200 boxes stuck at port: Aptma to observe 2-day closure a week
By Nasir Jamal
Saturday, 15 May, 2010
LAHORE, May 14: The All Pakistan Textile Mills Association (Aptma) has announced a two-day closure of mills every week starting from Tuesday to protest against imposition of 15 per cent regulatory duty on cotton yarn exports. The customs has stopped yarn shipments from Karachi without payment of duty.
"Over 200 containers are lying at the Karachi Port, which can neither be exported nor brought back," Gohar Ejaz, chairman of Aptma-Punjab told a media briefing on Friday.
He said foreign buyers had refused to absorb the burden and increase their rates," he said. The country would suffer a loss of $150 million a month in exports due to imposition of duty on yarn exports.
He said the spinners would observe strike every two days a week in order to curtail yarn production rendered surplus due to the "irrational" decision of the ministry of textile at the behest of a few vested interest in the ancillary industry.
The decision would create a monthly yarn surplus of 50,000 tons with no buyers in the local market apart from loss of jobs, he added.
Acting Aptma chairman Mohammad Akber claimed that the spinners exporting on thin margins of 4-5 per cent were not in a position to bear Rs10 billion monthly burden of the regulatory duty on their exports.
"With local cotton totally consumed a large number of mills have already closed down, while the others are using imported cotton and the yarn produced cannot be sold at subsidised rates," he said.
At the briefing growers, ginners and some value-added exporters also voiced support for the spinners' demand to withdraw regulatory duty and quantitative restrictions on yarn exports at the briefing.
Farooq Baja of Farmers Associates of Pakistan said the duty on yarn export bode ill for cotton growers. He said the spinners buy lint worth Rs250 billion annually from the farmers. If they stop purchases the phuti (raw cotton) rates will drop from Rs3,000 to Rs2,000 and will cause a loss of Rs70 billion.
A leading cotton farmer from Vehari, Bilal Ismail, said the duty was imposed under street pressure without evaluating its consequences and implications for the entire cotton chain. He warned that the farmers would burn their crop in case the spinning industry was closed down as a result of the 'illogical' decision of the ministry.
Shahzad Saleem of Nishat Chunian, a major exporter of value-added textiles said that the increase in yarn rates was regularly compensated by foreign buyers. "We were asking for fourth increase in rates during last five months," he claimed and regretted that the imposition of duty has provided foreign buyers of garments and home textiles to refuse to raise their prices.
The spinners said the decision to levy regulatory duty meant a transfer of subsidy of Rs10 billion from the spinning industry to the ancillary industry. They said that 60 per cent value-added textile industry is represented by Aptma, which has never asked for such an irrational measure.
The ginners also warned that the Pakistan Cotton Ginners Association would shut down operations across the country in case the government failed to withdraw the decision immediately.
Cotton growers, ginners oppose 15 percent regulatory duty on yarn export
RECORDER REPORT
LAHORE (May 15 2010): Cotton growers and ginners have joined All Pakistan Textile Mills Association (Aptma) in protest against the imposition of 15 percent Regulatory Duty on export of yarn. In a press conference held at the Aptma Punjab office, both the Farmers Associate of Pakistan (FAP) and Pakistan Cotton Ginners Association (PCGA) leadership vociferously backed the Aptma in rejecting outright the Ministry of Textile Industry's decision of imposing 15 percent Regulatory Duty on export of yarn.
They termed the Ministry of Textile Industry's decision as a transfer-subsidy worth Rs 10 billion from spinning industry to so-called ancillary industry. They added that 60 percent of value-added textile industry is represented by Aptma, which has never asked the Ministry of Textile Industry to take such an irrational measure. Both Acting Chairman Aptma Seth Akbar and Chairman Aptma Punjab, Gohar Ejaz said that the Aptma members have unanimously decided to observe strike twice a week in order to curtail production of yarn rendered surplus due to the irrational decision of the Ministry of Textile Industry.
