GST imposition and SRO-1125 withdrawal puts export bodies in a serious menace

June 13, 2019 (MLN): One of the most controversial and criticized element of federal budget FY20 has been the elimination of SRO 1125 and imposition of General Sales Tax of 17%. At a time when the country is believed to be facing stagnant exports and balance of payment crisis, the ending of sales tax exemption under the zero-rated regime has triggered angst amongst local manufacturing and export representatives.

As per media reports, some of the prominent figures have rejected the move, saying it will be catastrophic for the country’s exports. This does not come as a surprise as there was already a lot of adversarial hype towards the removal of SRO 1125 before the budget was even announced, as export bodies feared a reduction in exports by approximately 30%.

The argument put forth by these people is that another shot at raising tax collection via this route will be futile, as two attempts were already made in the past which clearly proved to be nothing but vain. In fact, they strongly believe that withdrawal of zero-rated regime and imposition of GST would make their exports unviable and adversely impact many small to medium sized exporters.

The acting Chairman of All Pakistan Textile Mills Association (APTMA), in one of his interviews to a private news agency, termed the budget FY20 as a revenue mobilization effort under the IMF programme. He further stated that withdrawal of zero-rated regime and imposition of GST, along with an unstoppable devaluation of local currency, will clearly lead to a huge liquidity crunch for the entire export industry.

It has been alleged that government had agreed with the industry to impose only 7.5% GST on the exporting industry, but strayed from its commitment later on.

Nevertheless, the government stands committed on its decision to abolish zero rating regime for five export oriented sector including textile, leather, carpets, surgical and sports goods. In its defense, government officials have stated that the removal of zero rated status would only affect those exploiting the facility to evade government revenue.

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