Cotton purchase: Govt to scrap withholding tax

Rs105 billion revenues collected in July 2011, 36% more than last year.

Shahbaz Rana August 12, 2011


The government has decided to withdraw 3.5 per cent withholding tax levied on the cotton purchase from growers by ginners besides abolishing the condition of payments to growers through banking channels -- a move that will end the strike in the ginning sector.

The decision was taken during a meeting of the Tax Reforms Coordination Group held under the chairmanship of Finance Minister Dr Abdul Hafeez Sheikh.

The Federal Board of Revenue (FBR) will issue a formal note today for the approval of the finance minister.

FBR Member (Inland Revenue Service) Khawar Khursheed Butt said that under the new arrangement, cotton ginners would pay growers in cash instead of making payments through a bank.

He said that cotton growers faced documentation problems under the previous arrangement.

Butt said that growers would not be liable to 3.5 per cent withholding tax, as ginners were insisting to deduct this amount from cotton payments.

However, he said that ginners would still deduct ten per cent withholding tax on the amount the middlemen took as their commission.

Ginning factories have been on strike against the government’s policy to charge withholding tax and make ginners pay through banking channels. Butt insisted that the move would not affect the government’s drive to broaden the tax base as the agriculture sector was exempted from income tax.

FBR Chairman Salman Siddique also presented during the meeting a strategic plan for revenue collection in the current fiscal year.

The chairman said that the authorities had collected Rs105 billion in taxes in July 2011, which was 36 per cent higher than the amount collected in last year’s corresponding period.

Published in The Express Tribune, August 13th, 2011.

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