They termed May 13 as a Black Day in the history of textile industry of Pakistan when the Ministry of Textile Industry imposed 15 percent regulatory duty, resulting into a surplus of 50,000 tonnes of yarn per month with no buyers in the local market. It means a production value loss of Rs 3 billion approximately besides heavy workforce lay-off.
Moreover, said Gohar, this restriction on export has led to foreign exchange loss of $150 million per month. This attitude of Ministry of Textile Industry has forced textile spinning mills to cease production for two days a week, he added. Director FAP, Farooq Bajwa said the imposition of 15 percent regulatory duty has panicked the farmers' community at large. He termed the decision as a negation to the 1994 Free Trade Policy of Benazir Bhutto for the cotton growers.
He lamented that this ideal policy was scrapped by a single person sitting in the Ministry of Textile Industry. He said this decision actually showed hostility towards the cotton growers when new cotton crop is set to reach the market within next 15 days. "The farmers would burn their cotton crop if the spinning industry closes down," the Director FAP warned.
The PCGA representative warned that the PCGA would close down operations across the country if the government failed to withdraw the decision immediately. The leadership of Aptma, FAP and PCGA urged President Zardari and Prime Minister Gilani to intervene immediately to save to the textile industry.
Copyright Business Recorder, 2010
| APTMA plans two-day closure, demands duty-free yarn exports |
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| Saturday, May 15, 2010
By Mansoor Ahmad
LAHORE: The All Pakistan Textile Mills Association (APTMA) has announced a two-day closure of mills from Tuesday to protest against the imposition of a 15 per cent regulatory duty on yarn exports, calling it "killing for spinners and exploitative for farmers."
"Spinners exporting on thin margins of 4-5 per cent are not in a position to bear Rs10 billion monthly burden of the regulatory duty on yarn," said Acting Chairman APTMA Seth Mohammad Akber, while briefing the media. "With the local cotton totally consumed, a large number of mills have already closed down, while the operating mills are using imported cotton and the yarn thus produced cannot be sold at subsidized rates."
APTMA Punjab Chairman Ejaz Gohar said the export containers of yarn have been stopped at the port. "Officials demand 15 per cent export duty that spinners are unable to pay and the foreign buyers have refused to increase the rates."
"More than 200 containers are lying at the port, which can neither be exported nor taken back," he said. Containers, which have not reached the port, have been brought back to mills, creating congestion at production facilities, he added.
Majority of spinners wanted to go on an indefinite closure of mills, but APTMA office bearers persuaded them to for a two-day closure that would probably force the government to undo its blunder, he added.
"The country will suffer a loss of $1 billion in monthly exports if the regulatory duty is not withdrawn and spinners forced to stop production," Gohar said.
Seth Akber said the regulatory duty was a conspiracy against the country as all yarn orders would now be diverted towards India. He said cotton farmers have been told to be prepared for the worst as local spinners might not be in a position to buy the coming cotton crop from them.
Farooq Baja representing Farmers Associate Pakistan and Pakistan Cotton Forum said that the duty of yarn export was not a good omen for the cotton farmers. He said spinners buy lint worth Rs250 billion annually from the farmers. "They are our main buyer. If spinners come under pressure, the phuti (raw cotton) rates would drop from Rs3000 to Rs2000 and would cause Rs70 billion loss to farmers."
A leading cotton farmer from Vehari, Bilal Ismail said the regulatory duty was imposed under pressure without going into the logical evaluation of the problem. This, he said, remains unfair and would have grave implications for farmers.
Shahzad Saleem of Nishat Chunian said his group exports value-added textiles worth $70 million a year.
He said the increase in yarn rates were regularly compensated by foreign buyers. "We were asking for fourth increase in rates in the last five month," he said, regretting that after imposition of regulatory duty on yarn foreign buyers have refused to increase rates and have instead asked for reduction in price. He said the value-added sector would be the ultimate victim of regulatory duty. |
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RD on yarn export rejected
Published: May 15, 2010
LAHORE - All Pakistan Textile Mills Association (APTMA), Farmers Associate of Pakistan (FAP) and Pakistan Cotton Ginners Association (PCGA) on Friday rejected the Ministry of Textile Industry decision of imposing 15pc Regulatory Duty on the exports of yarn and announced two days weekly strike in protest.
