Mr. Fawad Ijaz Khan Chairman Pakistan Leather Garment Manufacturers & Exporters Association (PLGMEA) has stated that the Federal Board of Revenue (FBR) is considering to withdraw Zero-Rating of Sales Tax granted under the Sales Tax regime to five Exporting Industries.
FBR is currently working on new Value-Added Tax law for full implementation of the VAT System as per agreement with the IMF. This new VAT system will replace the existing General Sales Tax (GST) regime.
Mr. Fawad further stated that the Government of Pakistan had zero-rated the Sales Tax on most of the Inputs used in the production of five Export Industries in the Federal Budget of 2005-06. The Zero-Rated industries were Textile, Leather, Sports, Surgical and Carpets.
As per our GovernmentвЂ™s agreement with the IMF this new VAT System will have very minimal exemptions and all Trading and Services will be brought under the VAT regime. Besides Zero-Rating of five Exporting Industries the Sales Tax exemptions are covered under the Sixth Schedule of the Sales Tax Act 1990 and items mostly related to Food, Machinery & local supplies are exempted from Sales Tax.
Mr. Fawad stated that prior to 2005-06 there were many cases of over-invoicing of exports with the objective of claiming bogus Sales Tax Refunds. The unscrupulous exporters used to get bogus and flying Sales Tax Invoices and obtain undue Sales Tax Refunds.
Because of this practice the genuine exporters were not able to compete with Exporters who were taking advantage of loopholes in the old system by obtaining bogus and flying Sales Tax Invoices.
Even today several Sales Tax refunds pertaining to period prior to 2005-06 are still pending and FBR is not paying these claims because mostly suppliers of exporters are black-listed by the FBR.
Mr. Fawad stated that FBR was supposed to conduct a Seminar in December 2008 as per agreement with IMF to discuss the VAT regime with stakeholders. But no seminar has taken place so far and neither the stakeholders are consulted.
Mr. Fawad requested the FBR to maintain the Zero-Rated status of the five export industries already exempted from the scope of Sales Tax. If it is imperative to withdraw Zero-Rating then these five industries should be consulted and taken into confidence while formulating any new VAT Law.