Karachi: The Union of Small and Medium Enterprises (UNISAME) has invited the immediate attention of Salim Mandviwalla federal finance minister (FM) to the imposition of 2 percent sales tax on five export-oriented sectors – textile, leather, surgical, carpets and sports from March 1, 2013 and urged him to direct the Federal Board of Revenue (FBR) to first improve its input tax adjustment system and efficiency to enable the SMEs claim refunds and obtain refunds promptly before promising input tax adjustments and refunds.
President UNISAME Zulfikar Thaver said the FBR has amended SRO.1125(I)/2011 through an SRO.154(I)/2013 to bring supplies of five-leading sectors into the formal value added tax (VAT) regime, the zero-rating scheme of the five export-oriented sectors has been modified to withdraw zero-rate of sales tax and instead introduce 2 percent sales tax on supplies to five sectors (except utilities). The rate of sales tax for other sectors has been kept intact at 5 percent.
He said the matter is complicated and cumbersome and will disturb the SME sector as the SRO.154(I)/2013 shall apply from primary levels and disturb the supply chain and increase cost of production. The recent increase in the price of fuel has made the feasibility of SME units invalid.
He said the SMEs are unable to comprehend the wisdom behind the SRO and the FBR to combat the menace of flying invoices of the large sector has punished the SME sector which is unfair. The FBR needs to think of other ways and means for the verification of flying invoices.
The union is against under and over invoicing of all kinds and is in favor of documentation of economy diligently and gradually step by step with simultaneously increasing the efficiency and systems of the FBR.
The union expressed disappointment at the lack of study and analysis of the department and urged the FM to invite the stakeholders for deliberations on the effects of the SRO. The export sector needs to be promoted and needs zero rated taxes as it is becoming difficult to compete with countries who are supporting their exporters. All imports used as raw material and industrial inputs or farm inputs must be zero rated as far as sales tax or withholding tax is concerned.
The union failed to understand the urgency of the SRO in this manner to deprive the sectors of support and questioned the wisdom behind disturbing the SME units in the face of economic challenges caused by inflation, energy crisis, law and order and increase in cost of fuel. The sector cannot bear this additional burden and called for review of the injurious SRO.