KCA opposes sales tax on raw cotton

KARACHI: The Karachi Cotton Association (KCA) opposed the proposed standard sales tax on cotton to generate around Rs50 billion in the next fiscal year, said a statement on Tuesday.
The Karachi Cotton Associationchairman Amin Hashwani said such proposals discourage production and smooth flow of exports, running counter to the government policy to encourage cotton trade in the country.
"Sales tax generally is not imposed on raw cotton globally," he said.
The government of Pakistan set the target of 15.49 million cotton bales for the next season in 2015-16.
With this, there is a strong possibility for Pakistan to potentially export a million bales of raw cotton.
Nearly 80-85 percent of the cotton crop is exported in the form of raw cotton, cotton yarn, cotton fabrics, garments, and cotton made-ups.
The proposed sales tax, if levied on raw cotton, would be refundable thereon at the export stage.
Taking into consideration, substantial expenses of tax collection, administration and refund process, the balance available amount with the government would be comparatively insignificant, he added.
Cotton is a highly priced commodity and the exporters of raw cotton usually operate on narrow margins.
They, therefore, cannot afford to keep substantial borrowed amounts struck-up by way of payment and refund of sales tax for six-seven months, or even longer, as was the case in the past.
"This would create serious liquidity problems for the cotton exporters, and eventually cotton exports would adversely suffer and compromise the interests of the cotton growers and ginners," Hashwani said.
Keeping in view the importance of export of cotton and its products to the country's economy, the Karachi Cotton Association strongly urges the government not to impose sales tax on raw cotton in the forthcoming federal budget.
The Karachi Cotton Association suggests keeping cotton exempted in order to avoid adverse repercussions for all stakeholders and the general public, he said.