Textile sector: FBR policy backfires

Thursday July 02, 2009

ISLAMABAD: The Federal Board of Revenue (FBR) has failed to achieve the policy objective of sales tax zero-rating for the textile sector, as the amount of refund claimed by this sector is still very high. The FBR has admitted this fact in the Third Quarterly Review issued here on Wednesday, reflecting non-compliance and low tax contribution by the textile sector due to non-existent audit.

The level of compliance is evident from the fact that 65 percent textile units, who declared nil income during 'Tax Year 2008', have claimed refund to the extent of Rs 430 million. The FBR further admitted that the zero-rating of textile sector has broken the VAT chain and eroded the tax base. Unfortunately, the decision of zero-rating seems to be ineffective. The FBR paper strongly recommended creation of 'Textiles Industry Group', including stakeholders like taxpayers and representatives of government to prevent tax evasion and improve compliance.

The report highlighted serious tax gaps in the biggest sector with huge contribution in exports. It is hard to believe that the industry with huge investment contributes negatively. It said that the sector is paying nothing, instead getting back billion of rupees every year in the shape of refund/rebate.

(BRecorder)