Liquidity Crunch Must End for Export Enhancement

November 30, 2019

Liquidity Crunch Must End for Export Enhancement

November 30, 2019

Liquidity Crunch Must End for Export Enhancement
Shahid Sattar & Madiha Nisar
Non-payment and delayed refunds accompanied with a complex filing process of refunds are some of challenges that exporters are struggling with. Blocking legitimate refunds by the Federal Board of Revenues (FBR) to show improved revenue collection has taken a heavy toll on exporters who were already reeling under the energy crisis and many other critical issues.
Delays in processing refunds under the outgoing government’s refunds schemes have blocked a substantial amount of 168.4 billion rupees of exporters. As per the estimates, refund over Rs. 15 billion are pending on account of income tax, Rs. 3 billion on account of Drawback of Local Taxes and Levies (DLTL) and a sum of more than Rs. 50 billion on duty drawbacks (DDY).
The current system of revenue targets for individual RTOS is net of any refunds hence In order to meet their net collection targets, regional tax offices (RTOs) adopt a go-slow policy and do not issue refund payment orders (RPOs) on time. They raise petty issues and delay the entry of the claims. The only way out of this dilemma is to assign the targets net of any refunds so that there is no inordinate delay in lodging of claims.
According to the law, refund claims must be cleared within 45 days but the authorities are flaunting the law with impurity. They continue to block payments for years which has damaged the export sector, especially the textile sector.
As a result of the hectic efforts by the industry to compel the government to pay blocked refunds, the former finance minister and advisor to FBR had made promises to pay Rs. 15 billion every month on account of refunds. Only the first installment of Rs. 15 billion was released and the hollow promises remained unfulfilled and hollow.
This illegitimate tactic of the finance ministry and FBR of the outgoing government has caused closure of many businesses while leaving others at the mercy of loan sharks which is slowly but surely killing the manufacturing sector.
According to an estimate, blocking of working capital of export sector has caused a huge loss of almost 500,000 jobs to the economy.
Consequently Pakistan is fast losing its share in the world export to Vietnam and Bangladesh. Pakistan is left with only 0.12 percent share in world total exports. The partial responsibility for this state of affairs is the lack of modernization and up-gradation due to the lack of liquidity/high cost of doing business.
Generally, tax authorities blame exporters for delay in refund for incorrectly filled columns in shipping bills or any mismatch in GST returns. This is because of faulty processes and procedure, with some mistakes committed by exporters. If the tax authorities at the field are ignorant, how can we expect a micro, small and medium enterprise exporter to be conversant with the tax laws, rules and procedures?
The situation can only be improved if the refund mechanism is fully automated. The government should fast-track the refunds process and should release at least 90% of the claimed amount immediately to help small and medium scale exporters tide over liquidity crisis arising out of delay in tax refunds and input tax credits.
It is proposed that each refund shall be lodged and paid within a maximum period of 60 days, failing which the claimant should be entitled to some significant penalty. For any claim that is partially disputed the undisputed amount shall be paid immediately and disputed amounts be settles within 6 months. Refusal to lodge sales tax refund claims should be made a cognizable offence.
To improve liquidity further Indirect exporters as long as they are zero rated should also be entitled to refunds as they supply their goods to exporters. Exempting them from refund claims serves no purpose except increase in cost of doing business. The facilities which are available to exporters, should also be made available to indirect exporters.
Moreover, zero rating is supportive to eliminate tax frauds once and for all as the system of collecting sales tax and then refunding is not only an exercise in futility but involves large number of sales tax personnel and precious time of FBR which can otherwise be utilized to bring more and more persons in the tax net to increase revenue for the FBR. This will serve the double purpose of expanding the tax net as well as exports.


Where We Are


Follow Our Activity