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Thursday March 28, 2024

How speed-money syndicate plants bribe-ware in the system

Engineered policy flaws are those that are cleverly incorporated by the rent-seeking bureaucracy to have an upper hand on the export facilitations provided to the exporters. By doing so they ensure they could eat into the incentives awarded to exporters.

By Mansoor Ahmad
October 12, 2019

LAHORE: It is alarming to note that textile exports have remained stagnant even after massive devaluation, while yarn and fabric producers have low technology/efficiency issues, the nominal growth in apparel exports despite competitive edge and quality is actually due to engineered policy flaws.

Engineered policy flaws are those that are cleverly incorporated by the rent-seeking bureaucracy to have an upper hand on the export facilitations provided to the exporters. By doing so they ensure they could eat into the incentives awarded to exporters.

Readymade garments and knitwear exporters are forced to forgo many export orders due to financial constraints they have been facing for years in getting their genuine refunds. It is pertinent to note the zero-rating scheme remained in vogue for around 18 months before it was withdrawn by the present government.

The refunds of periods before the zero-rating, approved for the exporting sectors, are in the range of Rs200 billion. The bonds issued by this government carrying an interest of 10 percent are simply a piece of paper and are not cashable. So the funds remain unpaid but are transferred from the government to bonds.

After the zero-rating was withdrawn the Federal Board of Revenue (FBR) assured the refunds would be promptly released on the realisation of export proceeds. To apply for refunds the bureaucracy introduced a form H, which has to be filled by the exporter.

The form is so complex that hardly any exporter has been able to fill it properly. After few futile attempts to remove the shortcoming in filing of Form H, the refund process is sent to the bureaucracy where it is filed manually with the assistance of officials.

This pushes the exporters back to the rent-seekers. Most apparel exporters contacted by this scribe say that no refunds have yet been made after the withdrawal of zero-rating facility. They apprehend that since online filing of return is cumbersome and not accepted by the system, they will have to get their returns after long delays by paying rent to the bureaucracy.

The knitwear and readymade garment exporters are small and medium entrepreneurs (SMEs) that cannot afford to put in limbo 17 percent sales tax paid on exports at different stages of production for four to five months. This inhibits them from accepting larger orders at a time when their competitiveness has largely been restored by rupee devaluation. This is the reason the export of these value-added sectors is not increasing to their actual potential.

That’s not all as there are also other hurdles faced by these SMEs. The Duty Tax Remission for Exports (DTRE) is much touted facility provided to the exporters. has been pointed out numerous times that the procedures for availing this facility are very cumbersome.

One wonders why the economic planners have ignored the fact that out of hundreds of thousands of exporters why only a thousand or so avail this facility. The renewal of this facility takes long time although the law clearly states that a DTRE registered exporter is entitled for the prompt renewal of this facility up to its last years export performance.

The approval requires speed money that small exporters cannot afford and opt not to avail it. The medium-sized exporters are now also finding it difficult continue as the rate of approval has doubled.

They are facing some other issues as well that belies logic. For instance the regulators want them to import each and every item they applied for in DTRE. This is creating problems because if they find that some inputs are locally available at cheaper rates they will not import the input. The exporters pay sales tax and other government levies on those inputs and do not claim any refund, while they save precious foreign exchange by using some inputs available locally they are penalised for this ‘lapse’.

Another problem they face is that sometimes the imports are delayed for any reason and in order to execute their orders on time the exporters buy the inputs locally. The regulator then objects that why the imported input has not been consumed.

They force the exporter to pay duty and taxes on unused inputs imported under DTRE. Their request to allow the same input to be used in next export consignment is rejected. Such bureaucratic hurdles are keeping the exports low in sectors where the potential for increase is very high.