AsiaNet-Pakistan Premier Editorial Content and Press Release Distribution Service
Karachi, October 15, 2019 (PPI-OT): Most of the exporting units, particularly in textiles, sell in the domestic market as well as exports. In their case, the imposition of the 17% sales tax across the board has resulted in an upsurge in costs and therefore prices in the domestic market. If the volume is 50% domestic and 50% exports, then the impact of the imposition of sales tax is neutral on the cash flow. They collect 17% as tax on their domestic sales and set it off against the sales tax paid on the materials used for their exports. If the amounts balance, they just have a return to file but no cash is to be paid to the Government as sales tax collected. Nor, and that is more important, is there any sales tax refund to be paid by the government to the exporting company.
The problem arises where the company concerned is predominantly an exporter and is not vertically integrated. In the case of value added textiles, like towels or made up’s, the unit buys its yarn, the dyes and chemicals, packing materials and labels, etc. All these items are under the sales tax regime, so 17 % sales tax is added to the cost of all materials. There is sales tax on electricity and gas as well.
The only items on which there is no 17% sales tax are the salaries and wages, and overheads, like bank interest, depreciation or profit, if there is any! Effectively the company pays 17% sales tax on 75-80% of its cost. This means that its refund claim shall be about 12.75% of its FOB export value, being 75% of 17 percent. This is a very substantial amount and if it is not refunded to the company in time then it will lead the company into serious cash flow problems. Let us say a delay of 4 to 5 months will have jammed up an amount equal to 50% of the company’s monthly sale. If the company is carrying stocks then the situation is even worse.
Most pure exporters have been through a period of ten years of stagnation, contraction and losses. This due to the artificially high value of the Pakistan Rupee against world currencies, which has been corrected now. These companies have no reserves to fall back on, and will have to shut down within months or weeks from now.
It is for this reason that the value added sector was so terrified of the re imposition of sales tax. The Government announced the development of the new refund systems called FASTER. This would be fully computerized and would process the exporters refund application within 72 hours. They promised payment within 72 hours after the processing is completed. Thus paying out the sales tax refund within a week of its filing. They explained that the system is fully computerized and there would be no human intervention once the application is filed.
In fact this has not happened. As per the figures with the Towel Manufacturers Association of Pakistan over a 100 refund applications were filed for the month of July 2019. These were filed in August or at best early September. Not even one applicant has received a refund so far! Nor have they been told what is wrong with their applications and why it has been held up.
It is obvious that there is some problem with the computerized system. What it is – we are not told. If there is some grounds on which our applications are being rejected then what are those grounds? Can we be given a hearing or an appeal? Who is going to decide what is genuine or false? Is there a system of appeal and redress?
If all this is not corrected immediately the bulk of the pure exporters will collapse very soon. Their worst fears will have been proved correct and those who urged them to increase exports, investment and activity will have proved to be false gods. In a situation where our previous claims from as far back as 2014 are still pending for payment the cash crunch is unbearable for the pure exporter. He will collapse soon and an export market already slipping out of our hands will be very difficult to re-open again.
For more information, contact:
Head Office,
Towel Manufacturers’ Association of Pakistan
TMA House, 77-A, Block ‘A’,
Sindhi Muslim Cooperative Housing Society,
Karachi – 74400, Pakistan
Tel: +92-21-34382801-4
Fax: +92-21-34551628
Email: tma@towelassociation.com
Website: www.towelassociation.com