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June 20, 2019

Senate body rejects govt’s proposal for withdrawal of zero rating regime

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June 20, 2019

ISLAMABAD: The Senate Standing Committee on Finance has outright rejected government’s proposal for withdrawal of zero rating regime for five export oriented sectors as textile tycoons took the stance that this decision would affect exports negatively by 25 to 30 percent.

The Senate panel also opposed the FBR move to slap 17 percent Federal Excise Duty (FED) on ghee and steel sector into merged districts of Fataafter heated debate among FBR high-ups, Senators belonging to Fata and representative of steel sector. The Chairman FBR Shahbar Zaidi and Member Inland Revenue Dr Hamid Ateeq Sarwar took stance that if GST not included into electricity bill into Fata they would be ready to withdraw from their demand to impose 17 percent FED on steel sector. This amount is outstanding but no one can claim that it’s not included into electricity bills, they added.

The FBR high-ups argued that the steel industry shifted from Punjab into Fata and they would be selling their produce into settled areas of the country. Senator Taleh Mehmood suggested to workout difference in cost of transporting raw material from Karachi into Fata and decrease the tax burden but the Fata senators refused to accept this suggestion arguing that the FBR had asked them to get concession of one percent which was not acceptable to them.

The Chairman FBR Shahbar Zaidi also made it clear that he would not be ready to compromise on documentation drive as he declined to accept demand of fertilizer dealers who were demanding to get rid of documentation. The FBR’s Member Inland Revenue Dr Hamid Ateeq Sarwar said that the raising rate of minimum tax for certain sector would help collecting Rs 65 billion in the next fiscal so it could not be reduced.

The Senate panel which continued its deliberations on Finance Bill 2019-20 for third consecutive day under Chairmanship of Senator Farooq H Naek here at Parliament House on Wednesday rejected withdrawal of zero rating regime for five export oriented sectors including textile, garments, carpets, surgical and sports goods with majority. Only Senator Dilawar Khan supported the government’s move on the commitment of Chairman FBR Shabbar Zaidi that refunds of exporters would be released instantly through State Bank of Pakistan (SBP) once Goods of Declarations (GDs) cleared for export proceeds.

The textile sector representative Zubair Motiwala argued before the Senate panel that they helped the FBR to seize 75 containers of smuggling as abolishing of zero rating regime would result into surge into smuggling in guise of Afghan Transit Trade (ATT) and rampant increase in business of flying invoices. On smuggling point, the Chairman FBR Shabbar Zaidi confirmed report of seizure of 75 containers and assured that in case of surfacing issue of prone smuggling item and inability of the government to find out solution then they could consider other options.

Zubair Motiwala stated before the committee that the government rescinded Statutory Regulatory Order (SRO) 1125 through Finance Bill 2019-20 and demanded of the government to restore zero rating regime. “At time of zero rating regime, the stuck up refunds and other liabilities against the government stood at more than Rs200 billion and it could be imagined that how much refunds would be ballooned after imposition of 17 percent GST”, he added.

He questioned over the estimates of Adviser to PM on Finance and FBR on account of domestic sale of textile sector to the tune of Rs1200 billion and said that their estimates suggested that the domestic sale could be standing around Rs354 billion maximum. “At a time when the domestic markets are flooded with imported material the estimation of market size of Rs1200 billion is joke,” he said and added that the government estimates demonstrated that each individual was spending Rs5500 for wearing clothes at a time when 50 percent population was living below the poverty line. He said that the textile exports increased from $9.582 billion to $13.305 billion in last few years but the exports were not at up the desired levels. The exports, he said, were picking up but after withdrawal of zero rating regime it would choke the whole sector leading us nowhere. “The textile sector will die down,” he said and added that he could predict that the smuggling in guise of Afghan Transit Trade (ATT) and business of fake and flying invoices would increase rampantly. Abdul Haque, representative of All Pakistan Power Looms said that abolishing of zero rating regime would result into increase in fake and flying invoices for getting illegitimate refunds.

The representative of formal sector of retailers Riaz Bashir told the senate committee that the FBR used to charge 6 percent GST from those retailers who were connected with the FBR system while the rate of GST was standing at 9 percent for those operating without connecting the FBR system. There are 5 percent registered and 95 percent unregistered retailers. Now the government proposed to increase GST rate of 17 percent for registered retailers. He proposed to the government to reverse the decision and go back to GST rate of 6 percent for retailers instead of 17 percent. The Ship breaking industry demanded of the government to allow weight of 75 percent instead of 100 percent, however, the Senate panel recommended to allow weight of 85 percent. The FBR sternly opposed the move and argued before the committee that it would be simply impossible to accept waste of 30 percent for this sector. The Steel sector representative Wajid Bokhari told the committee that the steel sector was poised to go for exports in big way but it required enabling environment.

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