The Pakistan Apparel Forum (PAF), representing downstream value-added textile industry, on Wednesday has urged the Federal Board of Revenue (FBR) to consider knitwear and woven garment exporters separately in the sales tax regime from the suppliers of textile products to the local market who work in the undocumented, informal sector and avoid sales tax.

As the government plans to increase sales tax rate on textile industry from the current 2pc to 5pc in the first phase and 17pc in the next has caused a lot of concern among knitwear and woven garment exporters.

The textile exports were zero-rated and exempt from payment of sales tax until the FBR withdrew its zero-rated status after the detection of huge tax evasion of over Rs25bn on domestic sales.

Addressing a press conference, the forum chairman Shahzad Azam Khan accompanied by PHMA and Prgmea leaders, said that sales tax defaults of Rs25bn detected by the FBR had influenced the revenue collectors to recover the amount from the exporters instead of netting the tax evaders.

At a meeting of the FBR with members of various chambers of commerce and industry it was revealed that the tax evaders who were provided relief through reduction in the sales tax rate had not paid any tax on their fresh sales.

The exporting sector was legally entitled to refunds of the sales tax while domestic consumption was taxed.

Regrettably, no refunds of sales tax had been made to the exporters, he said, adding that that even refunds dating back to 2010 were still pending.

The increase in sales tax would only burden the exporters who were completely documented while the suppliers of local textiles would again succeed in avoiding its payment which will only leading to promoting the culture of flying invoices.

The FBR not following a fair and transparent mechanism of sales tax refund as resulted in liquidity crunch which is faced by the exporters