RECORDER REPORT

ISLAMABAD: The Value-Added Textile Exporters Associations have unanimously condemned the Federal Board of Revenue’s (FBR) move to roll back all pending electronic refunds payment orders of five export-oriented sectors: textile, leather, carpets, surgical and sports goods.

The representatives of Value-Added Textiles Associations, in a joint meeting, discussed the recent move of FBR, taken without consultation, to roll back all pending Sales Tax Refunds Payment Orders of five-zero rated export-oriented sectors, reported in newspapers on 7th & 8th April 2017.

The chairmen and representatives of associations expressing deep concern strongly criticised the recent action of the FBR to roll back electronically generated refund payment orders (ERPOs) and stated that exporters’ billions of rupees refunds have been pending for the last more than ten months. Now when exporters have started protest, the FBR all of the sudden has taken this serious action without realising its implication at all. The exports have been continuously declining and such an extreme measure may only create uncertainty, mistrust and hamper Pakistan’s exports. He stated that FBR had spent huge money on setting up state-of-the-art computerised risk management system, then how come all these ERPOs are got cleared without risk intimation as claimed by the FBR from the electronic system. They said that the contention of the FBR does not carry weight and yet another fatal blow on exporters’ efficiency who are already facing severe liquidity crunch, hence, unacceptable.

Responding to FBR’s major observation that refunds have not been reduced even after zero-rating, the representatives of associations categorically declined the statement of FBR and said if this was the case, the business and industrial community must have been taken into confidence. If FBR had correct figures, same would have been shared and any action thereof taken would have been with mutual understanding. They informed that exporters usually carry inventory/ stock of four to six months. It was further reminded to FBR that in final round of meetings in respect to five zero-rated sector, it was agreed to zero rate for five sectors, whereby Jawed Bilwani had personally raised this issue that un-used inventory of packing material and allied materials would create unnecessary confusion and as it was done when the then Chairman FBR Abdullah Yousuf did the zero rating, stock declaration formula was also announced and at that time no confusion was created.

Similarly, Jawed Bilwani raised this during that meeting but for unknown reasons the idea was not implemented, as it is true that tax paid stocks were consumed quite subsequent to the zero rating.

The representatives of associations voiced that the government’s anti-business steps and policies have severely hampered the exports which were $ 25.11 in 2013-2014 that has faced a sharp decline to $ 20.78 in 2015-16 with a negative growth and decline in exports worth $4.33 billion. They lamented that the so-called “business-friendly” government is not bothered to find out the reasons for export decline and without realising that such harsh step to roll back all pending RPOs pushed the exporters, who are already facing severe liquidity crunch, to the verge of disaster.

They also conveyed apprehension stating that it is correct that exporters had committed and extended consent for withdrawal of input tax on packing material. He further articulated that significant and persistent decline can be witnessed in textile sectors for the last couple of years due to high cost of doing business, power shortages and overall recession. The exporters’ billions of rupees of refunds, including sales tax refunds, customs rebates, DLTL claims and income tax refunds, are stuck up. Moreover, manifold challenges faced by exporters, like higher utilities tariffs and costly industrial inputs, have exorbitantly increased the cost of production. Likewise, lack of level playing field and enabling environment and cut-throat competition with regional countries have hampered the pace of exports efficiency.

The associations’ representatives, referring to a comparison of textile exports of Pakistan with regional countries, articulated that textile exports of Bangladesh in 2012-13 were $ 23.69 billion which increased with 27.81% growth rate to the tune of $ 30.28 in 2015-16, India had textile exports worth $ 33.17 billion in 2012-13 which increased with growth rate of 10.70% to an amount of $ 36.72 billion. Similarly, textile exports of Vietnam in 2012-13 were $ 19.30 billion which enhanced with a growth rate of 31.29% to the tune of $ 25.34 billion. Nonetheless, Pakistan textile exports in 2012-13 were $ 13.06 billion, faced negative growth of 4.67% and drastically declined to $ 12.45 billion in 2015-16.

The associations’ representatives conveying genuine concern also criticised the FBR, stating that all export associations are already not satisfied with the overall performance of the FBR, particularly exporters’ refunds have been stuck up since long on one or another pretext. This controversy may further fuel up recurring crisis. They said that already existing trust deficit between FBR and taxpayers would be widened further and such actions will only further dampen the trust of the business community on tax collecting authorities. They appealed to the high-ups of the FBR and Ministries of Finance and Textile to personally look into the matter and restore all the rolled back ERP’s immediately.

They expressed concern that exporters were already facing serious liquidity crunch and in such situation delaying their refunds further on any pretext was highly unjustified. They highlighted that FBR instead of taking such an extreme measure can always take up stakeholders in confidence. Associations never support anyone claiming excessive refunds, however, now even innocent and genuine taxpayer may suffer without any fault on their part. They were also of the view that in case of any discrepancies in already generated ERPOs, the FBR can always confront the relevant taxpayers under appropriate provision of the law rather than taking such an extreme measure. Instead of rolling back ERPOs and asking the field officials to do the scrutiny of already issued ERPOs, the FBR could have opted for conducting post-refund audit, where necessary.

They contended that recently unsatisfactory observation of international donor agency on Pakistan’s economy has been witnessed, particularly on account of increasing circular debt. They said that nowadays sales tax refunds are also becoming circular debt like issue, the government clears the past amounts and new refunds start creeping up. Thus, the Value-Added Export Associations always support the idea of zero-rating to eliminate this refund issue once for all. They opined that FBR is under tremendous pressure and lacking far behind to its budgetary target and thus this move in this last quarter of the financial year seems more based on fiscal constraint instead of any technical problem.

When the question on the legal aspect for disallowance of input tax on packing material was put before Arshad Shehzad, a legal expert, he stated that there is some serious legal lacking in the law with regard to restriction of input tax adjustment against packing material to five export oriented sectors. He apprised that the taxpayers have all the rights to challenge any of the legal provision which in their views is contrary to the law. He said that the issue is already sub judice before the court of law, hence it is not appropriate to make any comment; however, in his view it is also not appropriate by the FBR to take any adverse action against the taxpayers in such circumstances.