Export incentives: Bet on dark horses, ditch white elephants

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VIAMansoor Ahmad
SOURCEThe News
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LAHORE: Pakistan’s exports have a narrow sector and product base and every government in the last forty years has facilitated these sectors only, neglecting the genuine needs of other sectors that may not need subsidies but a prudent policy change.

Exports universally are zero-rated and the most pressing problem of all exporters is that the taxes they pay on various inputs they purchase locally or buy from importers are not refunded by the government.

The issue for the five exporting sector was resolved by allowing them to buy their inputs without payment of government duties. For imported inputs a very cumbersome Duty Tax Rebate for Exporters (DTRE) is in vogue.

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Other issues of five designated exporting sectors were the high cost of gas in Punjab and high power tariff throughout Pakistan.

This issue has also been addressed by the present government through subsidy. The exporting sectors outside the five preferred sectors have not been facilitated in this regard.

Prime Minister’s Advisor on Commerce Razzak Dawood has assured exporters the duties and regulatory duties on inputs would be waived in the new trade regime and this would also probably facilitate the five designated exporting sectors only.

Also Read: Govt links ethanol export to in-house use of molasses

The narrow base export is mainly due to inability to export the goods without getting refunds of duties paid on exporting goods. The five exempted sectors for instance do not pay sales tax and income tax on their electricity and gas bills, which are, for industrial sectors, in millions per month.

The non-exempted sectors have to pay these taxes. No mechanism has been worked out by trade authorities to refund the General Sales Tax (GST) and other taxes paid on these bills for whatever exports they make.

In the same way the taxes and levies paid on various locally procured inputs and on packing materials are not refunded to these sectors.

Commerce ministry officials should interact with the non-traditional exporters to work out the actual taxes they pay on production of each item they export. Then they could claim refund on all exports they make. This would push the exports rapidly.

Some skeptics would say that this is a laborious job and bureaucracy would not be able to do it. They have done this exercise with textile exporters that avail DTRE facility.

For the export of garments and knitwear, for instance, they worked out the quantity of fabric (imported) used in different items of different sizes (trouser or shirts).

The amount of dye or different accessories has also been calculated. When the exports against DTRE imports are executed the auditors tally the use on the basis of predetermined calculations.

These calculations were made in collaboration with the association of knitwear exporters in which a certain percentage of wastage was also calculated.

There are many budding exporters that have calculated the amount of taxes they pay on their production they are sure could be exported if these genuine refunds are made.

The trade facilitation officers should take initiative instead of waiting for nontraditional exporters they should approach all exporting sectors to calculate the amount of taxes that are borne on export of each specific item.

This is the responsibility of the state to ensure fair play to all exporters and not specific export sectors.

Our exports would remain narrow-based until we provide fair treatment to all our exporters.

Prime Minister Imran Khan is enthusiastic about Halal exports from Pakistan. The potential in this sector is much higher than textile exports that we aim to achieve after five years.

Poultry for instance can be easily exported if the taxes and levies incurred on its production are refunded at the time of exports.

This is a norm throughout the world. This sector has also calculated the amount of taxes they incur on production of one kilogram of chicken meat. This has to be cross-checked by the government officials.

The chicken exports would balloon in few months if a fair refund is confirmed. Pharmaceuticals, auto- parts and light engineering exports could touch $1 billion each the first year their products are truly zero rated.

It is up to the incumbent regime now to ensure it happens before they lose their interest in boosting exports of the country across-the-board.

(This news/article originally appeared in The News on December 20th, 2018)

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