APTMA demands continuity of zero rate tax regimes for textile industry (Pakistan)

Acting Chairman All Pakistan Textile Mills Association (APTMA) Shahzad Ali Khan has urged continuity of zero rate tax regime for textile industry.

In a letter to the Standing Committee of National Assembly on Finance, he said the industry apprehends serious adverse implications of the withdrawal of exemption of zero-rating of the textile industry under the Reformed General Sales Tax (RGST).

Shahzad said 85 percent of textile produce is exported in one or the other form, with only 15 percent left for local consumption. Therefore, zero rating of the entire value chain from ginning to garmenting for the export and local supply is imperative to remain competitive in the international market, he added.

He said the petition is based on premise of peculiar fiber procurement processes of the spinning industry, causative liquidity crunch due to inadequate bank limits and unregistered sub-sectors of the textile value chain.

The Acting Chairman APTMA reminded that previous imposition of 15 percent sales tax on industry proved a failure and the government had no option but to zero rate the export-oriented industry after realizing that refunds were far in excess of collection of the sales tax.

He said the textile industry again fears a circular debt of Rs100 billion in the form of stuck up refunds with the withdrawal of tax exemption. According to him, unprecedented increase in cotton prices has already crippled textile industry. Therefore, it cannot sustain additional liquidity requirement of 15 percent under the RGST. Banks are reluctant to finance textile industry to procure swelling cotton prices and the SBP regulations do not allow financing of sales tax part, he added.

Shahzad also pointed out that obtaining adjustments/refunds against sales, as the spinning industry procures cotton in three months and consumes it during twelve months to manufacture and sell yarn to the weaving and knitting industry.

He added that textile spinning industry already complying with the requirement of filing returns under the existing regime and would remain so even under the RGST. However, being an important chain of textile exports, it would not yield enough revenue to the exchequer. Therefore, it would merely be an exercise of depositing sales tax to the government and running from pillar to post for recovery of refunds.

Acting Chairman APTMA said the local supply of textiles and articles thereof should be zero rated in RGST in line with the current Sales Tax Act 1990. Further, he said, domestic supply of all inputs and services used in textile industry should be zero rated to avoid refunds and flying invoices as 80 percent of textile products are being exported in one form or the other.