Textile sector demands to restore GST no-payment, no-refund system

November 25, 2022 (MLN): The value-added textile associations in a joint press conference held today at PHMA House Karachi have demanded the government to restore the "GST No-Payment, No-Refund System" previously regulated under "SRO-1125" for five export-oriented sectors in the wake of ongoing economic uncertainty and political unrest, said a press statement issued on Thursday.

The government seems unable to fulfill its commitment and promises to promptly release exporters' sales tax refunds worth billions of rupees. FBR, itself, is violating GST Rules to timely release the refunds, it added.  

Textile Exporters are highly perturbed over excessive and unjustified delays in GST refunds against approved Electronic Refund Payment Orders (ERPOs) claims in violation of Rule 39F of the Sales Tax Rule 2006 causing liquidity problems. 

All the requests and reminders to FBR to urgently release refunds, as per law and rules, are gone deaf the ears of officials.

In view of this ill experience and uncalled-for response from FBR, the Value-Added Textile Exporters are worried and upset as to how the Government will keep its commitment to timely refunds which have been accumulated to billions of rupees stuck up with the government.

According to an estimate, the stuck-up Sales Tax Refund claims amount comes to around R300 billion. In the existing sales tax regime, the value-added textile exporters pay sales tax in the purchase of industrial inputs for goods meant for export whereby they pay sales tax and such goods are kept in the warehouses.

On average, an export shipment takes at least three to four months time for completion and shipment. After shipment, the exporters file sales tax refunds claim which are approved in a specified time.

In this manner, the sales tax amount accumulates to 40-50%. One major reason for such an upshot and increase is a devaluation of PKR against USD which has depreciated to approx 18% which has impacted an increase in the cost of industrial input as well as a further increase in GST.

Thus, the liquidity amount being stuck-up with governments rose to 50%.

"If such delays are frequently caused how the export industries shall operate without liquidity and cash flow? Excessive and unjustified delays have started causing disruption in export production and reportedly, several small and medium export industries have stopped production due to a liquidity crunch," the statement further noted.

The associations have approached the high-ups at Islamabad in this regard but have not yet received any affirmative response. Consequently, the value-added textile exporters demand the government's genuine support and assurance to release the Sales Tax Refunds within 72 hours as per rules and commitment or else restore the "GST Zero-Rating No Payment No Refund system" restoring SRO-1125.

“Failing which, the government will be held completely responsible for the closure of industries, flight of capital, massive unemployment which will not be in the interest of Pakistan,” it said.

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