ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has deferred a summary for partially withdrawing incentives to exports to overcome growing shortfall in tax revenues.
The Ministry of Finance requested the ECC that the government should restore 5% customs duty and 4% sales tax on import of cotton, according to sources in the commerce ministry. The summary had been moved to generate an extra Rs10 billion revenue; by charging total 9% duties and taxes on imported cotton. The industry is compelled to import cotton due to shortfall of the commodity in the domestic market.
On January 10 of this year, Prime Minister Nawaz Sharif had announced the textile package in an attempt to boost exports that have been declining for the last four years. Under the package, sales tax, customs duty on import of textile machinery and cotton has been abolished.
However, the government’s decision to partially withdraw these incentives within three months of giving the package indicates growing fiscal constraints.
For the current fiscal year 2016-17, the government had assigned Rs3.621 trillion tax collection target to the Federal Board of Revenue (FBR). However, from July through March this year, the FBR has sustained a shortfall of Rs168 billion, which it blames on changes in tax policies after the budget.
During the current year, cotton production stood at only 10.54 million bales – which was 25% less than 14.1 million target set for this fiscal year. There is a minimum of three million bales shortfall that the industry will have to meet by importing cotton. The industry needs imported cotton until the next crop arrives.
