LAHORE  - The federal government is going to enhance sales tax on export to 5 per cent from 2 per cent on recommendations of the Federal Board of Revenue, ignoring the proposal of ministry of textile industry to keep the whole chain of export-oriented industry zero-rated, official sources told The Nation.

They said that at present, the supply chain of export oriented textile sector is liable to pay sales tax at 2 percent, resulted in accrual of heavy sales tax refunds. They  said that payment of sales tax for textile exporters was made zero rated in 2005 on the pattern of ‘no demand-no refund’ in order to get rid of numerous complaints and irregularities and also to avoid fake refund claims. The move brought fruitful results and textile exports gradually increased every year. It jumped from USD 8.9 billion in 2004-05 to 13.78 billion dollars in 2010-11. The first attempt to introduce tax on domestic sales of textile export-oriented sector was made in November 2011 by introducing two sales tax slabs (4pc and 6pc) under SRO 1058(I)/2011. On strong resistance, Government later introduce a uniform rate of 5% from January 2012 under SRO 1125(I)/2011 and in March, Government reduced the rate of sales tax from 5pc to 2pc on supplies in the domestic market under SRO 154(I)/2013 which further revamped by SRO 221(I)/2013.

Now, once again, it is being widely apprehended that the government is considering to introduce Increased Rate Regime for Sales Tax in the budget 2014-15 for the entire textile industry value chain output irrespective of direct exports or through domestic sales for export purposes and subsequent payment in the shape of refunds.

Textile industry across the value chain has lodged serious concern over a possible change in the existing Reduced Rate Regime of Sales Tax in the upcoming budget.

Spokesman APTMA said the refund regime has already proved inefficient, blocking liquidity of industry and inducing corruption, misuse of the system under which the government pays more refunds than due at times.

PRGMEA chief coordinator Ijaz Khokhar called upon the government to bring necessary reforms and give special status to export-oriented textile industry allowing zero rating facility to achieve desired goal from the duty-free access to European markets under Generalised System of Preference (GSP) plus scheme.

He said that up to February 2013, there was no deduction of sales tax which has to be refunded by the Federal Board of Revenue (FBR) at later stage. The system is causing corruption and also long delays in getting refund payments which ultimately created liquidity crunch for export trade, he said. If the government wants that the GSP-Plus scheme is fully utilised, it should immediately revert back to previous system of zero rating of export-oriented textile industry which would mean no deduction and no payment of sales tax refund.

APTPMA former executive committee member mirza Shahzad Baig said the textile industry, particularly in Punjab, is already fast becoming uncompetitive due to unprecedented increase in electricity tariff, high interest rate and rising cost of doing business. In these circumstances the Textile Industry would be unable to bear the brunt of refund regime.