Wednesday June 29, 2022

APTMA submits budgetary proposals to government

May 10, 2020

ISLAMABAD: Textile Industry has submitted with the government its budgetary proposal for budget 2020-21 asking for abolishing turnover tax, reduction of corporate tax to 25 percent and withdrawal of 10 percent sales tax on ginned cotton. It also asked for doing away with the duty structure on import of spare parts for export oriented industry.

The industry also asked for the withdrawal of 7 percent customs duty on import of polyester and also proposed the removal of duty structure of 18% on dyes & chemicals. Moreover it also demanded the restoration of zero rating regime.

All Pakistan Textile Mills Association (APTMA) has deposited its set of budgetary proposals with Advisor to Prime Minister on Commerce and Textile and Investment Mr Abdul Razak Dawood for the restoration of viability and long term growth of textile industry.

Considering export target of $28 billion by Financial Year 2025, textile industry stressed to increase the cotton production or availability from 9 million bales to 20 million bales within 5 years. And to this effect, APTMA has suggested for duty free import of cotton for entire year and also asked for withdrawal of 10% sales tax on ginned cotton.

According to the copy of the budgetary proposal available with The News, the textile industry pleaded for restoration of zero rating as withdrawal of zero rating under SRO 1125 has created a serious liquidity crisis for the export sector. It was repeatedly stated by FBR as justification for withdrawal of SRO 1125 that domestic sales constituted 50% of textile industry output and that somehow the industry was evading the sales tax on domestic sales approximately $12 billion.

FBR now states that domestic sales of textile production account for only 20% of the overall value of sales tax production in Pakistan. APTMA argued, saying as a result of the misplaced withdrawal of zero rating the entire textile industry has already suffered on account of a severe setback to the industry as in the design of the scheme approximately 5-6 months of sales tax input of approximately Rs20 billion per month has shifted from the coffers of the industry to FBR.

This money is many times more than the profitability of the industrial units and even if the funding partially came from bank borrowing this unnecessarily increased the cost of doing business by about 6%. This negates all the governments’ laudable efforts to reduce the cost of doing business. The government had at the time of withdrawal of SRO 1125 assured the industry that it would review the situation in 6-8 months’ time. More than nine months have now passed and it is evident that the sales tax system is not contributing significantly to the FBR kitty.

On the other hand the entire government, FBR and the entire industry is constantly holding meetings and wasting time on resolving the issue of refunds are not forthcoming due to the complete collapse of markets and demand for textiles in Europe and USA.

Under these circumstances we request that zero rating may kindly be implemented in letter & spirit. Should government still wish to collect sales tax on domestic sales from a market that is already in dire straits than it should collect the sales tax at the point of sale.

There is 7% customs duty on the import of polyester staple fiber with total import expenses in the range of 20% including antidumping duty. So even if import duty is finished, protection in excess of 10% will still remain. APTMA proposed that 7% customs duty on the import of polyester staple fiber with total import expenses approximately 20% including anti-dumping duty to be abolished.

It also asked for imposition of 15% regulatory duty on the import of synthetic yarns entering into the domestic commerce of Pakistan. All duty structure on manmade filament yarn may be withdrawn.

About the dyes & chemicals, APTMA demanded that present duty structure of 18% on dyes & chemicals should be abolished. The industry also asked for implementation of Energy Regionally competitive energy prices for entire textile policy period according to which electricity tariff is at 7.5 cents per unit, and RLNG at $6.5 per MMbtu and system gas at Rs786 per MMbtu.

About the temporary Import Schemes (TIS), APTMA mentioned that currently the procedure to apply for TIS is complicated and lengthy. These schemes encourage direct exports of intermediate goods. Due to the complex structure of these schemes, availability of raw-materials like MMF (manmade fiber)and other specialized fabrics is restricted. Pakistan has not been able to achieve its full export potential and product diversification owing to limited access to raw materials.

APTMA asked for additional one year extension required for all import for export schemes as the current year cannot be counted due to COVID-19. And for simplified application procedures for TIS, APTMA sought permission of Inter/intra-Bond/scheme transfers of intermediate products to direct/indirect exporters and commercial importers. It also asked for provision of TIS facility to indirect exporters and in return Pakistan will be able to achieve price competitiveness and product diversification, saying effective implementation of this reform will be a game changer.

About LTFF (long term financing facility) scheme, APTMA said it should be extended to entire value chain since the whole value chain requires upgradation and modernisation to meet export targets. In order to ensure investment in the entire textile value chain, it argued saying LTFF should be provided to direct and indirect exporters.

About Industrial spare parts, APTMA mentioned that currently, import of major spare parts frequently used in industry are subject to 17% and 3% sales tax with 5.5% income tax. It asked for withdrawal of duty structure on import of spare parts for export oriented industry.

Coming to the facilitation to value added products, APTMA said that currently DLTL is provided to following segments (2018–2021) Garments 4%, Made ups 3%, Processed Fabric 2%. Additionally 2% is provided for non–traditional markets and 50% of DLTL is given unconditionally and remaining on 10% growth. The textile industry proposed that DLTL after 2021 should be provided to garments/made-ups, higher rates for new & innovative products.

About turnover tax, the government through Finance Act 2013 had raised the general rate of minimum turnover tax under Section 113 of the Income Tax Ordinance 2001 to 1% from 0.5%, which was further increased to 1.5% through Finance Act, 2019 and APTMA proposed the minimum turnover tax should be abolished for the coming year. Indirect exporters may also be extended taxation regime available· to direct exporters. As for as Corporate Tax Rate is concerned, the current corporate tax rate is 29% in Pakistan whereas in Sri Lanka, Bangladesh and Vietnam it is 28%, 25% and 20% respectively. APTMA suggested that this rate should be brought down to 25%.