The government has decided to zero-rate for the local suppliers of textile, leather, carpets, surgical and sports sectors from 2016-17.  According to the meeting between textile sector and Finance Minister, Five Export Sectors” Associations, Muhammad Javed Bilwani told Business Recorder that the government has accepted the demands of the textile sector regarding SRO.1125. The government will abolish 3% and 5% sales tax on different stages which would be replaced with zero percent sales tax in the budget.

Firstly, the government has agreed to zero-rate five major export sectors including textile, leather, carpets, surgical and sports goods in the budget (2016-17). Secondly, the zero-rating regime would be applicable to all stages of imports/supplies except retail stage. The entire supply chain would be subjected to zero-rating regime prevalent prior to March 2013. Thirdly, the sales tax would be applicable at the retail stage but input could not be claimed at this stage. Fourthly, it has also been decided that the zero-rated sectors would not be entitled to claim sales tax refunds on packing material. Fifthly, it has been agreed to restore the SRO.1125 to its original status as zero-rating regime applicable in the past. Sixthly, it is expected that the sales tax would be applicable on supplies or sales made to unregistered persons.

Following the decision, the FBR has taken away the budget proposal to enhance sales tax on zero-rated sectors. The FBR had proposed that under SRO1125 for five leading export-oriented industries i.e textile, leather, carpets, surgical and sports goods, sales tax be raised from 3% to 5 % on input/raw materials goods including yarn and fabrics and enhance sales tax from 5 to 10 percent on the local finished goods.