Leaders from APTMA, FAP and PCGA while addressing a press conference here at APTMA Punjab office termed the Ministry of Textile Industry decision as a transfer-subsidy worth Rs10 billion from spinning industry to so-called ancillary industry.
They claimed that 60 per cent of value-added textile industry is represented by APTMA, which has never asked for such an irrational measure from the Ministry of Textile Industry.
Chairman APTMA Punjab Gohar Ejaz further said that APTMA members have unanimously decided to observe two days weekly strike in order to curtail production of yarn rendered surplus due to the irrational decision of the Ministry of Textile Industry on behest of a few vested interest elements from the ancillary industry.
He also termed May 13 as a Black Day in the history of textile industry of Pakistan when the Ministry imposed 15 per cent RD, resulting into a surplus of 50,000 tones of yarn per month with no buyers in the local market.
It could lead to a production value loss of Rs3 billion approximately besides heavy workforce lay-off, he added.
He also said that this restriction on export has led to foreign exchange loss of $150 million per month. This lax attitude of Ministry of Textile Industry has forced textile- spinning mills to cease production for two days a week, he added.
Director FAP Farooq Bajwa said the imposition of 15 per cent RD has panicked the farmers' community at large. He termed the decision as a negation to the 1994 Free Trade Policy for the cotton growers.
He also alleged that this ideal policy was scrapped by a single person sitting in the Ministry of Textile Industry. He said that any such decision was actually an exhibition of hostility towards the cotton growers when new cotton crop is set to reach the market after 15 days.
The PCGA representative warned that the PCGA would close down operations across the country in case the government failed to withdraw the decision immediately. The leadership of APTMA, FAP and PCGA urged President Asif Ali Zardari and Prime Minister Yusuf Raza Gilani to intervene immediately and avoid colossal losses to the textile industry, cotton growers and ginners due to the adamant approach of Ministry of Textile Industry.
Trading gets slow on cotton market
By Our Staff Reporter
Saturday, 15 May, 2010
KARACHI, May 14: Trading on the cotton market on Friday remained sluggish as spinners and mills were still in the process of evaluating the negative impact of 15 per cent regulatory duty on their export commitments under the forward deals.
The big question being debated in the textile sector is whether or not its foreign trading partners would share with them the financial cost of the levy or renew export contracts signed in March adding its additional burden on the fresh shipments, analysts said.
However, for the time being there is a relative calm on the both the fronts as spinners and mills are said to be in the process of evolving a united stand on the issue and may came out with some other alternatives to maintain the outflow of textile exports, they added.
Meanwhile, some of the ginners, who were holding odd lots of lint to sell them at further higher level, were in two minds and those, who are well aware of the negative impact of the current crisis in the textile sector, are now sellers at the lower levels.
An idea of panic among the ginners about the revival of mill demand for the near-term may well be had from the fact that a ginner from Mian Channu sold a lot of 400 bales at Rs6,040 as against the ruling price of Rs6,700 per maund.
But official spot rates did not show any change and remained pegged at the previous level of Rs6,700 per maund.
New York cotton futures on the other hand showed modest rise of 0.39 and 0.47 cents per lb at 80.76 and 77.14 cents for both the ruling July and the new crop October settlements, respectively.
Economy to grow by 4.3 percent in fiscal year 2010
AHMED MUKHTAR
ISLAMABAD (May 15 2010): Pakistan's economy has shown more resilience than expected and is likely to grow by 4.3 percent in the current fiscal, says an official document. GDP was earlier targeted at 3.3 percent for 2009-10. "Pakistan's GDP growth in 2009-10 will be around 4.3 percent because of rebound in services sector plus a recovery in manufacturing sector," says a document prepared for the National Accounts Committee meeting.
