Adverse measures may close textile units, PM told

ISLAMABAD: The manufacturers of textile and clothing products fear closure of industrial units because of the adverse measures proposed in the budget 2019-20.

The export industry representatives apprised Prime Minister Imran Khan of export sector’s agonies in a meeting held here on Thursday prior to approval of the budget by parliament. They warned imminent closure of industrial units.

The prime minister was told that textile sector had planned to invest huge amount in the sector, but withdrawal of zero rating had forced to end the plan saying the said measures will give birth to liquidity crisis. Textile sector representatives urged government not to slap 17 percent sales tax. They said that in the presence of Prime Minister before presenting the budget, the government had agreed to impose 7.5 percent sales tax, but later on, the government proposed to impose 17 percent sales tax. Going from 0 percent to 17 percent is practically impossible, as it will lead to liquidity crisis. They argues that to collect Rs80 billion of sales tax on domestic sales and then refunding over Rs600 billion is not justified and is an impractical proposal. The export industry stressed for imposition of sales tax at 7.5 percent.

They proposed that the bulk of refunds due to be made as soon as possible as MR number is assigned by customs. This is confirmation that exports have been carried out. All refund amount to be paid in exports account through the commercial accounts and adjust for exchange rates or other differentials at the time of receipts of export proceeds.

They also recommended to the government in the meeting asking for imposition of GST on DTRE, EOU and Bond for level playing field for domestic industry and DLTL should be calculated only on value added within Pakistan. They also asked the government to waive CNIC condition as it is totally impracticable. They also asked the government to reduce proposed turn over tax rate of 5 percent to 0.5 percent.

Representatives of Five Zero Rated Sector Export Sectors called on Prime Minister Imran Khan and appealed to withhold rescinding of SRO 1125 and continue zero rating. If any amendments are required, these should be done in SRO 1125 without rescinding so that facilities given to exports oriented industries should continue and there is no hiccups in exports in the national interest and in the light of PTI's manifesto and export policy.

A comprehensive presentation on Five Zero Rated Export Sector was also given by Zubair Motiwala to Prime Minister in the meeting held at Prime Minister's Chamber at National Assembly, Islamabad. Prime Minister appreciated the presentation and understood the difficult position of the exporters in light of their previous experiences with the past governments with regard to refund and implementation of the system. Adviser to PM on Commerce Razak Dawood, Minister for Energy Omer Ayub, FBR Chairman Shabbar Zaidi, Chief Coordinator, Five Zero Rated Export Sectors, Jawed Bilwani and others were also present in the meeting.

In the presentation, the prime minister was apprised about historical background of zero rating whereby, “No Payment No Refund” System was introduced in 2005 to improve liquidity of exporters and is not an incentive or subsidy. Globally, export sectors are zero rated. Zero Rating was most successful and continued for almost 9 and a half years and save billions of rupees of government. Collecting sales tax and then refunding – is a futile exercise which creates hassles for exporters and also opens flood gates of corruption. No collection and no refund of sales tax from five zero rated export sectors is a tried and tested formula for increasing revenue and exports.

During last two decades the government had tried to undo zero rating twice but miserably failed, hence, zero rating was reintroduced.

During last 10 years exports of Five Zero Rated Export Sectors was increased to 37 percent in terms of value. However, due to devaluation in last four months, exports had increased but in quantity terms only. The textile industry exports is more than 80 percent of their products. To collect sales tax on remaining 20 percent from textile manufacturing sector is not feasible and saner thing to do. The exporters also feel that exports may get a dip of 20 percent to 30 percent. Nevertheless, discontinuation of Zero Rating scheme and reduced rate of Sales Tax will eliminate SMEs - Value Added Exporters due to liquidity problem and exports will decline.