The government has decided to exempt cottonseed oil cake from 5 percent General Sales Tax (GST) after taking International Monetary Fund (IMF) on board, sources in Finance Division told Business Recorder.

The ECC was informed on January 20, 2020 that Ministry of National Food Security and Research has moved a summary for the ECC with the proposal that cottonseed oil cake (No.2 of the Eighth Schedule of Sales Tax Act 1990) may be deleted and added to No-21 of the table 2 of the Sales Tax 1990.

The ECC considered the case in its meeting held on December 23, 2019 and directed Finance Division to examine the proposed exemption holistically in consultation with the FBR and the Ministry of National Food Security and Research and submit a report to the ECC for consideration in its next meeting.

In pursuance of the direction of ECC, a meeting was held on December 31, 2019 to examine the issue in consultation with Ministry of National Food Security and Research and the Federal Board of Revenue (FBR) wherein Secretary Ministry of National Food Security and Research Dr Hashim Populzai explained cottonseed oil cake contributes 60/70 percent to the local edible oil production.

He further maintained that due to the imposition of sales tax, cottonseed oil cake would become more expensive source of animal feed resulting in use of cotton seed as feed.

This trend has negatively affected local production leading to a likely increase in the import bill of edible oil or oil seeds. It was agreed that 5 percent sales tax on cottonseed oil cake does not make a significant contribution to revenue (approximately Rs 5 billion/per annum) and therefore, its exemption would not adversely affect the revenue targets.

However, the representative of the Federal Board of Revenue (FBR) explained that it was not possible to grant exemption through SROs. Furthermore, under the reform programme supported by the International Monetary Fund (IMF), the government of Pakistan is committed to avoiding issuing new preferential tax treatment or exemptions.

Finance Division further stated that after detailed deliberations, it was unanimously agreed that the proposal for the exemption of 5 percent sales tax on cottonseed oil cake shall be considered during the second quarterly review of IMF's Extended Fund Facility (EFF) 2019-23, scheduled to commence from today. In case exemption of sales tax on cotton seedcake cannot be introduced during CFY 2019-20, it can be considered for inclusion on the Finance Bill 2020-21.

FBR is said to be planning to bring more sectors into the tax net in the forthcoming budget as per agreement with the IMF. This was disclosed by the Member Board on Sales Tax in his comments shared with National Assembly Standing Committee on National Food Security and Research.

According to the FBR, cottonseed oil cake was brought into the tax net through Finance Act, 2014 Finance Act, in the Eight Schedule at serial number 2 @ 5 per cent. However, through SRO 253(1) 2019 of February 26, 2019 a special procedure was notified wherein cotton ginners were required to pay sales tax@ Rs 7 per 40 kg for the period from July 1, 2018 to June 30, 2019 and Rs 8 per 40 kg for the period starting from July 1, 2019.