Manufacturing saw a visible recovery when its large-scale manufacturing (LSM) sector grew by 4.36 percent positive than minus 7.7 percent, making a positive change of almost 21 percent for the current year despite an acute energy crisis in the country. Had there been lesser shortage of electricity economic growth would have reached near 5 percent, says an official.
Pakistan is now near an opportunity to turn the tables by maintaining this growth trajectory to achieve about 5 percent growth rate which can cause a significant dent in poverty in the next two years, says an official who would be participating in the National Accounts Committee meeting.
Agriculture sector would be a poor performer at 2.2 percent against an unrealistic target of 3.8 percent for 2009-10 and against a bigger base of 4.7 percent of last year. Pakistan's agriculture sector hardly crossed 5 percent in its over 60 years' history.
Services sector came to the rescue this year at 6.59 percent against a target of 3.9 percent and almost similar performance of 3.6 percent last year. Overall growth in manufacturing sector is at 3.54 percent against a target of 1.8 percent and previous year's negative performance of 3.6 percent.
Copyright Business Recorder, 2010
400,000 new taxpayers to be registered
RECORDER REPORT
ISLAMABAD (May 15 2010): A total of 400,000 new taxpayers would be registered with the income tax department on the basis of withholding tax data obtained from banks and income from contracts/services and property during 2009-10. The FBR has unearthed these 400,000 potential taxpayers during current fiscal year through analysis of withholding statements in four major areas-withholding tax deductions from salary; income from property; contracts/services; and deductions made by banks.
Sources told Business Recorder here on Friday that the FBR has dispatched the information to the Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) for bringing 400,000 persons into the tax net. The data of new taxpayers has been bifurcated in view of jurisdiction of FBR Members Domestic Operations (North/South) for enforcement in the field offices.
The FBR has conducted analysis of withholding statements filed under section 149 (salary), section 155 (income from property), section 153 (income from contracts and services) and section 149, 155 and section 231A pertaining to deductions made by banks.
As a result of analysis of withholding statements, around 400,000 new taxpayers have been detected along with a short-collection of over Rs 1 billion during 2009-2010. There is a potential of over and above Rs 2 billion after imposition of penalty and additional tax in cases of short deduction of withholding tax.
The analysis of withholding tax statements showed that National Tax Numbers (NTNs) have been issued to 140,538 persons in cases where National and Database Registration Authority (Nadra) has verified the computerised national identity card numbers (CNICs). The NTNs have not been issued in 158,898 cases where Nadra has verified the CNICs. The FBR has also detected 98,883 cases of invalid CNICs which have not been matched with the Nadra database.
Sources said that the recent awareness campaign had managed to register 23,506 new income tax return filers including 121,260 business returns and 2,246 salary returns/statements before last date of return filing. These 23,506 return filers have been brought on the tax roll. Thus, the cumulative effects of the taxpayer education/campaign and analysis of withholding statements has increased the taxpayer population by over half a million new taxpayers.
The analysis of annual withholding tax statements under section 149 (salary) of the Income Tax Ordinance 2001 showed that 101,826 cases mentioned in the statements were verified from the Nadra. It has been found that the Nadra has verified the CNICs of 101,826 cases, but the same were not registered with the tax department. The FBR has issued NTNs in 63,873 cases (salary), leaving a balance of 37,952 cases where NTNs would be issued by the field formations.
Within the category of salary under section 149, the withholding agents made short deduction of Rs 302 million and showed excess deduction of Rs 71 million. Whereas the short deduction was the difference between the tax payable and the tax paid, the excess deduction was apparently due to the reason that withholding agents deposited tax, but either did not file WHT statements or the data was incorrectly filled in the withholding tax statements. After proper enforcement of withholding statements, the excess deduction would be eliminated. Instead it may result in the short-deduction after the statements are analysed from the prospective of the true tax liability, sources added.
