ECC seeks revenue impact of withdrawal of duties on cotton imports

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ISLAMABAD: As the government is already facing a revenue shortfall of Rs125 billion during the past six months due to the relaxation of taxes in income, mobile and other sectors, the Economic Coordination Committee of the Cabinet (ECC) has sought revenue impact of the relaxation of taxes on cotton imports.

The meeting of ECC which was chaired by the Finance Minister Asad Umar here on Tuesday discussed the proposal of Textile Division regarding withdrawal of customs duty, additional customs duty and sales tax on import of cotton in details.

The textile division had forwarded the proposal of slashing taxes to facilitate the import of cotton to bridge the demand and supply gap in the country, thereby helping out the textile industry, especially the export segment. The committee noted that detailed trade and revenue related data was required, which was not made part of the proposal. The relevant ministries were directed to fill the data gaps so that an informed decision could be taken in the matter.

As per the available documents, the textile industry has to meet this shortage from the import of cotton from other countries. The impact of duties is induced in the price of demesne cotton, resulting in an increase in the cost of doing business for the entire textiles value chain especially for export-oriented sectors in highly competitive international markets.

According to Cotton Crop Assessment Committee (CCAC), the cotton crop for the year 2018-19 is expected to be around 10.78 million bales of 170 kilograms, a decrease of 9.7 per cent compared to last year and a decrease of 24 per cent against the initially fixed target of 14.37 million bales. Further, 9.62 million bales have already arrived in the ginning factories as of December 15, 2018.

As per the summary of textile division, to encourage value addition, reduce the cost of doing business and fill the gap between production and consumption as of January 1, 2019, more than 95 per cent of the cotton will be lifted from the farmers, it is proposed that similar to last two years’ decision; customs duty, additional customs duty and sales tax on imported cotton may be withdrawn immediately.

According to the summary, justifying the relaxation in taxes, the textile division in the proposal claimed that import of cotton has remained duty-free till the slab of 0 per cent was abolished in 2014-15 and customs duty of 1 per cent was imposed along with the 5 per cent sales tax. Later on, a 1 per cent slab was raised to 2 per cent and then 3 per cent along with the 2 per cent additional duty to make it 5 per cent. Currently, cotton is subject to 3 per cent customs duty, 2 per cent additional customs duty and 5 per cent sales tax.

According to the documents, Prime Minister’s Package of incentives for exporters was announced on January 10, 2017, wherein, textile sector was provided number of facilitations including withdrawal of customs duty and sales tax on imported cotton effective from January 16, 2017. However, customs duty and sales tax on imported cotton were re-imposed from July 15, 2017, in view of domestic cotton arrival.

The customs duty and sales tax were withdrawn again effective January 8, 2018, vide a summary to ECC of the cabinet moved by this division. The customs duty and sales tax were re-imposed w.e.f July 15, 2018, vide a Summary moved by Ministry of National Food Security and Research (MNFSR) on May 31 2018.

Sources said that on the one side, cotton production has been decreasing and on the other hand, the government had imposed taxes on cotton import which is why export has not been increasing. If industry will not get raw material than how can the export enhanced.

All Pakistan Textile Mills Association (APTMA) was demanding for the last many months to withdrawn this duty and government can bear Rs4 billion loss in revenue if the country imports 1 million bales cotton.

Sources said that Ministry of National Food Security and Research can oppose this move as they have a point of view that farmers could be affected due to withdrawn of taxes on import of cotton.

The textile industry of Pakistan consumes around 12 to 15 million bales per annum and sustainability and viability of spinning industry are totally dependent on the performance of the domestic crop.

It is pertinent to mention here that Pakistan Tehreek-e-Insaf (PTI) government is struggling to enhance exports which are stagnant to around $24 billion currently.

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