Federal Tax Ombudsman (FTO) has asked the Federal Board of Revenue (FBR) and State Bank of Pakistan (SBP) to resolve the issues of exporters regarding the procedure prescribed for EIF pre-approval, by the SBP, vide EPD Circular No.11 of 2022.
According to an order issued by the FTO on Thursday, it is evident that instant complaints relate to the State Bank of Pakistan’s (SBP) Circular dated 05-07-2022, and are not directly related to FBR, therefore, do not fall within the jurisdiction of this forum.
However, the issue involves tax revenues mobilization, national foreign exchange reserves, trade balance, susceptibility of national exports, and running of local industry, therefore, requires immediate collective wisdom of FBR, SBP, Ministry of Commerce, Ministry of Finance and Economic Coordination Committee of the Cabinet, in consultation with FPCCI, Chambers of Commerce and Industry and other stakeholders, to look for sustainable resolution.
FTO has recommended the FBR to forward the findings of this forum to all stakeholders for reflection and fine-tuning for further action.
The FBR should invite input from FPCCI, Chambers of Commerce and Industry, and other stakeholders and process recommendations on merit; (iii) propose the immediate possible holding of the meeting of ECC of Cabinet once input, provided by business stakeholders, is evaluated/processed by stakeholders Departments/Ministries, as well; and (iv) this Forum may also be kept abreast about the outcome of above measures/steps taken.
FTO order said that the issue has been creating ripples amongst stakeholders of the export industry at the national level.
President Lahore Chamber of Commerce and Industry has also repeatedly taken up this matter with FTC Regional Office, Lahore. He appeared with a delegation of exporters during hearing proceedings on this issue and put forward the Chamber’s concern along with certain recommendations to look for a way forward in the midst of the current national financial crunch.
He submitted that the government has recently made it difficult to release consignments falling under Chapters 84, 85 & 87, considering them to be part of Luxury. In Chapter 84, there are 87 sub-heads which mainly comprise replacements and industrial inputs and some are for the construction industry. Likewise in Chapter 85, there are 48 subheads, which comprise electric motors, gen sets, and machinery for the construction industry, along with for educational institutions. Likewise, Chapter 87 generally comprises CBU5, including locomotive, agricultural units, and so on.
The initiative of the government is to reduce the gap in the balance of trade but measures taken are not commendable as they have given space to smuggling, misdeclaration, and unfair means as well as resulting in the reduced collection of customs duty, income tax, and sales tax.
He further stated that when a consignment is not released within 14 free days, the shipping line starts charging detention/container rent which varies from $80-150 per calendar day, including holidays. This payment is made to the shipping line at the open market dollar rate and the same amount is repatriated to head offices abroad in the shape of foreign exchange which is also a great loss. No consignment is being released from the port which is creating congestion at the port, adding to port demurrage charges.
As per the mechanism, when the documents lying under the above chapters are received importers are supposed to apply for approval of the release of documents to the State Bank of Pakistan through receiving bank. There is a portal on which commercial banks apply for approval which delays the release of documents adding to extra demurrage and detention charges, further added in the shape of increasing dollar rate.
Importers, whether commercial or industrial, have to face one more issue of devaluing the currency and USD parity rate which is being charged over and above by commercial banks at a rate that commercial banks like to charge in the name of free flow market. The ease of doing business slogan has badly failed as the above factors have added to the landed cost, thus, making the product expensive which pushes it away from the consumer due to their pocket size. He went on to state that, after signing AML, it is not at all possible to import any product into Pakistan without involving commercial banks and without filing I-Form.
Chamber made certain recommendations, stating therein that
- In order to avoid additional costs on account of demurrage, shipping line charges/ other port charges, importers should be allowed in bonding of consignments, currently under SBP’s above-stated regulatory procedure
- The importers should be allowed to apply for approval immediately after the issuance of BL
- There should be a time frame, set by SBP to approve documents well before the arrival of a consignment
- There should be no pick and choose, should be on a FIFO basis
- LC is backed by a guarantee from State Bank but, under new measures, needs to be approved which is not understandable as, after Pakistan’s WTO ratification status, all items are freely importable into Pakistan
- The definition of luxury items needs to be corrected immediately as most of the items, lying in the above-stated chapters, are industrial inputs that are essential for running an industry
- Most of the orders to commercial banks are verbal, like documents/invoices over and above $ 100,000 need to be released after prior approval. Such invoices are mostly of industrial importers who need their material for making products and fulfilling their export order
- Luxury items (after correction of definition) be allowed to be imported with the maximum rate of duties and taxes at par with practice in neighboring countries, in order to support local industry
- In view of the current flood situation in Pakistan, FRRF @ 2 percent be imposed on all imports for 02 months to raise the nation’s own resources for re-building infrastructure and rehabilitating flood affectees.