Copyright Business Recorder, 2010
Provinces mandated to bring agriculture, real estate into tax net
SOHAIL SARFRAZ
ISLAMABAD (May 15 2010): The government has notified that natural gas price will be raised by Rs 10/mmbtu from July 1, 2010 with the increase in rate of federal excise duty (FED) as per decision of the 7th National Finance Commission Award. This has been specified in the Presidential Order No 5 issued by the Ministry of Law, Justice and Parliamentary Affairs, issued here on Friday.
As per the Presidential Order, provinces would initiate steps to effectively tax the agriculture and real estate sectors during the period 2010-11 to 2014-15. The revised horizontal revenue-sharing formula for revenue sharing between the provinces on multiple indicators and general sales tax on services as provincial right has also been incorporated in the Presidential Order No 5.
The Ministry of Law, Justice and Parliamentary Affairs has issued a revised 'Distribution of Revenues and Grants-in-Aid Order, 2010' for implementation of the 7th National Finance Commission Award, to be enforced from July 1, 2010. New amendments included in the revised 'Distribution of Revenues and Grants-in-Aid Order, 2010' also contain that the National Finance Commission also recommended increase in rate of federal excise duty on natural gas to Rs 10 per mmbtu. "Federal Government may initiate necessary legislation accordingly," the Presidential Order No 5 said.
Taking into account the reservations of the Sindh province, another landmark decision that has been incorporated in the 'revised' Distribution of Revenues and Grants-in-Aid Order, 2010 is that NFC recognised that sales tax on services is a provincial subject under the constitution of the Islamic Republic of Pakistan, and may be collected by respective provinces, if they so desire.
Responding to another issue raised by the Province of Sindh, the President of Pakistan has also incorporated the province-wise ratios in federal revenues based on multiple indicators formula.
According to the multiple indicators formula, the revenue-sharing between the provinces would be made accordingly: 82 percent on the basis of population, 10.3 percent on the basis of poverty and backwardness, 5 percent on the basis of revenue collection and generation, and 2.7 percent would be on the basis of inverse population density.
Another addition made in the Presidential Order stated that the NFC recommended that federal and provincial governments should streamline their tax collection systems by reducing leakages and increase in their revenues through efforts to improve their taxation in order to achieve 15 percent tax-to-GDP ratio by the terminal year 2014-15. Provinces would initiate steps to effectively tax the agriculture and real estate sectors. Federal government and provincial governments may take necessary administrative and legislative steps accordingly.
Federal and provincial governments would develop and enforce for maintaining fiscal discipline at the federal and provincial levels through legislative and administrative measures. Federal government may assist the provinces through specific grants in times of unforeseen calamities.
It is worth mentioning that earlier summary sent by the Ministry of Finance for Presidential assent had not included the sales tax on services as provincial right and revenue sharing formula based on multiple indicators. Sindh province had strongly agitated this move of the Ministry of Finance and strongly pleaded its case before the President and the Prime Minister of Pakistan for ratification in the Presidential Order that was issued to notify the NFC decisions. Later, President had signed the above-mentioned amendments to remove the ambiguities in the NFC implementation order.
Copyright Business Recorder, 2010
VAT: One step forward and two steps back? - II
MUHAMMAD SHAHID BAIG
ARTICLE (May 15 2010): The Chairman, Revenue Advisory Council, Dr Hafeez Pasha, has highlighted the importance of an integrated VAT at the level of provinces. He emphasised that there would be a major breakdown in the national integration of the VAT plan in case the Sindh government insisted on collecting VAT on services.
A uniform collection mechanism is needed for all provinces for implementation of an integrated VAT in all provinces. The Finance Ministry is trying to convince the Sindh government to allow the federation to collect the VAT on services till such time the provincial government is able to develop infrastructure and enough capacity to effectively collect the levy on services.
The Prime Minister has also constituted a committee, comprising of Advisor to Prime Minister on Finance, Secretary Finance and four provincial chief secretaries. If Sindh or other provinces declined to implement the VAT, then it would not be possible to invoke integrated VAT and a major portion of the Federal Draft Bill will be required to be modified/amended.
