Subsidy without logic

LAHORE: Exports are zero rated, the exemption is on taxes they pay on the inputs and processes undertaken in producing exported goods. However, exporters must pay income tax on the profits they accrue on exports. Do they do that? Are they the largest taxpayers?

All exporters from small, medium to large, are wealthy people compared with ordinary citizens. They visit their foreign buyers (mostly taking their families along). They live in palatial houses, their children study in foreign countries or in the most expensive institutions of the country.

They go around in the most expensive chauffeur driven cars. Almost all of them are members of elite clubs. In short, they live a dream life in Pakistan.

For all exporters, the tax rate under Section 154(1) of the Income Tax Ordinance, 2001 should be one percent of gross value of export of goods.

Every authorised dealer in foreign exchange has to deduct the tax from the exporter at the time of realisation of the export proceeds.

This is their final tax liability. The textile exporters for instance exported textile goods worth $19 billion last fiscal and a tax of Rs92 billion was deducted as withholding tax (after converting dollars into rupee equivalent). This tax is less than the tax that the employed class pays as income tax every year.

The exporters are happy to part with 1 percent gross turnover instead of filing proper income tax returns. Why cannot we ask exporters to file proper tax returns and pay the actual tax?

We pamper the exporters and never even reprimand them for providing the government with fabricated statistics about the facilities provided by the competing economies to their exporters.

When they demand for power and gas rates, they quote rates from competing economies that were prevalent before the global energy crisis.

For instance, gas rates in Bangladesh are now $8.97 per mmbtu and not 4.5 cents. In Pakistan, the gas rates are half than Bangladesh for exporters in Karachi and $9 per mmbtu in Punjab.

This is almost the same as in Bangladesh.

India has increased its piped gas rates to $11.42 per mmbtu from October 1. The labour wages in Bangladesh and Pakistan are the same, whereas in India the wages are much higher.

All Pakistan Textile Mills Association (APTMA) claims that the industry has made an investment of $5 billion in the past one year. However, the government statistics reveal that the total investment in textile machines in the past four years was only $2.41 billion.

Pressure on the textile sector is not because of the increase in the power tariff. Most of the spinning capacity of the country was already closed because of non-availability of cotton at viable rates.

Even if the subsidy on power is restored, most mills would remain non-operational till the cotton situation improves. This is a global crisis faced by India’s spinners as well that are operating at half capacity.

Textile exporters’ contention that power rates at regionally competitive rates are not a subsidy, is wrong.

If their contention is accepted that it is not a subsidy, the cross subsidies given to low end consumers that the textile sector talks about are also not a subsidy, because power rates for neighbouring domestic consumers are also low.

Subsidies come from taxpayers’ money. The exporters claim that the subsidy amounts to 2.5 percent of the exports. In other words, the textile sector recovers more than one percent withholding tax it pays.