LAHORE: The ongoing ‘consultations’ between the government and the textile industry over a key budget proposal withdrawing sales tax exemption enjoyed by exporters under the zero-rated regime broke down on Saturday primarily because of the tax authorities’ failure to produce an efficient, credible seamless mechanism for quick reimbursement of export refund claims.

The opinion of textile industry leaders representing different segments of the value chain involved in negotiations with the government’s economic team was also divided over the proposed withdrawal of the zero-rated regime as they came out of their last meeting with State Minister for Revenue Hammad Azhar, Adviser on Industry and Commerce Abdul Razak Dawood and Federal Board of Revenue (FBR) Chairman Syed Shabbar Zaidi in Islamabad.

The apparel exporters said they had held their ground on the issue and demanded continuation of the facility for exporters.

The All Pakistan Textile Mills Association (Aptma) and a part of the value-added textile industry from Punjab represented by the Faisalabad Textile Expor­ters Association (PTEA), on the other hand, have shown willingness to accept the ‘inevitable’ provided the government devised an effective mechanism to ensure quick payment of their sales tax refund claims before abolishing the zero-rated regime.

Both sides hold their ground, zero-rated regime to end in upcoming budget

It is unclear if the apparel exporters plan to launch a protest campaign if the facility is withdrawn in the budget. But the industry leaders say they plan to call a presser in Karachi on Monday to announce their future course of action (if the sales tax exemption is withdrawn).

The government offer to impose a reduced sales tax rate of 7.5 per cent on the textile chain and the commitment to pay their export refund claims in 60 days after production of the GD (goods declaration) by exporters failed to impress them or allay their concerns fearing that the FBR would hold back their money for an indefinite period to overstate its performance.

The government has also promised to “try to continue energy subsidies” for the exporters from Punjab to maintain their international competitiveness.

“We do not trust the government … no government has ever kept its promises with us. The law says government will pay interest on our refund claims if payment is delayed beyond a certain time period. It has never implemented it.

The law says the tax refund claims would be paid in one week after the issuance of RPOs to exporters. Practically, it has never happened and exporters still have RPOs against their refunds of at least Rs51bn pending for last many years,” Javed Bilwani, Chairman Pakistan Hosiery Manufacturers Association told Dawn by telephone after meeting the government side.

Zubair Motiwala, a garment industry leader from Karachi and claims to have full support of the other four zero-rated industries — carpets, surgical instruments, sports goods and leather goods — for their stance on the proposal, said the value-added textile industry has rejected the proposal and asked the government to collect sales tax on domestic sales at the retail stage instead of creating a liquidity crunch for the exporters at a time when interest rates are going north.

PTEA Chairman Khurram Mukhtar told Dawn from Faisalabad that it was not time to insist on zero-rated regime as the government finds itself in a tight spot because of the conditions attached to the $6bn loan from the IMF. “We are willing to help the government provided it comes up with an efficient and effective mechanism for payment of our refunds in the promised 60 days.

Aptma leader Naveed Gulzar, who participated in the Saturday meeting with their plan for early payment of export refund claims, briefly said nothing was finalised. “We expect the final decision by the government (on exporters’ proposals and demands) in the budget for the next year.”

According to an Aptma member, the softer stance of his organisation on the proposal abolishing sales tax is dictated by the government promise of continuation of energy subsidies for the exporters from Punjab.

Published in Dawn, June 9th, 2019