The government has made changes to the Export Facilitation Scheme (EFS) after manufacturers misused it. The Economic Coordination Committee (ECC) approved these amendments to curb tax evasion and improve the scheme’s efficiency. The changes aim to ensure that only compliant exporters benefit from the scheme.
| Change | Details |
|---|---|
| Approval of Amendments | ECC approved the changes to prevent misuse |
| Goal of Changes | Curb tax evasion and improve efficiency |
| Main Issue Addressed | Misuse of raw material imports to avoid sales tax |
Key Changes to EFS Rules
To stop misuse, the ECC made significant changes. The insurance guarantee for imported raw materials has been replaced with a bank guarantee. The time allowed for using imported raw materials has been shortened to 9 months, with a 3-month extension possible.
| Change | Details |
|---|---|
| Bank Guarantee Instead of Insurance | Raw material imports will need a bank guarantee |
| Shortened Utilisation Period | Raw materials must be used within 9 months |
| Additional Monitoring Measures | Cross-checking of production output and imports |
Impact on Tax Evasion and Foreign Exchange
The aim of the changes is to reduce the misuse that strains Pakistan’s foreign exchange reserves. Manufacturers were importing raw materials to avoid the 18% sales tax, adding pressure to the country’s trade balance and foreign reserves.
| Impact | Details |
|---|---|
| Strain on Foreign Reserves | Importing raw materials led to a trade deficit |
| Tax Evasion | Manufacturers evaded the 18% sales tax through imports |
| Increased Pressure on Economy | The misuse resulted in higher trade deficits |
Review of EFS and Future Plans
The Ministry of Commerce will review the Export Facilitation Scheme by March 2025 to find a balance between using local and imported materials. This review is meant to ensure the scheme benefits exporters while curbing misuse.
| Action | Details |
|---|---|
| Ministry of Commerce Review | A review to balance local and imported materials |
| Timeline for Review | Review set to be completed by March 2025 |
| Objective | Ensure scheme efficiency while curbing misuse |
Purpose and Misuse of the EFS
Introduced in 2021, the Export Facilitation Scheme was meant to help exporters by exempting duties on raw materials and components. However, manufacturers exploited the scheme by misusing it to avoid taxes.
| Feature | Details |
|---|---|
| Intended Purpose | Help exporters by exempting duties and taxes |
| Misuse Issues | Manufacturers exploited it for tax evasion |
| Monitoring Problems | Poor implementation of the scheme by FBR |
Additional Government Approvals for Security Measures
The government also approved additional funds for procuring arms and ammunition. These funds are aimed at supporting anti-smuggling operations and strengthening the country’s security infrastructure.
| Measure | Details |
|---|---|
| Arms and Ammunition Procurement | Rs 2.8 billion for arms and check posts |
| Anti-Smuggling Operations | Funds for constructing anti-smuggling check posts |
| Additional Approvals | ECC also approved funds for security-related needs |
Summary
The government’s changes to the Export Facilitation Scheme aim to curb tax evasion and make the scheme more effective. With the review set for March 2025, these adjustments are part of efforts to ensure fairness in exports, protect the economy, and manage Pakistan’s foreign reserves more effectively.
