‘SROs affecting Sialkot export industry’

SIALKOT: Chairmen of trade unions representing all five zero-rated export-oriented sectors and Sialkot Tax Bar Association have discussed the negative effects of SROs 505(I)/2013 and 98(I)/2013 on export industry with Sialkot Chamber of Commerce and Industry (SCCI) President Sheikh Abdul Majid in a meeting.

The SCCI President told the chairmen that he had pointed out the problems regarding the said SROs in meetings with Finance Minister Muhammad Ishaq Dar, FBR Chairman Tariq Bajwa, RTO Sialkot Chief Commissioner and other high-ups of the Board. It was told the meeting that the finance minister and FBR chairman were also requested in writing to give relief to Sialkot export industry but in vain.

Sheikh Abdul Majid, expressing concern on the government’s non-responsive attitude, said that implementation of SRO 505 and 98 had increased the cost of production by five to 10 per cent. He feared that declaring exporters as Sales Tax Withholding Agent would leave the businesses uncompetitive in the global market.

Pakistan Sports Goods Association Chairman Muhammad Iqbal Saleemi, Surgical Instruments Manufacturers Association Chairman Bilal Tanveer, Pakistan Leather Garments Manufacturers and Exporters Association (North Zone) Chairman Tassawar Hussain, Pakistan Readymade Garments Manufacturers and Exporters Association (North Zone) Chairman Mir Muhammad Farooq Meyer, Pakistan Gloves Manufacturers and Exporters Association Chairman Khurram Azeem Khan, Pakistan Hosiery Manufacturers Association VC Muhammad Rafi Sony were present in the meeting. Aftab Hussain Nagra, President; Zulfiqar Ahmed Nasir, Arshad Nawaz Mann and Waseem Arshad also attended the meeting on behalf of Sialkot Tax Bar Association.

FBR reviews SRO regime

KARACHI: The Federal Board of Revenue (FBR) has finalised process to rationalise the statutory regulatory orders (SROs) regime as per the International Monetary Fund’s (IMF) conditions on new loan programme, and will announce it by the end of 2013.

According to the sources, the exemptions and concessions will be rationalised and such facilities will be given to only export-oriented industries. They said, “The concessions will not be eliminated completely and the export-oriented sectors will be facilitated with these services because the manufacturing activities have already been disturbed owing to the power crisis and poor law & order situation.”

It is pertinent to mention that the revenue loss owing to exemptions or concessions has increased to Rs239.53b in the fiscal year 2012-13 as compared to previous fiscal year’s tax loss of Rs205.92b. During the last fiscal year, the tax losses through SRO regime had reached Rs37.43 billion level in sales tax and Rs119.7 billion in the customs duties.

The sources also disclosed that the partly removal of SROs was one of the conditions of the IMF on fresh bailout package through which Pakistan would get $6.64 billion. They added that the International Monetary Fund had been given assurance of eliminating SROs, which would be announced by the end of December this year.

The SRO culture

Over the years much has been written and spoken against the SRO culture but it has continued to flourish regardless. As ordered by the government of the day and sometimes on its own, FBR keeps issuing SROs to cover specific cases and sectors. An abbreviation for Statutory Regulatory Order, SRO is simply an instrument of financial governance to regulate the import regime. But knowledgeable quarters are of the opinion that it is excessively used and, sometimes, without any justification.

The Public Accounts Committee (PAC) was informed last year that the SRO culture had cost the national exchequer about Rs650 billion in the form of exemptions and concessions granted to various parties.  According to the latest economic survey, the amount lost through exemptions and concessions totalled around Rs900 billion in the last five years. It has been pointed out that in most cases the SROs are company specific rather sector-specific, which violates the principle of justice and fair play. For instance, SRO 57(I)/2012 issued in January 2012 reduced the turnover tax by 50 percent — from 1 percent to 0.5 percent — for Pakistan International Airlines, giving it  an unfair advantage of about Rs500 million over other airlines.

Tax experts are of the opinion that there are hundreds of iniquitous and lop-sided SROs which need to be reviewed for their inconsistencies with previous tax laws and orders and for infringing the principle of fair competition. According to one estimate, more than 4,500 SROs have been issued over the last few decades, the bulk of them during the Musharraf era. These SROs relate to income tax, sales tax and FED. It has been noted that the number of SROs goes up during the military regimes which rule by fiat and authoritative orders. But records show that hundreds of SROs have also been issued by FBR under elected governments.

Given the fast pace of economic changes around the world and their impact on economies of developing countries, a resort to SROs  sometimes becomes necessary to protect specific sectors. But, having said this, their indiscriminate use cannot be condoned, especially when they are designed to benefit a particular firm or group. To ensure that SROs are issued in a transparent manner and are not misused, it is important that clear rules and regulations are made and objective criteria and strict conditions are laid down governing their application. As a further safeguard, a special committee comprising representatives from the Ministries of Finance and Commerce should be formed to scrutinize each case in detail before giving its approval for the issuance of an SRO. The committee can also be tasked to undertake a comprehensive review of the existing corpus of SROs to verify their legitimacy and need.