As per present Sales Tax Act, 1990, Section 13 deals with exemptions. As per 6th Schedule, there are 71 Entries in Table I and 11 Entries of Exemption are contained in Table II. There are about 30 SROs of Exemptions.
In the proposed draft law, Section 11 provides for certain exemptions and in the 1st Schedule, 14 entries of exemption have been given like wheat, wheat flour, unprocessed peas, ice and water, table/iodised) salt, books, newspapers, Holy Qura'n, ambulances, fire fighting trucks, artificial parts of the body, infra ocular lenses and glucose testing equipment etc.
The FBR has been examining a proposal to levy lower rate of the VAT on food items and essential commodities where exemptions would be withdrawn under the 6th Schedule from 2010-11. In this way, the inflationary impact could have been avoided by imposing reduced rate of the VAT on basic consumer items and food commodities.
There was a news that the FBR may propose 5-6% VAT on supply of consumer items sold in Pakistan on which presently sales tax is charged on the basis of printed sale price, eg fruit juices, vegetable juices, ice cream, aerated water or beverages, syrups and squashes, cigarettes, toilet soap, detergents, shampoos, tooth paste, shaving cream, perfumery and cosmetics, tea, powder drinks, milky drinks, toilet paper and tissue paper, spices, sold in retail packing, bearing brand names and trade marks and shoe polish and shaving cream.
However, the final decision would be taken in view of analysing the revenue implications by the Revenue Advisory Council and the FBR. In the EU countries, supply of food items, medical and educational services and materials are exempt from the VAT. They have not specified items, but have given blanket exemption on all such food, health and educational services and material. In fact, all activities relating to day-to-day life, needed goods and those, which are required for the Socio-Economic development of the society are exempt from the VAT. In all these 27 countries, tax-to-GDP ratio is higher than 20%.
In the UK, food of all kinds used for human consumption, including products eaten as part of a meal or as snacks and products like flour are exempt. The food items for human consumption are not only exempt but entitled to input tax credit. Likewise, all unprocessed foodstuffs, such as raw meat and fish, vegetable and fruits, cereals, nuts and pulses etc are zero-rated, so almost all the agricultural Products are exempt from the VAT and entitled to tax credit paid on any goods and services used in their Production.
The exemptions available to farm products are world-over just to attract investment in this core activity of life. The GST in Australia is proving a very smooth growth engine for the Economy. Basic food, education courses, medical, health and care services, medicines, exports, childcare, religious services, charitable activities etc are exempt.
Australia has not only exempted agri products, food items and socio-economic services, but allows refund or input credit adjustment to the suppliers. This, in return, keeps them cost free of any taxes hidden or otherwise. In one decade, since the GST was introduced in Australia, it has become a success story.
There is no VAT in the US. However, in the US federating units, there is unadjustable GST. In California (largest state), grocery stores, un-prepared food items are not taxed. All other food items, eg fruits and vegetables are exempt from sales tax. The US states rely upon GST as internal revenue, ie with the federal government. For this reason, the states are continuing with non-adjustable GST instead of adopting the VAT. Despite such heavy reliance on GST, the list of exemptions is not different from European Union, UK and Australia.
Almost all food items, medicines, supplies to federal government, educational institutions are exempt from GST. The list of exemptions in the US may be very relevant to our government as we have very strong strategic partnership with the US. The Indian exemptions list is also very exhaustive. It has even exempted the supply of electrical energy and textile as well as sugar sector. None of their agri products are subjected to VAT.
Once the VAT becomes operational, (In the present shape), almost every commodity other than peas, Wheat and Wheat Floor shall be changeable to the VAT. What would happen to a common person in a country where 40% of its population lives below the poverty line?
