Pakistan imports around $600 million worth of textile machinery a year. PHOTO: FILE
The machinery, not manufactured locally and imported by textile industrial units registered with the Textile Division, will be exempted from sales tax, according to the notification FBR issued on Saturday, an official holiday.
The FBR issued the notification days after the Senate Standing Committee on Textile warned to seek an explanation over the delay.
The exemption is part of the Textile Export Package announced by the last PML-N government on its last day in power. The annual cost of the textile export package is roughly Rs40 billion.
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In its last meeting, held on May 30, the Economic Coordination Committee (ECC) extended the textile export package for three years. On its last working day, the PML-N government also got the package rectified from the federal cabinet.
The package was originally announced by former prime minister Nawaz Sharif in January 2017 for one and a half years in an attempt to boost exports. Under the package, sales tax, customs duty on import of textile machinery and cotton were abolished.
However, the FBR’s sales tax policy wing refused to accept the last federal cabinet’s ratification of the ECC’s decision. It instead demanded that the Textile Division provide documentary evidence that should use the word “approval” instead of “ratification”, said an official of the Ministry of Commerce and Textile.
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Despite the Cabinet Division’s interpretation that the word ratification had the same meaning, the FBR remained unwilling to issue the notification. The FBR even asked the Ministry of Commerce and Textile to obtain and provide approval of the federal cabinet for the issuance of a fresh notification.
It also said that since the decision of the last cabinet had not been implemented, it required fresh approval from the caretaker federal cabinet. But the Cabinet Division did not agree. The textile sector also slammed the FBR for holding up the notification despite an approval by the federal cabinet and the ECC.
In July, the FBR granted provisional release of textile machinery at the customs stage by taking guarantees from exporters.
Pakistan imports around $600 million worth of textile machinery a year, and the FBR hoped get a minimum Rs5 billion in revenue this fiscal year by not issuing the notification.
As a temporary arrangement, the FBR directed the customs authorities that textile machinery qualifying for concession of sales tax may be cleared provisionally by allowing zero rating on such imports.
In July, the FBR also restored 5% import duty and 5% sales tax on the import of cotton. The decision was taken despite the country facing a shortfall in production against the annual target. Pakistan has been a net importer of cotton since 1998, but the authorities continue to charge taxes under one pretext or the other.
The decision has been made to boost the confidence of domestic cotton growers during the upcoming sowing season, according to the Ministry of National Food Security and Research.
The duties were restored despite ginned cotton prices being significantly higher this time compared to last year. Against average prices of Rs6,500 per maund last year, price of ginned cotton was above Rs9,000, according to officials of the Ministry of Commerce. With the restoration of duties and taxes, the FBR is expected to generate an extra Rs10 billion in revenue.
Published in The Express Tribune, August 12th, 2018.
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