Govt yet to clear 60pc of exporters’ sales tax refunds: PHMA

KARACHI: Government is yet to settle approximately 60 percent sales tax refunds of exporters and this pending liquidity is exacerbating the financial crunch of value-added textile industry amid the pandemic, a trade association said on Saturday.

Pakistan Hosiery Manufacturers and Exporters Association (PHMA) said the stuck refunds account for approximately 12 to 15 percent of exporters’ running capital.

The association said refund payments against the sales tax – which is liquidity of the exporters – is not realistic as government releases part payments of the exporters while major amount of the sales tax refund are unnecessarily held by government. During the current financial year, exporters who filed their claims of sales tax refunds have not yet received their claims. Likewise, billions of rupees of income tax refunds are stuck with the government.

“Even after vivid opposition by the exporters, the government in the last budget imposed 17 percent sales tax, which severely hit liquidity position of exporters and precious funds worth billions of rupees are stuck with the government,” Jawed Bilwani, chief coordination of PHMA said in a statement. “The unrealistic measures taken in the last budget have brought devastating effects on the value-added textile export industry with the imposition of 17 percent sales tax bringing the industry to ventilator.”

PHMA demanded restoration of no payment no refund regime for five export-oriented sectors.

“The country is passing through the most difficult times in its history,” said Bilwani. “This alarming state of affairs necessitates the government to consult with the genuine stakeholders who practically know better about their problems and propose solutions to incorporate in the next budget.”

The association said the government must stop experiments on the textile industry on the advisory of its economic team and accord priority to the industry’s budget proposals. Adviser to Prime Minister Razak Dawood is in favor or restoration of zero-rated facility, but the Federal Board of Revenue (FBR) opposes that, it added, terming it as a bureaucratic hurdle.

Exporters warned that the government must not repeat the mistake of last year and should consider ground realities and act upon the proposals and suggestions of exporters, otherwise the government's plan to enhance exports will completely be shattered.

“Exporters can no longer bear the brunt due to inefficiency and shortcomings on part of the FBR to achieve revenue targets,” said Bilwani.

Bilwani said the global slowdown in the wake of COVID-19 has added to financial grievances of exporters in shape of loss of businesses and due to bankruptcy of many global brands whose impact will also fall on the export industry of Pakistan. Small and medium exporters are worst hit due to liquidity crisis and fearing closure as they have no running capital to operate their industries, which, once closed, will not be revived.

“The only solution to rescue the export industry, particularly SMEs, and address their liquidity crunch is to revive zero-rated sales-tax regime to provide pragmatic relief to exporters in this severest ever liquidity crunch of the history,” he said.

PHMA said globally businesses have been slashed up to 50 percent and leading brands have filed for bankruptcies. In this outlook, harsh price war will start worldwide to grab the export orders and the one who will be most competitive will only succeed.

“Cost of manufacturing, tariffs of utility, charges of ports, logistics and wages are already high in the country as compared to regional competing countries,” Bilwani said. “The labour in Pakistan is also, comparatively, less efficient and facing health complications.”

The association said if zero-rated facility is not restored in the upcoming budget, textile exporters plan to switch to other businesses, which will affect 40 allied industries.