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PAKISTAN

DLTL, LTF: Up to six percent rebate on machinery envisaged

 TAHIR AMIN & SOHAIL SARFRAZ  SEP 27TH, 2016

 ISLAMABAD

Prime Minister Nawaz Sharif is likely to announce a package for exporters envisaging up to 6
percent rebate of Drawback of Local Taxes and Levy (DLTL), Long-Term Financing (LTF) facility
on the import of machinery for five export-oriented sectors and sales tax refund of packing
material for zero-rated sectors. Sources told Business Recorder that the government and exporters
have reached an understanding on an incentive package for exporters designed to reduce their cost
of doing business and make them competitive in the international market.

A major incentive likely to be announced by the Prime Minister is expected to be up to 6 percent

rebate/drawback of local taxes paid to the entire export chain. Currently, exporters are paying 10
percent local taxes at different stages out of which 6 percent would be refunded under the DLTL
scheme.

Presently, Long-Term Financing facility is only allowed on the import of machinery by direct
exporters defined as a business concern which undertakes all economic activity for exporting the
end product. The understanding between the government and the exporters would extend this
facility to indirect exporters and cover imports of all kinds of machinery for five export oriented
sectors. The interest rate of 3 percent under LTF for direct exporters would also be given to the
indirect exporters.

In case of federal taxes, the government would allow refund on packing material for five leading
export oriented sectors, ie, textile, leather surgical, carpets and sports goods. The FBR had restored
tax zero-rating regime for export oriented sectors, but sales tax refund is not be admissible on
packing material. "If the government directs us we are ready to give refund on packing material," a
senior tax official said.
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The textile industry proposal to withdraw further tax on supplies to un-registered persons in the
zero-rated sectors has been rejected by the government, informed sources revealed to Business
 Recorder. According to the FBR, no exemption/exclusion from further tax is available to the zero-
rated supplies covered under the SRO.1125(I)/2011, as supplies to un-registered persons involves
risk of local consumption. All the supplies to unregistered persons are subject to further tax at 2%
under section 3(1A) of the Sales Tax Act, 1990, except those specified in SRO 648(1)/2013 dated
09.07.2013. Since zero-rated supplies are not mentioned in the said SRO, therefore, no
exemption/exclusion from further tax is available to zero-rated supplies covered under SRO
1125(1)/2011 dated 31.12.2011. Further, the supplies to unregistered persons involve a risk that the
same may end in local consumption, therefore, there is no justification in allowing exemption from
further tax on such zero-rated supplies, the FBR added.

Copyright Business Recorder, 2016

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