Muhammad Jawed Bilwani, Chairman, Pakistan Apparel Forum and Chief Coordinator & Former Chairman, Pakistan Hosiery Manufacturers & Exporters Association (PHMA) reacting to the statement of FBR Member IR Policy Dr. Hamid Ateeq Sarwar given to Senate Standing Committee on Finance stating that FBR through its Official has as usual
given a casual statement while the FBR lacks the will and sincerity to achieve the desired objectives. Every year, on the occasion of Budget a revenue target of FBR is set which has never been achieved in the history of Pakistan and likewise on closing of Financial Year, FBR gives excuses for non-accomplishment of revenue target. In this Budget as well a huge revenue target has been set without any realist plan and policy which we think cannot accomplished. We understand that practical steps and measures have never been taken as per the FBR Policy to enhance revenue, broaden tax base, rationalize percentage of taxes while increasing tax to GDP ratio. The performance of FBR to bring the unregistered persons into the tax net is highly unrealistic and poor. Every year, in the budget, due to inefficiency of FBR to broaden the tax base, additional new taxes are imposed on already existing taxpayers which is unjust and unfair. The unregistered persons are enjoying
complete liberty to pay zero taxes while the legitimate taxpayer is suffering due to
multiplicity of taxes.

Jawed Bilwani expressed his strong reservations on the statement of FBR Member IR Policy who has given his statement to the Senate Standing Committee on Finance, as published in the print media, that “there was not a single example in the entire world where
domestic sales tax was zero rated. Pakistan was the only country in the world, which was offering sales tax zero rating facility on domestic supplies of leading export sectors.”

Conveying reservations, Bilwani added that the Member IR Policy FBR has forgot to mention that Pakistan is also the only country in the world whereby Sales Tax Refunds, in the hands of FBR, are deliberately delayed for unnecessary reasons and kept in the Government’s kitty due to which exporters’ precious liquidity is stuck for months.

Bilwani articulated that with the united efforts of value added textile export sector the government decided to declared zero rating on GST for five zero rated sectors so that the exporters liquidity should not be unnecessarily held with FBR and the exporters shall keep
their energy focused to enhance exports. Pertinent to mention here that before zero rating, flying invoices and bogus GST refunds were rampant which after declaration of zero rating were controlled and eliminated.

Bilwani apprised that in Pakistan “No Payment No Refund” System was introduced in 2005 to improve liquidity of exporters. “No Payment No Refund” System was most successful and
continued for almost 9 ½ years and save billion of rupees of Government. On 26th March, 2006 after few months the then CBR Chairman Abdullah Yusuf claimed that the zero-rating of five export-oriented sectors from the sales tax resulted in saving of Rs40 billion in refunds, which were outflow under “fake and flying invoices.” On 28 Feb 2013, 2% sales tax
was imposed w.e.f. 1st March 2014 and No Payment No Refund Regime was discontinued.

On 30 Jun 2016, No Payment No Refund Regime restored w.e.f. 1st July, 2016 but no refund was admissible on packing material of all sorts. Later on 21 June 2018, Refund on Packing material was again allowed w.e.f. 1st July, 2018. Last year in Federal Budget 2019-20 zero rating on GST for five zero rated sectors was again discontinued and 17% GST was imposed with a view to collect sales tax on domestic sales of textiles which created financial burden for the export industry. The exporters strongly agitated not to penalize exporters for shortcoming of FBR revenue targets and to collect sales tax from local sales. Exporter refunds might not get stuck up again, Advisor to PM on Finance stated that Government will devise an automated refund system like in Bangladesh or China and refund payment will be received upfront in 24 hours after submission of GD without human involvement. Through the automated system, exporters will get a major amount from their bank and exporters would not be dependent on the FBR. He further asked that allow us the opportunity to run this system and if it does not work, we will re-assess it in 3-6 month. Contrary to Bangladesh or China Refund Model whereby exporters receive their refund payment promptly after submission of GD, Govt. launched FASTER by which sales tax refunds to be paid within 72 hours electronically. In first 5-6 months, the FASTER system functioned below par and remain inactive. Later, FBR processing claims manually and SBP paying refund on advice of FBR.

Exporters who have promptly filed their claims of sales tax refunds have, up to March 2020, received only 60% of their pending sales tax refund with the Government. However, 40% of sales tax refund amount of exporters is still pending under carried forward or deferred. Approx. 30% of exporters have not received a single rupee under FASTER System. Despite submission of sales tax returns and “Annexure H” which was duly approved and RPOs issued by FBR 40 days = 960 hours before to-date, still refunds have not credited to exporters accounts which was supposed to be released in 72 hours. Bilwani asked Member IR Policy to give a single example of FBR for releasing refund in 72 hours during the first quarter of FY 2019-20 or till date. Unsolved issues between PRAL and Inland Revenue are also a reason causing delays in refunds. We are surprised how the FBR will address the problems of exporters when it is unable to resolve its internal problems? The Ex-Chairman FBR who was the mastermind to impose 17% GST on export sector and claimed that FBR will release refunds promptly could not serve as Chairman due to his unrealistic approach and policies and ran away from the chairmanship after creating hardships and financial mess for exporters.

It is an irony that Government had imposed 17% GST on textile sector to collect tax from domestic sales but in this budget Government has reduced the sales tax for local sales of textiles from 14% to 12% but no relief has been provided to the textile export sector.It is an irony that in last budget, FBR vide SRO 747(I)/2019 dated 9th July, 2019 has withdrawn the exemption of sales tax and federal excise duty on buying of locally procured input goods by Export Oriented Units under SRO327. This Scheme was introduced on the pattern of Export Processing Zone (EPZ) where there is no taxes on buying of locally procured input goods and no taxes on utilities. Industries registered in Export Oriented Units (EOU) are liable to export 80% of their annual production. We demanded in this budget that Government should withdraw SRO 747(I)/2019 and restore SRO 327 in its original form but in vain. The value added textile export sector has reached to the verge of disaster due to severest ever liquidity crisis in the history of Pakistan caused due to imposition of 17% sales tax in last budget whereby liquidity worth billions of rupees has been stuck up with the Government. Moreover, the COVID19 has also put the deadly blow on exports and has shrunk 40% global business.
In view of above, the value added textile sector strongly demands the Government to review its decision and restore zero rating on GST – No Payment No Refund System for textile sector. If the government thinks zero rating on GST is not possible percentage of GST must be reduced from 17% to 4% for the textile sector.

In this connection, Government should also streamline the FASTER System and expedite refunds of the exporters. We understand there are some serious technical issue which needs to improve the operation of FASTER. In this regard, it is proposed that Sales Tax refund shall be processed on the bases of sales tax paid on purchases rather than consumption. This may address the liquidity problem of the exporters stuck up on unconsumed stock as well as ease-out complication of filing annex ‘H’ and Sales Tax refund shall be paid promptly at the time of export of each shipment reported against shipping bills which will increase the transparency and overall trust of the exporters on this system and also alleviate their liquidity concerns.

Bilwani also urged the Chairmen of Senate and National Assembly Standing Committees to invite the exporters – stakeholders in the post budget meetings whereby the exporters will portray the real picture and can give rejoinders to the submissions of Government and FBR.