Pakistan - Tax refund issue unresolved

The issue of refund of Value Added Tax (VAT) paid by Pakistani exhibitors to Germany at trade fairs there remains unclear as some exporters get the amount back while a majority is denied the facility.

Pakistani exporters of various goods, who participate in numerous international trade fairs in Germany, pay VAT on the construction of their stalls at the exhibition centre. According to the exporters, the VAT is refunded to other foreign exhibitors but Pakistani businessmen are refused.

The stalls are built at an average rate of 160 euros per square feet and total cost of a small stall of 12x8 feet comes to 15,360 euros. By 2006, the rate of value added tax was 16 per cent which has now been increased to 19 per cent. At current rate, the exporters on average pay 2,918 euros as VAT to Germany.

The exporters said cumulative VAT was very high as thousands of Pakistani exporters participated in fairs in different German cities every year. The cities included Frankfurt, Dusseldorf, Cologne and Hannover.

Though most of the Pakistani exhibitors are denied VAT refund by German authorities, the Engineering Development Board has got the refund for its participation in the engineering fair at Hannover. The EDB took part in the fair on its own without facilitation or support from the Trade Development Authority of Pakistan (TDAP).

According to Nabeel Hashmi who managed participation in the fair, millions of rupees worth of VAT refunds relating to taking part in the fair in 2005-06 have been deposited in government account. He hoped the refunds for 2006-07 would soon be received as the entire process took around six months.

It was learnt that the Germans refused VAT refund to Pakistani exporters on the plea that German exhibitors in Pakistan should also be allowed similar refunds if they participated in trade fairs here.

An agreement exists between the two governments for avoidance of double taxation. However, tax experts pointed out the accord was related to income tax only and not value added tax. For VAT, both the governments had to sign a separate agreement, they added.

Some exporters put the blame of delay in refund on the Trade Development Authority of Pakistan which bought exhibition space on behalf of the exhibitors who participated through the authority. They argued the Engineering Development Board which arranged participation in the engineering fair at Hannover on its own succeeded in obtaining refunds under the present rules.

Moreover, they said, even the TDAP had in some cases been able to obtain partial refunds through commercial counsellors. “Probably the procedure adopted for refunds has some flaws,” an exporter said.

The exporters also complained that even if some rules had to be changed from Pakistan’s side these should have been done much earlier as the matter of VAT refund had been pending for the last 30 months. The Federal Board of Revenue had provided to the Ministry of Commerce notifications and provisions of the sales tax act (Pakistani equivalent of VAT) giving exemption to foreign missions on services rendered in Pakistan.

The Ministry of Commerce had to take up the matter with the German authorities through Pakistan’s embassy there. But it seems that due to bureaucratic red tape the matter has either not yet been taken up with the German officials or not pursued properly.

Source : The News - International - Pakistan, dated 08/12/2007