A strong lobby, reportedly backed by a cabinet member, is creating hurdles in the implementation of the Economic Co-ordination Committee (ECC) of the cabinet''''s decision on the withdrawal of sales tax and customs duty on imported cotton, sources revealed to Business Recorder. The ECC met with Prime Minister Shahid Khaqan Abbasi in the chair on January 5, 2018 where a proposal submitted by the textile division seeking abolition of sales tax and customs duty on imported cotton was approved with effect from January, 8 2018.
However, sources revealed that Federal Board of Revenue (FBR) has yet to notify the withdrawal of customs duty and sales tax on the import of cotton. Talking to Business Recorder, Federal Minister for Commerce and Textile Mohammad Perviaz Malik said that it was the decision of ECC to withdraw sales tax and customs duty on import of cotton and FBR should notify it soon after the ECC decision.
"If a cabinet member had some issues with the withdrawal of sales tax and customs duty on the import of cotton, he should raise the matter in the ECC meeting," Malik added. Textile division spokesman Kanwar Usman told Business Recorder that there were rumours in the market that the Prime Minister has not yet signed the ECC decision of repealing customs duty and sales tax on imported cotton to influence the market. However, the ECC decision was taken and is effective from January 8 and there is no ambiguity about it, he added.
He confirmed that sales tax and customs duty are still being levied on import of cotton and if FBR notifies its withdrawal, cotton importers would claim refunds.
Import of cotton remained duty free till the slab of 0 percent was abolished in 2014-15 and customs duty (CD) of 1 percent was imposed along with a 5 percent sales tax. Later, 1 percent slab was raised to 2 percent and then 3 percent along with the 1 percent additional duty to make it 4 percent ie, cotton was subject to 4 percent CD and 5 percent sales tax till January 15, 2017.
The Prime Minister''''s Package of Incentives for Exporters was announced on January 10, 2017, wherein textile sector was provided a number of incentives including withdrawal of customs duty and sales tax on imported cotton, w.e.f. January 16, 2017.
The Finance Division moved a summary to the ECC of the Cabinet to impose the customs duty and sales tax on imported cotton. The ECC of the Cabinet constituted a committee and on the recommendation of the committee, duties were re-imposed from July 15, 2017 in view of arrival of domestic cotton on the market. The textile industry of Pakistan consumes around 12 to 15 million bales per annum. Sustainability or viability of spinning industry is totally dependent on performance of the domestic crop. Textile industry has to meet the shortage through imports. The impact of duties is included in the price of domestic cotton, resulting in increase in cost of doing business for the entire textiles value chain especially for export-oriented sector in a highly competitive international market. Mills'''' consumption has declined and the gap between demand and local cotton output has not been bridged in the last two years.
According to Cotton Crop Assessment Committee (CCAC), the cotton crop for the year 2017-18 is expected to be around 12.6 million bales of 170 kilogram each, an increase of 16% compared to last year. Further, 8.13 million bales arrived in the ginning factories as of November 1, 2017 compared to 6.98 million bales in the same period of last year, showing an increase of 17% with the bulk of cotton lifted from farmers before 1st January, 2018, so maintains textile division summary.
To encourage value addition, reduce the cost of doing business, fill the gap between production and consumption as by January 1st, more than 95% of the cotton has been lifted from farmers, it is proposed that similar to last year''''s decision, customs duty and sales tax on imported cotton may be withdrawn, so recommended the textile division and added that the matter has been discussed with secretary Ministry of Commerce (Commerce Division), who has endorsed the proposal.
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