Govt creates legal complications by taxing export processing zone

Government taxed export processing zones

The Finance (Supplementary) Bill 2021 or the mini-budget is about to create a legal dilemma for the federal government as for the first time goods being produced at the Export Processing Zone (EPZ) would also be taxed.

Taxing such goods goes against the Export Processing Zone Act 1980, exporters have said.

The supplementary finance bill proposes a 17% General Sales Tax (GST) on machinery, equipment and raw materials imported to Pakistan to manufacture products at the EPZ. The tax is unlawful because all the products manufactured at the EPZ are exported back, says Irfan Ikhlas, an exporter.

Technically the government is not going to generate revenue from the EPZ as it would refund all the sales tax collected from the EPZ to the exporters after the goods have been exported.

However, it will create problems for the manufacturers and exporters as the GST will hold up their money. Getting a refund is also not easy, according to manufacturers.

The exporters have met with Finance Minister Shaukat Tarin and the Federal Bureau of Revenue Chairman Ashfaq Ahmed to discuss the issue. However, the meetings ended without an agreement.

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