Taxation

Import of cotton: re-imposition of duty, ST deferred for one month

The Economic Coordination Committee (ECC) of the Cabinet has deferred re-imposition of custom duty and sales tax on import of cotton for one month, well-informed sources told Business Recorder. Ministry of National Food Security & Research stated that cotton produced in Pakistan is largely consumed by 450 textile units across the country which contributes to export earnings of the country.

Area under cotton in Pakistan has witnessed a decline over last few years mainly because of turnover advantage and support price of other commodities. Pakistan produces around 13 million bales of cotton and imports about one million bales to meet the gap between consumption and production. Around 1-1.5 million bales Extra Long Staple (ELS) cotton per annum is also imported at any production level, as this quality is not produced in the country.

The ECC was informed on June 26, 2019 that the government withdrew customs duty, additional custom duty and sales tax on the import of cotton on January 31, 2019 which expired on June 30, 2019.

Resultantly, 1,802,524 bales were imported during July 2018 to April 2019 and local cotton prices went down from Rs 9410 per maund in November 2018 to Rs 9241 per maund in March 2019.
Cotton production in 2018-19 (9.98 million bales) has witnessed 16 percent decrease relative to the past year (11.98 million bales in 2017-18). However, for the year 2019-20, the government has fixed an ambitious target. In this backdrop, it is apprehended that if import of cotton continues to be facilitated as such, it might create an imbalance in cotton stocks in the country.

This in turn, is anticipated to exert a downward pressure on cotton-prices in the beginning of the cotton season. It may be added that the sowing of new crop has also been affected due to accelerated imports.

National Assembly Special Committee on Agriculture headed by Speaker National Assembly, in its meeting held on April 22, 2019, cognizant of this issue endorsed the imposition of duty on import of cotton prior to cotton sowing. Moreover, National Assembly has also passed a resolution on April 30, 2019 that “Federal government should, without any delay restore the regulatory customs duty on cotton import to prevent the massive and set minimum support price for cotton to protect the local farmers and encourage cotton cultivation in the country”.

Ministry of National Food Security & Research further informed that export oriented units would not be affected due to imposition of duty as such units have provision of Duty and Taxes Resumption (DTRE) scheme, to claim the duty on imported raw material. In reality, duty free import is only affecting local cotton prices and is not producing any benefit to the textile exports.It was suggested that in order to increase the cotton cultivated area, the duty and sales tax may be re-imposed on January 15, 2019 as this would help to stabilize the cotton prices in the country and will encourage farmers to improve management and investment to ensure a raise in the overall yield.

Ministry of National Food Security & Research proposed that custom duty, additional custom duty and sales tax withdrawn on January 30, 2019 @ 3 per cent, 1 per cent and 5 per cent may be re-imposed on the import of cotton with effect from July 1, 2019.

During the ensuring discussion, it was agreed that the custom duty/sales tax may be re-imposed on the import of cotton in the public interest. However, due to different harvesting seasons of the crop in Sindh and Punjab, the customs duty/sales tax may be re-imposed after consultation with all concerned.

After detailed discussion, it was decided that the Ministry of National Food Security & Research should re-submit the case after one month.

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