960410

APTMA budget proposals

Demand for separate

ministry of textiles

RECORDER REPORT

KARACHI: The oft-repeated demand for setting-up a separate textile ministry, independent of the Ministries of Commerce and Industries, has once again been put forward by the All Pakistan Textile Mills Association through its budget proposals drawn up for the consideration of the federal government.

In its proposals, finalised and despatched to the federal government on Wednesday, APTMA has emphasized the need to maintain stability in the supply and prices of raw materials, i.e. cotton and man-made fibre is very essential for the economic viability of the textile industry.

Arguing further, the document says that in the light of New International Trade Environment (NITE) the government should announced a prudent textile policy and avoid short-term changes which were usually detrimental to one or the other sector.

"In this scenario it is essential that the government should form a separate textile ministry. In the forthcoming federal budget, the government is requested to make the provision for the establishment of a separate textile ministry".

Other proposals are as follows:

EXCISE DUTY ON YARN:

The current rate of excise duty on cotton and blended yarn is Rs 2.50 per kg. In view of the position that 60 percent to 70 percent of the yarn produced is consumed by the down-stream ancillary sector for manufactures of textile items for export and the excise so paid on this quantity is refunded. The net revenue collection from this source is very little

We would, therefore, suggest that Excise duty on cotton and blended yarn be abolished.

DUTY ON IMPORT OF MAN-MADE FIBRES:

Import tariff on man-made fibres, under the present circumstances, is high. It has provided undue protection to the local polyester staple fibre manufacturing units who have contrived to maintain a high price for the locally produced polyester fibre and make fabulous profits at the cost of local spinning industry.

Pakistan fortunately has the largest quota limit for polyester fabrics in European market and has sufficient spinning capacity.

We, therefore, are of the opinion that the tariff structure on man-made fibre needs to be rationalised. APTMA suggests that:-

i) Import duty on polyester staple fibre be abolished or reduced to 10 percent.

ii) Import duty on viscose and acrylic fibre be abolished. These are not produced locally and entire requirement is met from imports.

III) NO DUTY NO DRAWBACK REGIME:

The procedure and modalities of duty drawback has been cumbersome and time consuming. In spite of the best efforts, the repayment procedure has not improved. Exporters are thus put to great hardship due to delay in payment and blocking the working capital for months. As about 70 percent to 80 percent of the textile items produced are exported and the duty and taxes involved in the import of raw materials are rebated, it had been agreed in principle to introduce a system of no duty and no rebate procedure. In fact a committee in the Ministry of Commerce had been consisted to examine this proposal. We would suggest that this study be finalised at the earliest.

IMPORT OF POLYESTER STAPLE FIBRE UNDER BOND:

Under SRO No. 68 (I)/70 and No. 69(I)/70 dated 17.04.1970 manufacturers of exportable items are entitled to import raw materials for manufacture of exportable items free of duty.

DRAW-BACK ON EXPORTS:

Fixation of drawback rates and refund thereof has all through been a thorny problem. Rates are revised without taking the respective trade organisation into consultation. On repeated representations, the government has allowed payment of drawback payments through banks. We regret that to date this matter has not been solved and a workable procedure has not been devised by the banks and the CBR. We would suggest that:-

i) Drawback rates should be revised immediately after every change in the import tariff.

ii) Drawback rates should be fixed and/or revised in consultation with the respective trade organisations.

iii) The decision to pay the drawback amount through banks should be implemented.

REGULATORY DUTY ON IMPORTS:

The regulatory duty according to customs interpretation, is not custom duty and is not eligible for refund as drawback on exports. Recently in October 1995, Regulatory duty on all imports have been levied at 10 percent and for duty free imports at 5 percent. Import of cotton is subject to 5 percent regulatory duty. It is suggested that:-

i) Regulatory duty of 5 percent on import of cotton should be withdrawn immediately so that spinners intending to import, may be able to negotiate and purchase the quantity required.

ii) If for any reason, it is not withdrawn, it should be refunded as drawback on exports of items produced therefrom.

RURAL DEVELOPMENT AND TAX CONCESSIONS:

Tax concessions announced for installation of industries in rural and undeveloped areas are being withdrawn. To withdraw this benefit is serious injustice. It will stop development of the rural and undeveloped areas.

B.M.R SCHEME:

This scheme should be re-introduced. Instead of scrapping the entire units and set up a new one, this scheme has helped to keep the units balanced and modernised.

SHUTTLELESS WEAVING SECTOR:

There are over 13,000 such looms installed. Due to stiff competition from other textile producing countries and high cost of inputs at home, this sector which is highly capital intensive, has run into trouble and is on the verge of getting sick. We suggest the following remedial measures:

i) Repayment and debt servicing charges on long-term loans should be suspended for a period of two to three years.

ii) Bank credit limit on the lines that has been made for the spinning units for purchase of cotton should be evolved for the purchase of yarn.

iii) Rationalisation of quota policy has to be made without loss of time. The Quota Policy should be so framed that new industries and producing high value added materials, is given its due share.

iv) Re-structuring and re-scheduling of long-term loans including a longer amortisation period in view of extremely high capital cost involved.

