Five export-oriented sectors: Zero-rating regime abolished

The government abolished sales tax zero-rating regime for five export-oriented sectors i.e. textile, leather, carpets, sports goods, and surgical goods and imposed 17% sales tax on items covered under SRO 1125(I)/2011.

Senior FBR officials said that the FBR will generate revenue Rs 80-90 billion from the imposition of sales tax on textile, leather, carpets, sports goods and surgical goods during 2019-20. Now we have accepted the biggest challenge for timely payment of refunds to the textile sector by abolishing the sales tax zero-rating regime for five export-oriented sectors.

According to the Finance Bill 2019, SRO 1125(I)/2011 provides for zero-rate of sales tax on inputs and products of five export-oriented sectors i.e. textile, leather, carpets, sports goods, and surgical goods. The objective was to resolve the delay in refund payments. However, zero-rating has created a loophole and the benefit is being availed by unintended beneficiaries / non-exporters. Reduced rates for finished goods are also harming revenues. Huge misuse of SRO on import of fabric and processed fabrics has been reported, the FBR said.

Under the new regime, the rate of sales tax on local supplies of finished articles of textile and leather and finished fabric may be raised from current 6% for integrated businesses, and 9% for others, to 15% and 17%, respectively.

Secondly, zero-rating of utilities (gas, electricity, and fuels) allowed to these export-oriented sectors through various sales tax general orders is withdrawn.

The refund of sales tax to these sectors is automated, thus ensuring that the sales tax paid on inputs is immediately refunded. Refund Payment Orders and refund of sales tax to these sectors be automated, thus ensuring that the sales tax paid on inputs is immediately refunded. Refund Payment Orders (RPOs) shall be immediately sent to SBP for payment as soon as these are generated.

 

 
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