KARACHI - Former PRGMEA chairman Bilal Mulla has demanded the government to withdraw one per cent withholding tax on exports, imposed in the federal budget for 2009-10. Since 1992, exporters are enjoying full and final discharge of tax liability of their income tax against exports as the banks deduct one- percent tax upon realisation of foreign exchange on account of goods. Originally, withholding tax was 0.50 per cent for value-added products, 0.75 percent for intermediary products and one percent on basic raw material. It was gradually increased to one percent for all products, which is still high for value-added products. However, in the federal budget 2009-10, this facility has been withdrawn on the plea that parliamentarians need to ascertain what is more important more foreign exchange or increase in taxes on textile sector. The Country needs more foreign exchange and, therefore, we suggest that the rate of tax be reduced from one per cent to half per cent without changing the clauses, so the exporters can deduct tax at source as final liability, said Bilal Mulla. According to the Finance Act, there is no denying of the fact that the need to promote Pakistans export in a substantial way has always been and is the need of the hour. With this realization, a presumptive tax regime was conceived way back in the Finance Act of 1992 whereby exporters were provided a sort of tax facilitation to insulate them from the harsh rigmaroles of the tax system. Since the Finance Act, 1992, a taxpayer, regardless of the class, is being subjected to a final tax, generally at the rate of one percent, applicable on the proceeds of foreign exchange realization on account of export of goods and the tax so deducted by an authorized dealer or bank constitutes full and final discharge of tax liability of an exporter. The bill proposes to amend sub-section (4) of this Section by substituting the tax deducted as a minimum tax, which was hitherto deemed a final tax. Although it is not intended to establish empirically whether this provision of final tax has contributed favourably in the past in promoting exports from Pakistan, it, however, seems highly questionable to translate this final tax into minimum tax when, at this juncture, the exporters are struggling to maintain their exports let alone succeed in penetrating other markets, which are yet to be explored. It would, therefore, not be unreasonable to anticipate that the proposed amendment to the export tax regime may prove to be counter productive both from the stand point of foreign exchange earnings as also in the context of generation of high tax revenues from this sector. The legislature would be well advised to reconsider this proposed amendment.