Mills reluctant to pay cotton cess

Levy is meant to promote R&D activities to support cotton production

ISLAMABAD:

Despite enjoying billions of rupees worth of subsidy on electricity and gas supply, the textile industry has failed to support efforts aimed at collecting cotton cess to promote research work.

The previous government of Pakistan Muslim LeagueNawaz (PML-N) had made it mandatory for textile manufacturers to pay cotton cess, which was a prerequisite for their registration and eligibility under various subsidy schemes.

However, the criteria were changed after the cotton commissioner was transferred to the Ministry of National Food Security and Research from the Ministry of Textile Industry.

Since then, the food ministry has continued to strive to collect cotton cess and even the textile ministry was requested to cooperate, but to no avail.

The low collection of cotton cess has badly hit research work, which has led to a historic decline in cotton harvest estimated at 7 million bales in the current season.

First, the cotton production fell sharply during the 2013-18 tenure of PML-N government, when the harvest shrank to 9 million bales. Now, the output has come down to 7 million bales - the lowest in several decades.

A major reason behind the decline was no major research in the area of cotton as most of the focus was on the textile sector, which got billions of rupees worth of subsidy, but was reluctant to contribute to research work.

As a result, Pakistan has become a net importer of cotton for the past few years due to poor quality of cotton produced in the country.

The issue came up for discussion in a recent meeting of the Economic Coordination Committee (ECC) of the cabinet.

The Ministry of National Food Security sought the allocation of funds for research as the industry was not willing to contribute cotton cess.

The ministry told the ECC that the Pakistan Central Cotton Committee (PCCC), established under the Cotton Cess Act 1923, was the apex research and development (R&D) organisation, which had three research institutes and seven research stations across the cotton belt.

To meet its financial needs, the PCCC collects cess on export and consumption of cotton through the FBR (Customs) and Directorate of Cotton Cess Management respectively. The directorate occasionally sends reminders or notices to defaulters.

However, the Act authorises the collection of outstanding dues under the Land Revenue Act through district collectors.

In the past, the notices had resulted in court cases, which the PCCC was defending at appropriate forums. Court cases have led a drastic fall in cess receipts since 2016.

After the 18th Constitutional Amendment, the PCCC had been placed under the administrative control of the Ministry of Textile Industry.

The Research and Development Analysis cell of the Ministry of Textile Industry had made the payment of cotton cess a prerequisite for the registration of textile mills and their eligibility under various subsidy schemes. The move triggered an increase in cess collection to a record high.

In March 2018, when the PCCC was transferred to the Ministry of National Food Security, the Textile Division removed the condition. The ECC, in a meeting on February 11, 2019, directed the commerce adviser to coordinate with the All Pakistan Textile Mills Association (Aptma) for the collection of cotton cess.

Later, the ECC gave the task to the Ministry of National Food Security, but all went in vain. PCCC has approved a budget of Rs588.871 million for financial year 2020-21.

However, during the Covid-19 pandemic, the cess recovery dropped drastically since March 2020 and the trend continued. Cess collection stood at Rs135.336 million from July 2020 to February 2021 against the estimated receipt of Rs588.871 million, causing a deficit of about Rs419 million.

The Ministry of National Food Security told the ECC that the low cess collection had badly impacted R&D activities of the PCCC.

Employees of the PCCC had not been given any pay raise for the last three years and no appointments or development work had been undertaken in the committee over the last six years.

Research activities, which had already been at minimum levels due to financial constraints, were slashed further with the drop in cess collection.

It was feared that if resources were not mobilised timely, the precious research material and work done would be destroyed, causing a significant loss to the nation.

Because of the loss of cess collection due to slower business activity in the midst of Covid19, the PCCC qualifies for support under the pandemic.

The Ministry of National Food Security requested the ECC to approve a grant of Rs419 million for the support of R&D activities of the PCCC in the current financial year out of the allocated funds for the ministry.

A representative of the Finance Division stated that they had no objection to the proposal of giving the technical supplementary grant. The ECC reviewed a summary and approved the grant.