LAHORE: Furious over a massive tax fraud by some textile manufacturers on their sales for domestic consumption, the Federal Board of Revenue (FBR) has withdrawn the zero-rated facility of the five export-oriented industries and introduced two per cent sales tax on supplies to these sectors (except on utilities).

All the sectors outside the five zero-rated industries will continue to pay five per cent sales tax. The zero-rated industries will be allowed to claim sales tax refunds on their exports.

The FBR has already detected through its intelligence wing a sales tax fraud of Rs10 billion on sales for domestic consumption involving major textile groups from Karachi, Lahore, Multan and Faisalabad. On the basis of strong evidence gathered by it, the FBR has also registered FIRs against 12 companies owned by some “respected” names in the textile industry. Some of those who are facing legal action also include former chairmen of the All Pakistan Textile Mills Association (Aptma).

But the board has suspended “any further action” against them for 30 days on the intervention of the top leaders of the Aptma to enable those involved to pay up their tax liabilities to avoid raids on their factories and offices and consequent arrests.

FBR Chairman Ali Arshad Hakeem clearly told Aptma leadership during a meeting on late Friday night that the board would not withdraw the changes in the zero-rating of the textile or other industries.

He said the FBR had irrefutable evidence of sales tax fraud committed by major textile manufacturers. He said the matter had been investigated thoroughly and evidence gathered against those involved.

Still, he said, the board was willing to give the 12 major groups/producers found involved in the scam 30 days to pay their tax liabilities to avoid further action as requested by the Aptma leadership. He also gave the rest of the textile industry to reconcile their sales/invoices and deposit the tax due to them in one month.

On the insistence of the Aptma leadership, he halted all kinds of action against the industry in Lahore, Faisalabad and Multan, but said the investigations against the Karachi industry would continue. “I will take a decision about Karachi later on,” he told the Aptma leadership.

The Aptma members from Karachi and Faisalabad joined the meeting through video conferencing.

The Aptma leadership supported the chairman’s efforts to boost tax revenues, saying the textile industry would do it best to help the board in collection of taxes. He was, nevertheless, requested to speed up refunds to prevent liquidity crunch.

On the demand of the Aptma leaders, Mr Hakeem also announced to withdraw the recent hefty increase in withholding tax on imports of textile raw materials from one per cent to five per cent and assured the participants that the board wanted the industry to grow and would not shy from removing obstacles in its way. Further, he agreed to another Aptma demand to zero-rate cotton imports.