Textile mills oppose FBR’s plan

Textile Industry in Pakistan

LAHORE: Textile mills oppose the plan of the Federal Board of Revenue to withdraw a statutory regulatory order (SRO) that provides sales tax exemption to machinery, appealing the government to restrict FBR from implementing such anti-investment measures.


Group Leader All Pakistan Textile Mills Association (Aptma) Gohar Ejaz said that suspension of gas supplies in Punjab, proposed sales tax hike and re-imposition of duties on machineries were already upsetting textile entrepreneurs as cost of doing business was on the rise.


The FBR issued the said SRO 575 dated June 5, 2006 to give sales tax exemption to machinery. The industry could not avail this incentive from 2007 up to now due to economic turmoil and global recession, he said.


Textile mills are now all set to add more capacities in the wake of new opportunities as a result of GSP Plus status and slow withdrawal of China from low value-added textiles, said Ejaz.


Aptma leader said that the intended withdrawal of exemption from customs duty given to raw materials under SRO 565 was also an anti-industry measure. How these withdrawals will benefit the local industry, he questioned. “Some revenue collected from such measures would halt the total investment in new machineries and technology.”


Chairman Aptma Punjab SM Tanveer said that the more worrisome was the FBR’s intention to increase rate of sales tax on exporting sectors. This is aimed at to suck liquidity out from the textile industry.


He said that as exports were exempted from all types of taxes, the FBR was legally bound to refund the sales tax. However, the refund process is so cumbersome and time consuming that the revenue body has not been able to refund even after six years the one percent sales tax on inputs like packing materials, which exporting mills procure after paying the sales tax, he added. Tanveer said the blocked amount runs into billions of rupees. He said some exporters have managed to obtain refunds through ‘other’ means. Most of the entrepreneurs, he added, consider it disgusting to adopt out of book means for even a refund of one percent.


The Aptma Punjab chief said that the move by FBR to increase the sales tax rate on exporting mills from two to five percent and then to 17 percent would have grave consequences for the industry. ”If five percent sales tax is imposed on textile sector, the total sales tax collection in one year would amount to Rs270 billion,” he said, adding that the FBR was unlikely to improve its record on refund. “In case the sales tax rate is increased to 17 percent, the stuck up amount would soar to Rs916 billion.”


Tanveer said the FBR should show its sincerity and competence by releasing all past refunds immediately and guarantee prompt refunds thereafter. He said with present culture and incompetence, the FBR seems unlikely to do this. Moreover, he added, textile is a disintegrated chain where some links in the chain are not under tax net.


Leading knitwear exporter MI Khurram said that planners should realise the gravity of the situation. “We get 10 percent less price for our products than Bangladesh,” he said. Besides, he added, additional cost incurred is in the form of costly visits of the exporters to meet buyers in Middle East and Far East. He said foreign buyers do not visit Pakistan because of the travel advisory issued by their countries.


Khurram said Punjab based industries incur additional energy cost compared to other provinces.

Source: The NEWS