Imported & local cotton: Recommendation on removal of disparity between tax rates sought

ISLAMABAD: A parliamentary body, on Thursday, rejected the Federal Board of Review (FBR)’s reply concerning the removal of the disparity between sales tax rates on imported and local cotton and directed the FBR officials to submit a comprehensive recommendation before the committee to address the matter.

The National Assembly Standing Committee on National Food Security and Research, which met with Senator Syed Hussain Tariq expressed annoyance over the reply submitted by the FBR regarding the disparity between sales tax rates on imported and local cotton.

The committee summoned the Ministry of Commerce and Industries in the next meeting to present the point of view on removing the sales tax disparity matter.

The committee chairman said there was a disparity between taxes on locally produced and imported cotton.

There was an 18 percent sales tax on local cotton, while imported cotton was tax-free, he said, adding that “this disparity is discouraging the cotton growers.”

The committee had directed the FBR, during the previous meeting to submit to the committee fruitful suggestions to resolve the matter regarding the disparity between sales tax rates on imported and local cotton, he said.

The committee directed the FBR to consult with the Ministry of Commerce and engage with the International Monetary Fund (IMF), if current tax policies are not yielding positive results.

Dr Najeeb Ahmad Memon, member IR policy FBR told the committee that following the direction of the parliamentary body, the Ministry of Finance, the FBR as well as other stakeholders deliberated upon the disparity between taxes on locally produced and imported cotton in detail.

The challenges faced by the cotton growers were discussed at length especially in the context of the sales tax on the purchase of local cotton and the exemption of the same on the imported cotton under the EFS regime, he said.

He said that growers argued that the ginners charge all taxes paid by them as the cost and deduct them from the price they offer for seed cotton. The ginners claimed that they pay tax on seed cake, cotton seed and seed oil which is two third in value of their production, hence, either government should exempt them from tax or they will offer proportionately less price to the growers, he said.

He said the data of sales tax collection shows that the amount collected on these items is negligible so neither it is reason of low price being offered to the growers nor makes a case for granting the exemption on these items to support the growers.

Moreover, the ginners also claimed that they do not get a good price of their cotton lint at the time of sale to spinners and unless they do not charge to the growers for the taxes they pay then will run into losses.

The spinners claim that they find the imported cotton cheaper and of high quality and without tax so they purchase the imported cotton.

Memon said that “we found that taxes are not the reason for the spinners not to buy local cotton and they are buying imported cotton due to its high quality.”

He suggested that the committee may refer the matter to the Ministry of Commerce to examine the issue with regard to the likely impact of the imposition of sales tax on imports of textile inputs under EFS on textile exports.

Copyright Business Recorder, 2025