The Economic Coordination Committee (ECC) of the Cabinet has sought revenue and trade impact of withdrawal of customs duty, additional customs duty and sales tax on imported cotton, while operationalisation of Pakistan Steel Mills (PSM) may face further delay as Ministry of Industries wants another 90 days to complete the study.
A meeting of the ECC meeting chaired by Finance Minister Asad Umar was shared the progress on the plan of action currently being formulated by a specially constituted experts group, suggesting viable options to revitalize the Pakistan Steel Mills (PSM) by the ministry of Industries & Production. The committee directed that the plan of action should be prepared in a cohesive manner, taking on board the PSM Board of Directors/Management and submitted for final approval as per the given timelines.
Sources said that Ministry of Industries and Production in the proposal stated that ECC in its meeting dated November 7, 2018 directed Ministry of Industries & Production to submit an operationalisation plan of PSM within sixty (60) days. The meeting was told that since there is a lack of in-house capacity either in the ministry or in PSM, the Advisor to the Prime Minister on Commerce with the approval of the Prime Minister constituted an expert group for formulating various options.
The group comprising 11 members, led by Khalid Mansoor of Hubco, is working on pro bono basis. It will enter into a confidentiality agreement with the government.
The expert group is still working on formulating various viable options and in view of the enormity of task and its other commitments could not complete the task within the time limit of two months. The group would present its findings in the meeting. The presentation would comprise; (i) background to the Pakistan Steel Mills Revival Study; (ii) profile of Pakistan Steel Mills and current status; (iii) study progress Update; (iv) outline of final deliverables and; (v) way forward.
The Ministry of Industries in the proposal stated that "ECC may like to comment on the mode of working and progress of the expert group and also allow another 90 days to complete the study."
A statement issued by the Finance Division stated that ECC had a detailed discussion on the proposal of Textile Division regarding withdrawal of customs duty, additional custom duty and sales tax on import of cotton. The proposal was aimed at facilitating the import of cotton to bridge the demand-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.
However, sources stated that Textile Division proposed that country has been facing a shortfall of 1.5 million bales to 3.5 million bales of cotton as a result of estimated production of 10.7 million bales against the target of 14.3 million bales and withdrawal of duties and taxes on one million bales would have a revenue impact of Rs 3 billion. The annual consumption of cotton by the textile industry of Pakistan is around 12 to 15 million bales and entire sustainability and viability of spinning industry dependent on performance of the domestic crop and shortage is met through import of cotton.
Textile Division in the proposal argued that import of cotton has remained duty free till the slab of 0% was abolished in 2014-15 and Customs Duty (CD) of 1% was imposed along with the 5% sales tax. Later on 1% slab was made 2% and then 3% along with the 2% additional duty to make it 5%. Currently, cotton is subject to 3% customs duty, 2% additional customs duty and 5% sales tax.
The Prime Minister's Package of incentives for exporters was announced on January 10, 2017, wherein textile sector was provided a 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 was re-imposed from July 15, 2017 in view of domestic cotton arrivals. Customs duty and sales tax were withdrawn again with effect from January 8, 2018 but were re-imposed from July 15, 2018 on the request of Ministry of National Food Security and Research (MNFSR) on May 31, 2018.
The impact of duties is induced in the price of demesne cotton, resulting in an increase in cost of doing business for the entire textiles value chain specially for export-oriented sector in highly competitive international markets.
The ECC was requested to approve the withdrawal of customs duty, additional customs duty and sales tax on imported cotton to encourage value addition, reduce the cost of doing business and fill the gap between production and consumption as by January, more than 95% of the cotton will be lifted from the farmers.
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