Cotton purchase: FBR agrees to withdraw withholding tax

Ginners call off strike after coming to an agreement.

Shahbaz Rana August 24, 2011

ISLAMABAD: After days of dillydallying, the Federal Board of Revenue (FBR) on Tuesday agreed to withdraw the 3.5 per cent withholding tax levied at the stage of cotton purchase, prompting ginning factories to call off the strike.

An FBR official told The Express Tribune that the decision was taken after representatives of cotton growers and ginners held a meeting with the tax authorities. The FBR will issue the notification for the withdrawal of the withholding tax today (Wednesday).

According to sources, the Prime Minister Secretariat had earlier asked the FBR to withhold the notification. They said that the government took the decision to withdraw the tax on August 12, but it was delaying the notification due to various reasons.

Despite the notification, growers will still be required to submit certificates disclosing their names and national identity numbers while selling their commodity to ginners. Ginners will then submit these certificates to regional tax offices.

According to the earlier decision, ginners were supposed to deduct 3.5 per cent tax while purchasing cotton from growers. Ginners have now been allowed to make cash payments to growers instead of making payments through banks.

Ginning factories were on strike against the government’s decision of levying withholding tax and forcing them to make payments through banking channels.

Ginning factories will now end their strike and start buying cotton from growers and supplying it to mills.

However, the FBR official said that cotton traders would still be required to pay 3.5 per cent tax. He said that the middlemen would also be charged ten per cent withholding tax on cotton purchases.

The government has so far been unable to collect any tax from cotton traders, as no one has declared himself a “trader.”

The FBR also decided to give relief to ginning factories in maintaining record of cotton purchases. According to the new understanding, ginning factories will now be required to maintain record for one year only. Earlier, they were required to maintain record for five years. The FBR will issue a separate circular in this regard.

Meanwhile, a delegation of the Pakistan Banking Association (PBA) held a meeting with the FBR to resolve the outstanding issue of payments of the federal excise duty and sales tax. The FBR has asked banks and insurance companies to pay the federal excise duty while the Sindh Revenue Board (SRB) has asked banks to pay it sales tax.

The FBR asked the PBA to pay the federal excise duty until the issue was resolved between the two tax authorities.

Published in The Express Tribune, August 24th,  2011.


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