Knitwear exporters ask govt to revisit shift from FTR to standard taxation in Finance Act

LAHORE   -   Expressing serious concern over the Finance Act 2024, the value-added textile exporters have urged the government to revisit the shift from Final Tax Regime (FTR) to the standard taxation in the new Budget FY25, as the exporters are considering to shut the industry or moving the business abroad.

In a joint meeting of the Pakistan Hosiery Manufacturers & Exporters Association (PHMA) and Pakistan Readymade Garments Manufacturers & Exporters Association (PRGMEA), also attended by the industry representatives from Lahore, Sialkot and Faisalabad, the participants expressed the fear that several industrial units have announced to shut their business, indicating decline in the country’s export mainly due to high production cost amidst huge taxation, high fuel, electricity and gas tariffs.

PHMA senior vice chairman Amanullah Khan, former chairman Shehzad Azam Khan, Naseer Butt, Shafique Butt, RGMEA Central Chairman Mubashar Naseer Butt, Regional Chairman Ahmad Hanif, former chairman Ijaz Khokhar and Khawaja Bilal also spoke on the occasion. PHMA SVC Amanullah Khan pointed out that the exporters have been brought under the normal tax regime, creating harassment issues, while a 1% turnover tax on exports will still apply as a minimum tax. At the end of the year, additional taxes will be collected under the normal tax regime, which is not acceptable.

“Exporters will face a 1% advance income tax, collected by specific withholding agents at the time of export income realization.” The taxation burden has weakened the industry to run at full scale, resulting in lowering output with ever soaring costs. The government has levied the exports sectors with a huge taxation up to 42 percent but shunned a mechanism to make refunds. He highlighted that the country currently has 12 million NTN holders, but due to the complex tax system, only 4.5 million have filed their returns, which is a significant concern for the government, indicating a need to simplify the tax system. He said that income tax commissioners, who used to issue complete exemption certificates under the old law for exempted income, can now grant a maximum exemption of only up to 80%, which is the serious concern for the exporters.

PHMA North Zone SVC observed that the FTR offers transparent mechanism for taxing export proceeds electronically irrespective of profit or loss on realization of their export proceeds. He said that this imprudent tax measure has been taken not with an intention to enhance revenue but to open up the doors of corruption and harassment in the hands of FBR. He stated that the decision to eliminate zero-rating on local supplies under Export Facilitation Scheme will have highly adverse effects on export. He said that removal of zero-rating on local supplies to registered exporters will compel the exporters to claim refunds of Sales Tax from FBR which is lengthy process contrary to the spirit of EFS. He said that already, billions of rupees Sales Tax Refunds are stuck-up with the government. Therefore, this adverse Finance Act must be revisited, he demanded.

Amanullah Khan said that the new Finance Act has increased fines and duties, creating many challenges for the exporters, making it clear that the export industry is not afraid of paying taxes and duties, but these should be determined based on ground realities and the convenience of the exporters. Instead of imposing additional taxes on those who are already paying taxes, the tax net should be expanded. He pointed out that it’s essential to understand why people avoid coming into the tax net. Those willing to join the tax net may also refrain due to existing issues, stating that policy inconsistencies are creating numerous problems for the value-added textile industry.

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