An interesting situation has arisen at the Federal Bureau of Revenue (FBR), seemingly a result of Finance Minister Ishaq Dar’s penchant to balance the books, regardless of how it is managed.
Pakistan is set to become the only country in the world to functionally tax exports, if a group of the country’s exporters are to be believed.
An estimated Rs 27 billion of exports stand compromised with a strange interpretation of a 13-year-old SRO by the Customs Collectorates. Despite an endorsement of the Ministry of Commerce of this group of exporters and a decision by the Lahore High Court, the FBR authorities have refused to clarify its stance on the issue.
The said SRO 190 was issued in 2002 to avoid certain exporters seeking refunds on certain sales taxes paid, including on utilities. But a gross misinterpretation of the text has led officers of the Customs Collectorates to charge duties and taxes on items exported from Export Processing Zones and Manufacturing Bonds.
This taxation has understandably perturbed exporters, who, because of this penalty, are cancelling their export orders since their rates are not as competitive as they were before.
“Of course, with these taxes eating away at the exporters’ margins now,” said a Lahore-based exporter, speaking on condition of anonymity, for fear of being targeted by the tax authorities. “Not only are many exporters not as competitive as they initially were, but some of them actually stand to lose money on exports.”
The Ministry of Commerce, concerned how this development would affect export figures, has written to the FBR on the 18th of March, this year, clarifying unequivocally that the Export Processing Zones and Manufacturing Bonds, though zero-rated as far as other rebates are concerned, are not liable to pay sales tax, as the collectorates are currently charging.
Upon no response to the commerce ministry’s pleas, a group of exporters went to court and the Lahore High Court gave a decision which directed the FBR to explain its position to the parties involved through a speaking order within two weeks. The decision was given this July and it still hasn’t been complied upon.
A source within the Customs Collectorates, on condition of anonymity, has said that the FBR officers understand the grievance of the commerce ministry but cannot change course has the said sales tax has been incorporated in the revenue targets.
More bizarre than the policy of penalising exports, is the diplomatic angle. Sales taxes are an indirect tax i.e a tax on consumption, not income. “The government of Pakistan is levying a sales tax on the citizens of another country, in our case, Afghanistan,” said another Lahore-based exporter.