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ISLAMABAD: The government has reportedly agreed on provision of Rs. 20 billion as subsidy on RLNG/electricity for textile sector in the federal budget 2020-12, to be unveiled on June 12.

This consensus was evolved at a meeting between the textile industry and the government's economic team, which is giving final touches to the budget proposals for FY 2020-21.

According to sources, restoration of zero-rating or reduction of sales tax rate to 5% across the value chain was shot down after Chairperson FBR expressed her opposition.

The sources said, textile industry was of the view that GST on local production for exports and imported intermediate goods exempt from sales tax is through import for export schemes are big incentives for exporters; but this has negatively impacted domestic consumption. Sales tax exemption on imports through Bond, EOU and DTRE should be withdrawn immediately.

Prime Minister's Advisor on Commerce and Investment, Abdul Razak Dawood extended full support to industry.

There is a possibility of reduced single digit Sales Tax rate. On continuity of regionally competitive fixed electricity tariff @ 7.5 cents/KWh for export oriented sectors to ensure elimination of cross subsidy to other consumers by this sector and uninterrupted and stable power supply and continuity of regionally competitive RLNG @ US $ 6.5/MMbtu and system gas @ Rs 786 / MMBTU for export oriented sectors the meeting decided that the procedure for new entrants will be notified after ECC approval.

Textile sector maintained that the demand for gas is falling domestically so more domestic gas may be available and hence the formula of 50-50 gas and RLNG may be extended to cover the entire year. Gas/ RLNG at regionally competitive rates is not available for expansion and new projects, so it is a serious bottleneck to expansion and setting up of new green-field projects.

The new system for enrolling new entrants for the regionally competitive energy rates is still not finalized by the Ministry. Textile industry urged urgent resolution of this matter and recommended that Sindh be allowed new connections and expansions at the regionally competitive rates.

A proposal regarding creation of a new scheme for the deferment of interest for the quarter ending June 30, 2020 did not come under discussion. The government, in principle, agreed to a new scheme by the State Bank to enable the purchase of existing closed units at concessional rates on a debt equity rate of 70:30 that would allow the addition of capacity and export enhancement in a short time.

The amendment in loan for wages scheme did not come under consideration. The meeting was informed that integration of export-oriented schemes namely DTRE, Manufacturing Bond and EOU is under active consideration.

The meeting also assured the textile industry that there will no intervention price of cotton and any duty on import of cotton will be opposed at the level of ECC.

Federal Board of Revenue (FBR) strongly opposed the increase in turnover tax to 1.5 per cent, despite unflinching support of Abdul Razak Dawood.

The meeting agreed to release TUFF refunds on an emergency basis in July 2020 as the matter has been pending for a number of years. The meeting also agreed to defer Textile Policy till the end of Covid-19 pandemic.

The sources said, 7% Sales Tax on textile machinery was discussed at length and the government stated that 17% GST was being applied on imports and there is no mechanism for refunds. Hamid Ateeq stated that the total liability on this account was Rs. 135 billion.

Copyright Business Recorder, 2020