Low revenue from local textile sales: CBR planning to find out causes

The Central Board of Revenue (CBR) is planning to identify reasons for less revenue from domestic sales of textile products. Sources told Business Recorder on Tuesday that domestic sales of textile products contributed just Rs 12.1 million in the federal tax receipts, against its potential of about Rs 1.917 billion.
This under-performance has raised several questions that need to be solved for improved collection. Sources said that the CBR in its July-March report said: "About 80 percent of textile products are exported, and the rest are sold in the domestic market. To recover tax on domestic sales a 3 percent retail tax was introduced that included 2 percent sales tax and one percent income tax on retailers of textiles.
"However, an insignificant sum of Rs 12.1 million was collected under this scheme, which included Rs 4.4 million in income tax and Rs 7.7 million in sales tax." Sources said that about Rs 9.586 billion sales tax potential is estimated at the rate of 15 percent from locally sold textile products. Even if 3 percent tax is applied this sector has tax potential of Rs 1.917 billion. But, unfortunately, at present the compliance is below one percent.
The country's economy is heavily dependent on the textile sector for creation of employment opportunities and export earnings. But the sector is facing challenges to compete in the international market. Therefore, several tax exemptions, including zero-rating of sales tax facility were granted to this sector. As a result of these exemptions, CBR paid Rs 40.7 billion in 2004-05.
On the other hand, the industrialists say that although the government claimed zero-rating to textile sector, the factual position is that the exports are subject to various direct and indirect taxes that are now totalling 3 percent of the sales, which include withholding tax 1.25 percent, export development surcharge 0.25 percent, court charges on export documents 0.3 percent, sales tax on utilities (15 percent or 0.25 percent of sales), regulator matters (Sessi, EOBI, Civil Defence Excise etc) 0.25 percent.
This taxation and levy of duties are increasing the cost of production that should be made zero-rated in true perspective, they added. The said that the textile minister had promised with business community that the sector would be given priority but in the federal budget no incentive was announced for the sector. They rejected any tax evasion on their part and said that there might be other reasons for low tax collection.