Exporters term refund notes unattractive, demand restoration of zero-rating

KARACHI: Exporters on Monday demanded of the government to restore zero-rating sales tax regime if it couldn’t ensure swift payment of refunds, terming the promissory notes unattractive due to low rate of returns.

“Exporters are unable to fulfill their export commitments due to extreme liquidity crunch coupled with cash flow problems as government has failed to clear the pending refund claims to the tune of billions of rupees,” Pakistan Hosiery Manufacturers and Exporters Association (PHMA) said in a statement.

They demanded of the government to ensure swift payments to exporters against their refunds within 72 hours after submission of claims otherwise government should restore the zero rating of sales tax – no payment no refund regime for the five export sectors.

They said sales tax on utilities should not be charged to exporters as they fall under final tax regime.

“Stuck refund claims (sales tax, income tax, duty drawback and textile policy incentives) and high priced energy inputs are adversely affecting the production, employment and exports,” PHMA said.

Meanwhile, Pakistan Tanners Association (PTA) termed the promissory notes issued by the government against stuck refunds as piece of papers with unattractive rate of returns.

PTA Chairman Afzal Hussain said the tax refund program, called faster system, is completely ineffective.

“There is no discounting system of these bonds and banks are not willing to entertain these bonds for encashment and discounting,” Hussain said in another statement. “These bonds are issued with 10 percent yearly profit, whereas the current Kibor (Karachi interbank offer rate) has increased, so the bonds may be linked for profit with Kibor.” The central bank’s benchmark interest rate stands at 13.25 percent.

Last year, the government unveiled a plan to launch negotiable security bonds worth Rs100 billion to settle the backlog of stuck sales tax refunds of more than Rs200 billion that created liquidity crunch for industries. Former finance minister Asad Umar, in a mini-budget, announced to issue promissory notes to exporters, on annual profit of 10 percent with a maturity period of three years.

The bonds may be made available to settle the liabilities on import by settling customs duties and income tax liabilities, PTA said. It has already shared the proposals with the Federal Board of Revenue (FBR) but, “unfortunately no reply has been received from the FBR despite constant persuasion made by the association”.

Hussain said the program has cumbersome procedure with the submission of numerous documents, which are impossible for submission by exporters. No PTA member has succeeded in submission for the refund of sales tax through the faster system of the FBR, he said.

PTA said the industry is in deep financial crisis with shortage of cash flows. It is becoming unable for the industry to run the business activities smoothly under the prevailing circumstances where funds of exporters are stuck with the FBR.

“Almost 40 percent of leather industry has already closed their operations and remaining are functioning half of their total production capacity, which was witnessed from the financial year’ closing export figure that declined 11 percent,” Hussain said. “This might drop further up to the closing first half by December 2019.”