last-ditch endeavours for result-oriented talks between the export industry from Karachi and Faisalabad and the government economic team held here in a row on Saturday and Sunday (today) on restoration of zero-rating regime went in vain as the government reiterated in plain words that it is under the IMF commitment and is unable to take back its decision to withdraw the zero rating.

The government has also refused to extend the Guaranteed Refund Mechanism to the industry saying the mechanism will be worked out later on after the budget. The economic team of the government has also told the industry that it is going to slap 17 percent sales tax on export industry of textile, leather, carpet, surgical and sports.

Earlier, the government functionaries had agreed in the presence of Prime Minister Imran Khan in the meeting that the government will impose 7.5 percent sales tax on the said export industry, but in (Sunday) today’s meeting, the economic team has refused to charge 7.5 percent sales tax, rather it vowed to impose 17 percent sales tax on the said export industry.

However, the government has decided to extend the energy package (RLNG at $6.5 per MMBTU and electricity to textile, carpets, surgical, leather and sports sectors) for another 6 months after hectic talks with IMF, but the government says it will review the continuing of energy package after 6 months, official and industry sources told The News.

According to the sources, industry representatives from Karachi in the Saturday meeting and from Faisalabad and Lahore in the Sunday meeting pleaded saying that withdrawal of zero rating at this stage would be extremely fraught with danger in so far as exports are concerned. “The momentum gained of a 20 percent quantitative increase in exports over the last 9 months would be jeopardised.”

The official sources in Finance Ministry have also confirmed to The News that IMF also did not allow the government to reduce the sales tax to 7.5 percent on export industry rather it directed the government to slap the standard sales tax of 17 percent on the said export industry. They also confirmed that the government has decided to continue the energy package to industry for another 6 months after persuading IMF on this very account.

Zubair Motiwala, an eminent businessman from Karachi who attended the meeting, when contacted told The News that the Karachi based export industry is going to stage protest today (Monday) against the withdrawal of zero rating. Mr Motiwala also said the industry cannot believe what the government gives assurance on refund mechanism as in the past it didn’t stand by its words on this front. He said that in the head of sales tax, the government owes Rs51 billion to industry, Rs82 billion in the head of duty drawback and reasonable amount in the head of customs rebate.

Mr Motiwala said that the government has said that it is helpless under IMF commitment and cannot reverse its decision to withdraw zero rating. He said with this decision, industry will automatically die down and it will face the huge liquidity crisis and more importantly industry cannot borrow the loan from commercial banks at 14-15 percent interest rate. Borrowing from commercial banks will not be feasible for the industry. “So the industry will not be able to function and it will die down,” he said.

“We are going to hold a press briefing in Karachi Press Club today (Monday) at 2.30pm and after that a protest will be staged against the government decision,” Motiwala said.