Exporters have denounced the government for holding back their dues of Rs329 billion, including a major chunk of Rs285 billion in tax refunds, which is exacerbating their liquidity woes at a time of low economic growth.
Pakistan Textile Exporters Association (PTEA) – the representative body of major exporters – expresses grave concern over the prolonged and indefinite delay in the disbursement of outstanding refunds under various categories, according to a statement issued on Tuesday.
It added that despite repeated assurances, exporters were still awaiting their rightful refunds, which was putting a strain on finances of businesses and adversely impacting the growth potential of textile exports.
Official data showed that the Federal Board of Revenue (FBR) released only Rs22.5 billion worth of refunds in October, which was 25% less than the amount paid in the same period of last year. The total refunds released by the FBR during the first four months of current fiscal year amounted to Rs169 billion, higher by only 6.3% than the previous year.
The FBR was withholding the refunds as it was facing a massive revenue shortfall because of an unrealistic target agreed with the International Monetary Fund (IMF).
The FBR received Rs3.27 trillion till Tuesday and it needs to collect another Rs362 billion in two days to achieve the four-month revenue target.
Textile exporters, being one of the most compliant sectors, have continued to fulfill their tax obligations and contribute significantly to Pakistan's economy, said the PTEA. The excessive delay in refunds – pertaining to sales tax, duty drawback, income tax and mark-up subsidy – has created an acute liquidity crunch.
According to the details shared by the PTEA, the government has not yet paid dues of about Rs329 billion to the exporters, including Rs285 billion in sales tax and income tax refunds.
Prime Minister Shehbaz Sharif had promised to settle the exporters' refund claims within 24 hours after he imposed a standard 29% income tax on exporters in the last budget.
PTEA said that the FBR had withheld Rs55 billion in sales tax refunds while refunds of Rs105 billion had been deferred. Sales tax refunds in September 2024 were only paid against the refund payment orders till August 11, 2024 whereas in October refunds were paid against the payment orders till August 25.
Non-faster refunds have been paid till September 30, 2024 whereas faster refunds have been provided till August 25, 2024.
A budgetary allocation of only Rs10 billion has been made for duty drawback against the approved payment liability of Rs38 billion. The allocation does not even cover the refund claims of December 2022, it added.
PTEA said that Rs100 billion worth of income tax refunds had also been held back by the FBR. This lack of liquidity hinders business operations, stifles growth and adds a heavy financial burden due to the accumulation of interest costs, said the association.
Withdrawal of the Export Financing Scheme on domestic trade has put an additional burden on exporters, who are the driving force of the entire value chain, it added.
Sales tax refunds having the highest slab of 18% are to be paid in 72 hours as per Rule 39F of the Sales Tax Act 2006, however, the refund process is far from swift, entailing a prolonged cycle of over 200 days, according to the PTEA.
These delays, coupled with high financial costs of pending payments, severely restrict the capacity of exporters to reinvest and expand operations.
With textile exports being the backbone of Pakistan's foreign exchange earnings, these unresolved issues threaten not only the viability of individual businesses but also the overall stability of the country's trade balance.
Pakistan is losing out on the huge opportunities to grow textile exports at a much faster pace. In spite of the ill policies, textile exports have grown by 15% month-on-month since August 2024. "We have an export surplus of $7-8 billion," said the PTEA.
It urged the government to immediately expedite the refund process across all categories and demanded urgent action from the relevant authorities to disburse all the outstanding refunds and ensure timely processing in the future.
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