Textile value-added sector has proposed to the government to restore zero-rating of sales tax, reduce withholding tax and impose regulatory duty on cotton yarn export to create job opportunities, and boost country's exports.
In its budget proposals for 2020-21 submitted to Razak Dawood, Advisor to the Prime minister on Commerce and Textile, Pakistan Hosiery Manufacturers and Exporters Association (PHMA) stated that the current global slowdown due to the coronavirus pandemic and fast changing worldwide geo-strategic dynamics and unprecedented economic challenges are being faced by Pakistan in all segments of the economy.
It is indispensable and inevitable that the government must take crucial taxation relief measures in terms of tackling economic challenges, capitalizing on opportunities, uplift exports, and more industrialization.
It is dire need of the time that the budgetary and policy measures for fiscal year 2020-21 must hold the key to economic prosperity to confront challenges and create conducive and enabling environment for investment and growth for industry and trade, through major structural changes in tax regime, policy revision focusing to incentivise commerce and industry to generate more employment and overcome the fiscal, current accounts and trade deficit.
The PHMA proposed that it is imperative to revive SRO 1125 in its true spirit and reintroduce system of no payment and no refund of sales tax for the five export-oriented sectors.
In the budget 2019-20, the government rescinded SRO 1125 and imposed 17 percent sales tax on erstwhile five zero-rated export sectors and exporters are required to apply for refund after export of consignment.
Exporters, who have filed their refund claims up to date, have received 35 percent of claims payment only, while 65 percent of the refund claims are stuck up with the government, which cumulate 12 percent amount of exporters' running capital.
However, the profit margin of exporters is around five percent to eight percent.
Due to availability of liquidity and smooth cash flow, the confidence of exporters will be boosted to enhance their exports and cement their business ties with the foreign counterparts to capture true business potential.
Currently, the WHT is charged at various levels and items such as import of raw material, registration of new vehicles etc, which is adjusted or refunded later.
Exporters fall under final tax regime u/s 143(b) and should be exempted from payment of the WHT and be given exemption certificates.
This will greatly benefit them and also lower workload on the Federal Board of Revenue (FBR) who is busy in a futile exercise.
For exporters fall under final tax regime withholding tax should be reduced from one percent to 0.50 percent.
This would help exporters in using the cash liquidity for enhancement of the exports.
Currently there is 11 percent customs duty, five percent regulatory duty, and two percent additional duty on import of the cotton yarn.
This has created artificial shortage of availability of yarn, rendering the value-added textile exporters uncompetitive in the global market against regional competing countries.
This will lead to decline in exports as local industries are hurting and closing down.
Further, garment stitching units are not allowed to import yarn under Duty and Tax Remission for Exporters (DTRE).
The PHMA proposed that whenever government desires to impose regulatory duty on import of cotton yarn, the government should also impose regulatory duty on export of cotton yarn, and there should be time limit/duration of imposition of duty.
The government should look into the ways of reducing cost of doing business/energy cost for the spinners and bring them at par with cotton producing countries.
Yarn is essential raw material to manufacture value-added textile products for export, and the same is required to be made available at reasonable prices.
Further, the Export Oriented Units (EOU) under SRO 327 was introduced on the pattern of Export Processing Zone, where there is no taxes on buying of locally-procured input goods and no taxes on utilities.
Industries registered in the EOU are liable to export 80 percent of their annual production.
The FBR vide SRO 747(I)/2019 dated 9th July, 2019 has withdrawn the exemption of sales tax and federal excise duty on buying of locally-procured input goods by exporters operating under the EOU and Small and Medium Enterprises Rules, 2008 under SRO 327 by omitting the clause 10 sub-section (b) and (c) of the said rules.
The PHMA proposed that the FBR should withdraw its SRO 747(I)/2019, so that exporters operating under the EOU can procure input goods without taxes.
Further, it is also proposed that industries, registered in the EOU, and export 80 percent of their annual production, should be supplied utilities – gas and electricity without sales tax at zero rates.
Exporters have been given incentives on their exports by the government in shape of Duty Drawback on Taxes (DDT) and Drawback of Local Taxes and Levies (DLTL).
Currently, the government is providing Duty Drawback of Taxes on garment, home textile and fabric exports at four percent, three percent and two percent respectively (50 percent on shipment basis, and remaining 50 percent on the condition of increment).
However, due to complete lockdown, exports are halted since March 2020 and it is impossible to increase exports.
Therefore, it is proposed that for 50 percent of Duty Drawback of Taxes, the government should check export performance of eight months during July-February 2019-20 over July-February 2018-19 before lockdown instead of 12 months July-June 2019-20 over July-June 2018-19.
Source: This news has been taken from www.brecorder.com
