KARACHI: Five of Pakistan’s zero rating export sectors, including value added textile, sports goods, surgical equipment, leather, and carpet manufacturing, fear the government may bring them under the sales tax regime in the upcoming fiscal budget 2019-20 to be announced on Tuesday, June 11.
Warning against abolishing the Zero Rating of sales tax scheme, the sectors estimate the country’s exports would go down by more than 20 percent by imposition of sales tax, which in turn will “ruin the export oriented industries, cause flight of capital, mass unemployment and foreign exchange losses.”
Addressing a press conference and a protest demonstration at Karachi press club on Monday against the expected withdrawal of Zero Rating of sales tax scheme, the representatives of these five sectors called the move a “conspiracy against the increasing exports of the country” and sought Prime Minister Imran Khan’s intervention.
“The concerned high officials are not realizing the gravity of the situation and sensitivities of the matter. They are stubborn enough to implement the dictates of IMF (international Monetary Fund),” said Zubair Motiwala, Chairman of the Council of All Pakistan Textile Association.
“It is not the right time to take such risks. If you will eliminate the status, the country’s exports would suffer by 20 to 30 percent in the coming years,” he said.
Pakistan’s five sector that enjoy zero rating sales tax scheme claim to contribute around 70 percent of total exports of the country and generate 50 percent of the total employment.
Last month, Pakistan struck a $6 billion loan deal with the IMF after months of negotiations. The global lending body conditioned the bailout program with reduction in fiscal deficit to 0.6 percent of the Gross Domestic Product (GDP), withdrawal of subsidies, and incentives including eliminating the zero rating status to the export oriented industries.
“We have categorically refused to accept the government’s new tax regime to discontinue zero rating. No successive governments have kept their promises and cleared the backlog of exporters refund claims worth billion of rupees in shape of Sales Tax, Withholding Tax etc. We will not deviate from our principle demand to continue zero rating,” Motiwala said.
The exporters argued that zero rated status has increased the country’s exports by 29 percent in terms of rupee which shows the exports are on the growth trajectory.
Pakistan has also devalualued its national currency by over 40 percent since December 2017 mainly to encourage exports by making the local industry competitive.
“The full impact of the rupee devaluation will be seen in the coming months as the orders booked in advanced are maturing and new contracts are being made in next few months,” said Syed Shujat Ali, Chairman-South Zone for Pakistan Leather Garments Manufacturers and Exporters Association, said.
Representative of carpet manufacturing sector also feared that zero rating discontinuation will wipe out the carpet industry in the country. “We are already working under extremely tough conditions. Elimination of the status would be a disaster for the carpet industry,” said M. Naeem Sajid, Chairman of Pakistan Carpet Manufacturers & Exporters Association.
The industrialists lamented the lack of basic facilities including power, water and access to ports. “The government is not giving us gas, water and a clear passage to enter the seaport but they question why the exports are not increasing,” Muhammad Jawed Bilwani, Chief coordinator of Five Zero Rated sectors, said.
“A day of gas load shedding in industries means that 14 percent of your production has been compromised,” he said.
The sectors’ representatives said that the government wants to impose 7.5 percent sales tax on the zero rated sectors. “Collecting sales tax and then refunding it is a futile exercise, which creates hassles for exporters and also opens flood gates of corruption. No collection and no to refund the sales tax from five zero rated export sectors is a tried and tested formula for increasing revenue and exports,” Motiwala said.