17pc sales tax to ruin domestic bulk industry: APTMA

VIAKhalid Mustafa
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ISLAMABAD: All Pakistan Textile Mills Association (APTMA) has warned the government of wiping out of domestic textile industry on account of imposition of 17 percent sales tax, arguing that the sales tax-free imports of raw material (yarn, cotton) through Bond, EOU and DTRE schemes for exports will inflict huge damage to survival of domestic and indirect exporters.

The country’s supreme textile exporting body in a letter on Tuesday to FBR Chairman Shabbar Zaidi called for withdrawal of 17 percent sales tax on cotton bales of Pakistan’s farmers as no one will buy the domestic cotton in the presence of sales tax-free imports of cotton and yarn that will result into massive loss to cotton growers and indirect exporters who thrive on domestic cotton and yarn as they will not purchase it with 17 percent sales tax and will be wiped out from the scene. However, the Indian industry which exports to Pakistan the yarn on duty free schemes will get the benefit and Pakistan’s domestic industry will die down.

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The APTMA letter available with The News while explaining the rationale to FBR chairman and its members argued that no exporter will buy from local supplier if he has to pay 17 percent sales tax and wait for many months later. It also explained that bulk of industry – indirect exporters – would have no business especially SME sector.

Vice Chairman of APTMA Asif Inam told The News that sales tax imposition will do nothing but destroy the bulk industry and bales of cotton growers completely. During the five years of PML-N era, the import of yarn and cotton from India increased tremendously from 1400 tons to 14000 tons per month under duty free schemes and it damaged the domestic bulk industry a lot. Though the current government has reduced the imports from India, but still these are at higher sides. Now the government has imposed 17 percent sales tax on domestic industry owing to which exporters will prefer to purchase the cheaper Indian yarn with zero duty.

Adviser to APTMA Mr Shahid Sattar confirmed to The News the development saying, “Yes, we have written a letter to FBR chairman and its main members informing them that without the level playing field in terms of sales tax, bulk domestic industry including SMEs and indirect exporters will get ruined and instead Indian industry will thrive at the cost of Pakistan domestic industry as India is dumping yarn into Pakistan through DTRE a scheme.” He said, “Yarns imports from India has been increasing at abnormally high rate and interestingly Indian yarn is allowed through Wagha but the Indian cotton is banned from Wagha and because of this flawed policy we are promoting Indian spinning industry.’’

He said that since the imposition of sales tax, all the processing plants (spinning and weaving industry) across the country are getting closed down and almost 2,00,000 spindles are non-operational which may scale up to closure of 10,00,000 spindles in next 4-5 days. So far thousands of workers have got unemployed and the unemployment is also feared to increase in the days to come as more industry is going to close down.

The imposition of sales tax would reduce the demand of local cotton which in the past 70 percent was exported after processing. This will also affect the demand of local cotton substantially creating hardships for farmers as all exporters would import the same under DTRE, EOU and Bond.

In the letter, APTMA also argued that exports would require huge imports which would defeat the purpose of reduced imports and worsen balance of payments position. “Effectively zero rating and promotion of Indian industry in competition to our domestic industry surely cannot be rationale,” it said. It also says input and output ratios to determine standard sales tax returns at the time of GD (Goods Dispatch) and MR (Marine Report) would not be possible as various companies would have used different levels of sales tax free inputs.

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If the DTRE, Bond and EOU is allowed to continue sales tax free then only the large industries in the market would flourish while the smaller medium enterprises (SMEs) or indirect exporters would be at unbridgeable cost disadvantage and creating another tier of refunds for indirect exporters (other than direct exports stage) would not only be administratively difficult but would also create space for inappropriate refunds. APTMA wants that all inputs whether local or imported be subject to the same rate of sales of tax.

(This news/article originally appeared in The News on July 11th, 2019)

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