The government had issued revised sales tax zero-rating regime for five export oriented sectors, i.e. textile, leather, carpets, surgical and sports goods from July 1, 2016 under which 5 percent sales tax is chargeable on supplies of locally-made finished articles of textile and leather products including finished fabrics to retailers or any other category of persons.
"FBR is facing revenue loss of Rs 15 billion in just nine months as the volume of claims is the same as during the same period last year which is very serious," the sources added.
The government, sources said, had withdrawn zero rating on export oriented scheme a couple of years ago because the number of claims had increased manifold.
The facility of zero-rating has been misused and volume of sales tax refunds has not been reduced as promised by textile sector during the current fiscal year. The refund payment orders (RPOs) issued to the textile sector is being verified to check the authenticity of the claims.
Former Chairman FBR, Nisar Mohammad Khan had anticipated that reinstatement of zero rating for five export-oriented sectors would not have any impact on growth of exports and exporters would soon invent further excuses for the decline in exports.
The significant features of the scheme under SRO.491 (I)/2016 were: zero rating facility was extended on imports to both manufacturer and commercial importers for import and supplies of industrial raw material (128) listed in Table-1. Earlier there was different treatment of tax for these two categories which was causing problems to genuine commercial importers.
Zero rating facility was extended on local supplies of industrial raw material (128) listed in Table-1 (excluding finished fabric). The facility was made available to both registered and unregistered persons operating within the five sectors. Zero rating facility on import and supplies of industrial raw material listed in Table-1 was also extended to registered manufacturers who manufacture goods listed in table-I or table-II.
Zero rating facility was also extended on processing of goods owned by other persons. Zero rating facility on supplies of finished fabric is restricted to the extent of registered manufacturers only. Supplies to other categories are chargeable to sales tax at 5 percent. Reduced rate of Sales Tax @ 5 percent is chargeable on supplies of locally made finished articles of textile and leather including finished fabrics to retailers or any other category of persons, experts said.
However, standard rate of sales tax @ 17 percent remained intact on import of finished textile and leather articles along with value addition sales tax @ 2 percent. The subsequent supplies of these goods are also chargeable @ 17 percent. Provision for zero rate purchase and supplies of furnace oil, diesel and coal to the registered manufacturers is also provided subject to issuance of general order by the board. Experts argue that the refund is admissible on sales tax paid on any input under this scheme, excluding packing material of all sorts, subject to provision of post refund audits as per past practice.
The sources said, government is also likely to withdraw fixed amount of sales tax on textile related finished products at retail stage.
According to sources, five percent sales tax is applicable on textile related finished products at the retail stage. The FBR has collected Rs 5 billion sales tax from this stage of textiles during the first nine months of 2016-17 as compared to Rs 11 billion during the comparable period of 2015-16, reflecting a decrease of Rs 6 billion.