CBR urged to activate refund mechanism

Sep 19 - 25, 2005

Tough the exporters of value-added textiles, including knitwear, housewear (bedwear), hosiery and readymade garments are each contributing over one billion dollars in export earnings besides making expansion in value and volume, yet they are not being facilitated by different government agencies who justify their existence on the concept of extending maximum facilitation to the export regime.

Contrary to the concept which exists only in papers, practically speaking various government bodies instead of lending a helping hand are rather creating complexities in the system just to assert their importance in the system. These hurdles created by the government functionaries are liable to impair the right efforts, decisions and the policies made by various governments for the last 58 years.

The textile exporters claim that billions of rupees sales tax refunds have been blocked by the sales tax collectorates all over the country. Talking to this scribe leading exporters said, "Exporters cannot meet their export contracts without getting sales tax refund within a specified time as they have no alternate source to circulate their funds." Exporters unanimously viewed with firm belief that the present sales tax refund system cannot work as it only favors unscrupulous elements within and outside the sales tax collectorates.

They lamented that they have not been getting their refunds since January 2002, and every year only two months ahead of the budget payments come to a grinding halt. "When we approach the sales tax collectors for our refunds the answer was 'there are no funds' to make payments," another exporter said.

"It may be true that the CBR had paid much higher refund amounts over the previous year, but I would like to ask who are the beneficiaries as genuine exporters of all segments of value-added sectors are not getting their claims properly," asserted Chairman Pakistan Readymade Garments Manufacturers & Exporters Association (PRGMEA) Ijaz A Khokhar.

Talking to PAGE the PRGMEA chief said that the collectorates in Sialkot, Lahore & Karachi have yet to clear the pending cases, which had been waiting for the decisions since November 2004 and even earlier. He said that no correct answer was forthcoming and the representatives of the Association including Central Managing Committee members had been told informally that the cases are under consideration.

Khokhar said that the delay in the settlement of sales tax claims has created serious liquidity crunch, as most of the claims are for Rs. 10 million to Rs. 30 million or more.

The PRGMEA chief said that to seek bank advances at prohibitive markup upsets the F.O.B. cost of the products and regretfully the exports of the readymade garments would come to a standstill if immediate steps are not taken to release the withheld claims refunds.

As a result of non-payment of refunds, he said, exporters were faced with liquidity crunch and were unable to make payments towards utility bills as well as wages to their employees. "Our export contracts are also in jeopardy."

When sales tax collectorates resort to unbridled registration and without verifications many 'paper companies' have cropped up all over the country and are now being used for fake refund claims, he added.

The present sales tax system, he said, was very much defective and favours all, except genuine exporters, who are presently confronted with liquidity problem. In an environment of highly-advanced technology when an individual can even make his air booking and rent-a-car anywhere in the world through his personal computer then as to why the CBR is not adopting such methods for making refunds, he asked.

Sitting Chairman, Pakistan Knitwear Exporters Association, Shehzad Azam Khan told PAGE that a new system should be introduced under which the State Bank should be involved through export refinance scheme. He said all ST refunds should be adjusted against the refinance scheme. He said that CBR issued SRO 621(I)/2005 on June 17, specifying items for zero rating of sales tax on some textile and other items. It also issued SRO 538(I)/2005 stating that no refunds of sales tax will be made on stocks after June 30, 2005.

Shehzad pointed out that since not all items used as inputs in textile export had been zero rated, the question arises as to how exporters will claim sales tax refund on items not yet zero-rated.

The KEA chief further said that when this issue was brought into the notice of the CBR chairman, he promised that a SRO would be issued that would give procedure for the refund of sales tax to exporters on such items, but so far no such SRO has been issued.

The business community, he said, was at a loss to understand that since not all items used as inputs in textile export had been zero rated how exporters will claim sales tax refund on items not yet zero rated. Besides, the decision of disposing of stocks by June 30, 2005 was also a harsh step taken by the CBR, he added.

Chairman Pakistan Hosiery Manufacturers Association, Adil Butt said ST refunds had been stopped and all collectors gave sole reason of having no funds to reimburse their claims. He said that the situation was worst than previous year and exporters were in a dilemma as to how to meet their export commitments.