The National Assembly Standing Committee on Textile Industry Tuesday recommended 2 percent uniform rate of sales tax, against the proposed 5 percent by the Federal Board of Revenue (FBR), on five leading export-oriented sectors ie textile, leather, carpets, surgical and sports goods in budget (2015-16). The Ministry of Textile Industry proposed the existing 2 percent sales tax, however, the value added textile sector demanded the revival of zero rate regime under SRO.1125.
The Committee and the Minister for National Food Security and Research agreed to fix the intervention price of cotton @ Rs 3,200 per 40 kg for the financial year 2015-16 after considering the cost of production. They further decided to take the provincial Governments of Sindh and Punjab on board for implementation mechanism. Textile Ministry informed the committee which met with Khawaja Ghulam Rasool Koreja in the chair that SRO 1125 pertaining to 5 export-oriented sectors including textiles and carpet, Federal Board of Revenue has proposed to increase the sales tax to 5 percent from current 2 percent, 3 percent & 5 percent. Further electricity and gas sales tax currently at 0% is proposed by FBR at 5 percent. The Ministry would reiterate that textile sector is the main export earner with 54 percent and 40 percent 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.
Mohammad Ashraf Khan Member Inland Revenue Operations FBR rejected the notion that imposition of sales tax resulted in hampering exports. The increase in the rate of sales tax is under consideration, however no final decision is not yet been taken. He admitted the flaws and issues in refund system and said that efforts are being made fro improving the system. He claimed that about Rs 16 billion of refunds have been stuck up which would be cleared by end August.
The committee members also opposed the increase in sales tax rate, saying that it will result in increasing the cost of doing business. They further said that in other countries sales tax is not being charged on the exports. Javed Balvani chairman Pakistan Apparel Forum said that textile exports sector is battling for their survival in the global market against severe competition from neighbouring competing countries due to high costs of doing business in Pakistan. Textile exports are declining due high costs of doing business in Pakistan, imposition of 2 percent sales tax, billions of rupees stuck up with the government in sales tax refund claims; customs rebate claims and DLTL claims. He further said that instead of coming to help and provide incentives and level playing field as compared to other competing countries, the government is bent on crushing and ruining this vital export sector by proposing further harsh measures including increasing Sales Tax from 2 percent to 5 percent and imposition of GIDC @ Rs 100 per MMBTU. Balvani demanded revival of zero rate status for textile sector. "No Payment No Refund Regime" for the five export-oriented sectors by restoring 1125(1)/2011 to its original status to make the exports truly zero rated. He further said that pragmatic policies in consultation with stakeholders needs to be formulated to reduce the cost of doing business by fixing rates of all essential raw material - inputs - gas, electricity, water etc in line with competing countries in the Global Market to create a level playing field. The committee endorsed the proposals of Javed Balvani.
The sub-committee submitted its report about fixation of cotton rate and recommended to fix the minimum guaranteed price of cotton @ of Rs 2,700 per 40 kg for the financial year 2015-16 after considering the cost of production. The Trading Corporation of Pakistan (TCP) would be made bound to procure at least two million cotton bales for this year. According to Indian model of cotton procurement the government may also procure seed cotton instead of lint cotton on experimental basis.
The sub-committee was of the view that the cotton price may be fixed in between the import and export parity prices. Moreover, it was also observed that the lint cotton is exported as well as imported by Pakistan and during this course of business activity a lot of revenue is being spent, which may be avoided through the import of only long staple cotton which is required for fine quality cotton in certain textile sectors.
The Secretary of Ministry of Textile Industry apprised the committee that Pakistan is not giving any subsidy on cotton so the cotton growers have to compete with the prices of subsidized cotton. The Committee and the Minister for National Food Security and Research, after having detailed discussion unanimously agreed to fix the intervention price of cotton @ Rs 3,200 per 40 kg for the financial year 201 5-16 after considering the cost of production, in this respect the provincial government would be taken on board for the implementation mechanism. The Committee also recommended that the Trading Corporation of Pakistan shall be made bound to procure at least two million cotton bales for this year. The TCP shall hire ginning units for cotton seasons to protect the small farmers.