The Federal Board of Revenue (FBR) will approach the State Bank of Pakistan (SBP) to seek clarification as to how the foreign investors of Export Processing Zone (EPZ) will obtain refunds in dollars following the withdrawal of the sales tax exemption from the EPZ.

Sources told Business Recorder that the FBR Member Inland Revenue (Policy) and other senior Inland Revenue officials held a meeting with the investors of the EPZ at Karachi at a tax office.

According to the sources, the main issue that came under discussion is the payment of refunds to the EPZ in dollars. The imports and payments are made in dollars by the foreign investors operating in the EPZ. Does the question arise that how the refund would be issued in dollars?

The FBR had withdrawn sales tax exemption to the EPZ-based foreign investors despite, the fact they operate in a universally-accepted completely different mechanism for export promotion.

All financial transactions in the EPZ took place in dollars. If the amount is involved in dollars, then how FBR will refund the amount in dollars?

Responding to this, the FBR official informed the meeting that the issue would be taken up with the SBP for clarification.

A tax expert said that it clearly shows that the FBR was not fully prepared for dealing with the issues of the EPZ after the withdrawal of the sales tax exemption. Therefore, the FBR should take action for the restoration of the position as was there before the Finance (Supplementary) Act, 2022.

The foreign investors operate in a completely different mechanism, which are universally-acceptable principles for operating free zones for export promotion. No foreign exchange of Pakistan is involved in any import made by these persons.

The action undertaken through the Finance (Supplementary) Act, 2021 is considered an inadvertent understanding for the reason that it is clear the Government of Pakistan has no intention to withdraw any concession or privilege conferred to the foreign investors for operations in the EPZ and the matter is clear.

The story was originally published in Business Recorder on January 23, 2022.