Pakistan plans to abolish zero-rating for exports of leather, surgical, sports goods and carpet and garment sectors. The textile sector says this is a disastrous decision which will result in the closure of small and medium units and also pull down exports from the five sectors by 30 per cent a year, hit industrial manufacturing aimed for export purposes, stimulate a flight of capital abroad and scale down manufacturing that would eventually lead to a decline exports. Overall liquidity from manufacturing of the goods to their exports is expected to get stuck. Exporters say their tax refund claims haven’t been cleared and that additional sales tax deductions would increase the amount of pending refunds and result in a financial crunch for them. The tax refund period is now estimated to be six months, hence refunds before six months are unlikely.

Pakistan is under immense pressure from the International Monetary Fund to remove tax exemptions to increase revenues. The Fund wants Pakistan to withdraw the facility in the forthcoming budget as part of the deal. Both the IMF and Pakistan are of the view that the facility has been misused by the industry to steal sales tax on their domestic sales.