KARACHI, Jan 7: Pakistan Leather Garment Manufacturers and Exporters Association (Plgmea) has urged the Federal Board of Revenue (FBR) not to withdraw the zero-rating status of the five export-oriented industries from the scope of sales tax.

Chairman Plgmea Fawad Ijaz Khan said in a statement that if at all it was imperative to withdraw the zero-rating status then the five industries should be consulted before formulating a any new VAT law.

He said it had come to the knowledge that the FBR was currently working on new value-added tax laws for full implementation of the VAT system as per agreement with the IMF. This new VAT system will replace the existing general sales tax (GST) regime.

Mr Fawad further said that the government had zero-rated the sales tax on most of the inputs used in production of five export industries in the federal budget of 2005-06. The zero-rated industries were textile, leather, sports, surgical and carpets.

As per the government’s agreement with the IMF, he said, the new VAT system will have very minimal exemptions and all trading and services will be brought under the VAT regime.

Besides, he said, zero-rating of five exporting industries from the sales tax is also covered under the Sixth Schedule of the Sales Tax Act, 1990 and items mostly related to food, machinery and local supplies are exempted from sales tax. Mr Fawad stated that prior to 2005-06 there were many cases of over-invoicing of exports with the objective of claiming bogus sales tax refunds.

Because of this practice, he said, the genuine exporters were not able to compete with exporters, who were taking advantage of loopholes in the old system by obtaining bogus and flying sales tax invoices. Even today, several sales tax refunds pertaining to period prior to 2005-06 are still pending and the FBR is not paying these claims because the suppliers of exporters are mostly black-listed by the FBR.

He further said that as per agreement with the IMF the FBR was supposed to conduct a seminar in December last to discuss the VAT regime with the stakeholders. But no seminar has taken place so far and neither the stakeholders have been consulted.