FBR withdraws sales tax, duty on cotton imports

LAHORE/KARACHI: The Federal Board of Revenue (FBR) on Tuesday withdrew sales tax and customs duty on cotton imports in line with the government’s order, a move that was resented by the growers.

Textile sector will avail the benefits on imports of raw and ginned cotton retrospectively, a FBR’s notification said.

Economic Coordination Committee (ECC), in a meeting early this month, approved withdrawal of 5 percent sales tax and 4 percent customs duty on cotton imports from January 8. The withdrawal would take effect from the same date.

Delayed notification seemed to be an outcome of protest by farmers and ginners against the withdrawal of taxes on cotton import.

An industry source, however, said the textile millers were planning to launch protest campaign from Tuesday against the belated notification.

Pakistan has been importing long and extra-long staple cotton since 2001 as country mainly produces short to medium staple length cotton.

Pakistan, despite being the world’s fourth largest cotton producer, relies on import of cotton to meet local demand, which is estimated at 15 to 16 million tons/year.

Cotton production is expected to be around 11.1 million bales of 170kg each during the current crop year of 2017/18 against the revised production target of 12.6 million bales.

In January last year, government pulled out four percent customs duty and five percent sales tax on cotton import to promote value addition, but the levies were restored after six months on prospect of increase in cotton production.

Ginners and farmers oppose duty-free cotton import as they said this would hurt their interest through bringing down prices in the local market.

Trading in cotton market came to standstill with the beginning of the current month owing to tug of war between textile bodies and ginners.

Textile mill owners were not willing to buy what they deem costly local cotton, while ginners did not want to sell commodity on low price.

A delegation of Pakistan Cotton Ginners Association met the Prime Minister a few days back to press demand of customs duty and sales tax on cotton import.

Ihsanul Haq, chairman of Pakistan Cotton Ginner Forum said government should have continued with the restricted regime for cotton import in a bid to encourage local production of silver fiber.

Haq said farmers might lose interest in cultivation of cotton next season. “Even, cotton arrival for the current season could be affected.” Ibrahim Mughal, chairman of Agri Forum Pakistan also criticised the government’s decision.

“Cotton production has been on the lower side for the last several years,” Mughal said. “Farmers were expecting reasonable price of cotton this year, but the government deprived them of this opportunity, which would demoralise them.”

Asif Inaam, zonal chairman of All Pakistan Textile Mills Association, however, said the tax concession would provide immediate relief as huge quantity of cotton is stuck at ports for clearance since the ECC’s decision.