Finance Division will submit its comments including revenue impact of the proposed exemption of cotton seedcake from 5 percent sales tax to the Economic Coordination Committee (ECC) of the Cabinet.

It is learnt that during the last meeting of the ECC, the committee took up a proposal by the Ministry of National Food Security and Research for exemption from 5% sales tax on cotton seedcake and after a detailed discussion on the issue referred the matter to the Finance Division for examination and a report to ECC in its next meeting.

According to the summary of Ministry of National Food Security and Research to the ECC, the cotton produced in Pakistan is ginned by over 1,200 ginning factories, which separate lint from seed.

Cottonseed is crushed by over 6,000 oil expellers to extract oil for human consumption and seedcake for livestock or animal feed industry. It is estimated that over 4 million tons of cotton seedcake and 410,000 tons of oil are produced every year from the cotton produced in Pakistan.

Oil obtained from 60-70% of local edible oil production and 20% of the total edible oil is used in Pakistan. Since cottonseeds are two-third by weight of phutti, hence the prices of cotton in local market are directly affected by the price of oil, seedcake and allied taxes on it.

The federal government levied 5% sales tax on cotton seedcake, which is only used for feeding livestock. On the other hand, sunflower meal, rapeseed meal and canola seed meal (which are also livestock feed) are exempted from such tax. Thus, this discriminatory treatment with cotton seedcake makes the cottonseed cheaper than seedcakes.

Lower prices of cottonseed than seedcake is rousing trend of feeding livestock with cottonseed instead of seedcake.

Cottonseed requires less for a ration and contains more fats and nutrients than seedcake. Going cottonseed into animal feed instead of extracting oil will have consequences on locally produced edible oil and is likely to increase the import bill of oil or oilseeds.

In view of foregoing, it is proposed that cotton oilseed cake No. 2 of the Eighth Schedule of Sales Tax Act may be deleted and added to No. 21 of Table 2 of the Sales Tax Act 1990, the Ministry of National Food Security added.

Copyright Business Recorder, 2019