TAXATION PROPOSALS INCOME TAX

i) Tax on inter-corporate dividend declared by unquoted companies be withdrawn. This will encourage investment.

ii) Deduction of withholding tax on dividends be abolished.

iii) Turnover tax should be abolished. At least this should not be recovered from units running into loss and those which are eligible for tax holiday concessions.

iv) Deduction of tax at source under section 50 of Income Tax Ordinance from contractors/suppliers/agents etc. should be withdrawn.

v) Deduction of advance tax under section 50-4 (a) on brokerage/commission be withdrawn. This is not implementable as the brokers/agents remit the amount after deducting their commission.

vi) Tax Credit under Section 107 of Income Tax Ordinance which has been withdrawn should be restored.

vii) Rate of initial depreciation which has been reduced to 25 percent should be restored to 45 percent for a regular and steady investment.

viii) Statutory exemption of Rs 40,000 to salaried persons need to be increased due to inflation and rise in the cost of living. It should be fixed at Rs 60,000.

ix) Under a new sub-section 18 (a) private loans/advances if not paid within a period of 5 years, is to be treated as income of the assessee. This provision should be withdrawn as repayment of loans/advances are regulated under mutually agreed terms.

x) Operation of Section 50 (2A) relating to deduction of withholding tax under various sub-section on inter-companies loans be suspended. It is the only easily available mode of financing for immediate cash requirements.

xi) INCOME FROM AGRICULTURE needs to be taxed. Agriculture has now attained a position of commercial enterprises. And in fact now major crops are cash crops and traded on a commercial scale. We, therefore, strongly suggest that agriculture income be taxed.

TAXATION PROPOSALS - SALES TAX:

i) RATE OF SALES TAX:

From reports, both from the government and trade circles, it is now certain that general sales tax net is being widened. Even essential goods and food items are likely to be included in the list of taxable items. We would recommend that the rate of sales tax be reduced to and fixed at 10 percent.

ii) COTTON WASTE:

Sales tax levy on soft cotton waste i.e., cardfly, cardwaste, stripping from carding cylinders, combing waste had been classified under P.C.T. 52.03 and were exempt from Sales Tax. Recently these items have now been shifted to P.C.T. 52.02 and has been subjected to Sales Tax of 15 percent.

It is suggested that cotton waste, all sorts, should be classified under P.C.T. 52.03 and be exempt from Sales Tax.

WEALTH TAX:

Wealth Tax should be abolished. The recovery is very little and the cost of collection is prohibitive. In case it is not abolished, it is suggested that:-

i) The exemption limit should be increased from Rs 1.0 million to at least Rs 2.0 million.

ii) The statutory limit for furnishing wealth tax returns be also increased from Rs 100,000 to Rs 250,000.

iii) Assets gifted by parents to minors is clubbed for assessment of Wealth Tax. This tantamount to abolition of gift tax. This should be abolished.

iv) Assessment of Wealth Tax on Association of persons or family business instead of individual partners should be discontinued.

RECOMMENDATION FOR INCOME TAX:

Section 12(18) and Section 12(18-A) are counter productive on the industry, both of above Sections be withdrawn.

Section 66-A: The Income Tax Department official are indiscriminately misusing the above provision to their benefit. Some check balances and proper amendments must be made.

PROVISION OF SECTION 12(12):

The provision of Section 12(12) should not be applicable in the case of lease assets, in the case lease assets are acquired by the leasee.

PRESHIPMENT INSPECTION:

Pre-shipment inspection as per the directives of the Prime Minister in Export Promotion Board meeting held in January 1996 that CRF should be final.

PLANT & MACHINERY NOT BEING

MANUFACTURED LOCALLY:

Ring frames are not manufactured locally, therefore the same should be treated at par with other machinery in respect of levy of import duties.

IMPORT DUTY ON SPARE

PARTS USED BY TEXTILE MILLS:

The existing duty rate of 40 percent of import duty and 15 percent sales tax imposed in 1995-96 has generated smuggling and counterfet parts. In order to encourage spinning, hosiery, knitting needles, sinkers weaving parts and knitting parts should be allowed to be imported free of duty.

KNITTED GARMENT MACHINERY:

The import duty of 40 percent and 15 percent sales tax has been imposed with regulatory duty of 10 percent on stitching machinery. The imposition of duty has reduced the import of garment machinery which is also labour intensive. It is recommended that the import duty of 40 percent and 15 percent sales tax on knitted garment machinery be withdrawn.

POWER TARIFF AND MARK-UP:

Abnormal increase in power tariff, mark-up rates, wages have marred competitive of the industry. No further increases be announced in the power tariff and other inputs of textile industry.

POLY VINYL ALCOHOL:

Import duty and other levies on PVA (Poly Vinyl Alcohol) be abolished as it is used for sizing of warp yarn for the Shuttleless Looms Technology for improving looms efficiency and is not being manufactured locally.

GENERAL SALES TAX:

Imposition of General Sales Tax (GST) on items/materials for the manufacturing of textiles from the cotton ginning to garment manufacturing would not result in large revenues to the exchequer. It is, therefore, submitted that the levy of GST in the case of textile industry should be introduced at consumption point.