Rescinding SRO 1125 not to impact genuine exporters/manufacturers

KARACHI: There has been much hue and cry opposing the government’s plan to withdraw concessionary SRO 1125(1)/2011, wherein various export sector trade bodies are unanimously claiming that withdrawal of the facility would reduce country’s exports by over 30 percent. However, officials in Pakistan Customs as well as the Ministry of Commerce believe, removal of SRO 1125 would not affect genuine manufacturers and industrialists, but it would definitely impact elements misusing the facility to evade government revenue.[the_ad id=”31605″]The government has decided to impose a standard rate of 17 percent sales tax on the five export-oriented sectors – textile leather, carpets, surgical and sports goods to mobilize Rs 75-80 billion additional revenue in the budget for next fiscal year.

The government is convinced to abolish zero rating regime under SRO 1125 for five export oriented sector including textile, leather, carpets, surgical and sports goods. Government will implement the Bangladeshi model to provide refunds instantly through the central bank in order to resolve the issue of liquidity crunch for exporters. However, the rate of GST might be reduced from the standard level of 17 percent, anywhere from 10 to 16 percent.

Rescinding SRO 1125 thereby abolishing zero rating for the five sectors is in line with the staff level agreement with the International Monetary Fund (IMF).

SRO 1125 was notified in 2011 to support export oriented sector. Since then, there have been dozens of amendments in the SRO, and it was vastly misused causing huge losses to the exchequer.

The SRO is applicable for importers having industrial units/manufacturing concerns, and allowed sales tax zero rating on imports of raw materials imported by the manufacturers, and or imported by suppliers of the five export oriented industrial sector.

The government wants to collect Rs600 billion, a representative of the industry responded, from the textile industry in the head of sales tax to show case before IMF the improved revenue outlook on way to achieving the target of Rs5.5 trillion.

Inland Revenue is responsible for registering the importers as manufacturing importer or otherwise through a due process of verifications. Customs is responsible to implement the order at import stage.

However, when Customs enforced the requirements for the eligibility of the benefits notified vide the SRO and detected the misuse of this facility, the judiciary struck down the cases as Customs did not have the authority to re-verify the status of the importer. Inland Revenue is said to be registering anyone as manufacturer/industrialist without the due process for obvious reasons.

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