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The government is planning to impose reduced rate of 5 percent sales tax on ten sectors dealing in equipment/apparatus used for renewable energy and power generation through gas, coal, hydel and oil in coming budget (2015-16). Sources revealed to Business Recorder that stakeholders, including Ministry of Textile, have opposed the proposal of the Federal Board of Revenue (FBR) for levying sales tax on renewable energy items and power generation through gas, coal, hydel, etc, due to reasons mentioned in customs duty comments used for textile sector.
However, FBR has strongly proposed imposition of a 5 percent sales tax on items for renewable energy and power generation through gas, coal, hydel and oil. According to the FBR's proposal, ginned cotton is proposed to be charged at 5% on local supply thereof; currently there is no sales tax on ginned cotton. Stakeholders do not recommend that ginned cotton be charged to 5% sales tax. This would have a negative impact on exports and would increase the cost of doing business and result in a liquidity crunch for the exporters.
As per FBR proposal, imported ginned cotton is to be charged to standard rate of sales tax instead of 5%. It is proposed that Pakistani cotton is of short to medium staple, while to manufacture finer yarn and resultantly finer products 'Extra Long Staple Cotton' is required; further, domestic cotton production is less than the requirement of the spinning sector.
The FBR has been phasing out concessionary regime for the Federal Budget 2015-16. The first phase of this exercise was carried out for the budget 2014-15. The exercise contains phasing out of concessions in Customs, Sales Tax and Income Tax. The principles for review of sales tax regime revealed that the concessions for socially sensitive sectors be retained by incorporating those into Sixth Schedule to the Sales Tax Act; concessions to all other sectors be withdrawn by charging standard rate of sales tax over next 03 years and where the import value is Rs 30 million annually, concession may be withdrawn with immediate effect.
Sources said that SRO 1125 pertaining to 5 export-oriented sectors, including textiles and carpet, FBR has proposed to increase the sales tax to 5% from current 2%, 3% & 5%. Further, electricity and gas sales tax - currently at 0% - is proposed by FBR at 5%. The Ministry of Textile would reiterate that textile sector is the main export earner with 54% share and 40% share in industrial employment. To remain competitive and at par with regional competitors, the rate of sales tax on supply chain and its utilities of textile and carpet sector may remain the same. Further, entire machinery for textile sector is imported and to encourage investment no such proposals may be accepted. To the extent of textile sector, the Ministry has proposed to continue with the current regime otherwise it will result in increased cost of doing business, casting a negative impact on exports.

Copyright Business Recorder, 2015