As per Section 12, following local supplies would be Zero rated:
(i) Sale/transfer of an economic activity or part as an on-going concern by a registered person to another registered person (ii) Supply of stores and provisions for consumption aboard a conveyance proceeding abroad (iii) Basic Pharmaceuticals or medical supplies Specified by FBR (iv) Supply of Precious metals (v) Supply of international transport services.
As per the present Law, Section 4 deals with Zero rating. Besides all exports, there are 8 entries in the 5th Schedule where zero-rating has been allowed. About 32 SROs relating to zero-rated items are being abolished along with the 3rd Schedule. The zero-rating is being confined to exports only as per Section 23 of the proposed draft bill.
However, Section 13 provides that the new law would withdraw the powers of the FBR as well as the Ministry of Finance, regarding the exemptions through SRO or special orders and it will be the sole prerogative of the Parliament to grant exemptions whatsoever. This appears to be a positive change as the present Sales Tax Act, 1990, was also promulgated in the VAT mode but due to continuous violations, deviations and departures from the basic spirit of the VAT by the FBR as well as the Federal government, its shape has been entirely changed which has resulted into promulgation of a new law in the shape of proposed draft VAT Bill.
None is happy on proposed plan of the government regarding withdrawal of all exemptions. Recently, the Pakistan Dairy Association has tendered an appeal to the Prime Minister of Pakistan, demanding that let the milk industry survive and let Pakistan grow its dairy sector through the white revolution. The government will only get revenue if the industry survives. Continue the zero-rating for dairy and this is the part of engine of growth in the country and the market link for thousands of small farmers associated with this industry.
As per Section 95, sub-Section (4), old registrations shall be deemed to have been effected under the new law and there will be no need for any fresh registration on coming into force of the new law. The concept of voluntary registration has been introduced through Section 41. However, voluntary registration once obtained cannot be withdrawn before 12 months at least, as per sub-Section (4) of Section 46. The list of registered persons shall be published by the FBR on 1st July, 2010 and as per Section 48, it shall be available on the website of the Board.
As per Section 41, threshold has been enhanced from 5 million to 7.5 million and the decision regarding the registration or refusal will be issued within 15 days. This Section provides right of appeal against the refusal order. However, Section 79, dealing with the appeals does not provide the right of appeal to the persons whose applications for registration are refused. This anomaly is required to be redressed.
Furthermore, en-block exemption threshold of Rs 7.5 million has been provided whereas in the present law, there is no threshold for the importers, whole-sellers and exporters. Now the Government may find it difficult to collect the VAT from the importers at the import stage, if their total imports for the last 12 months remain below the threshold of 7.5 million. So, it would be better, if no threshold is provided to the importers.
The Section 9 of the proposed VAT Bill speaks about the imposition of the VAT. Only two tax rates are provided ie 0% and 15%. As per sub-section (3), the VAT will be charged on ad valorem basis. The Section 7 defines taxable supplies including supply of goods and Federal List Services. Different rates of sales tax presently prevailing would be abolished to apply a standard rate of 15% on all the taxable supplies, including retail sector abolishing multiple sales tax rates. There would be no fixed tax, reduced tax or enhanced tax, retail price based tax, or any special tax scheme.
As earlier discussed about the VAT on Federal List Services, it may be reiterated that as per present Federal Excise Act, 2005, the FED is being already paid on services by terminal operators at the rate of 16% and likewise shipping agents, inland carriage of goods by air and facilities for travel are being also taxed under the Federal Excise Act, 2005, which is being paid in the VAT mode as provided in Section 7 read with SRO 550(1)/2006 dated 5-6-2006.
As earlier stated, Entry No 53 of the Federal Legislative List of the Constitution has been incorporated in the preamble of the proposed VAT law to levy the VAT on all these services in lieu of Federal Excise Duty, despite the fact that there is no constitutional guarantee for the levy of sales tax on services by the Federal government.
In Sections 55, 56, 57 and 58 dealing with filing of returns and declarations, the taxpayers would be allowed to file their returns manually or electronically. However, FBR's permission would be required to file the return after the due date or to file revised/amended return. The time limit for furnishing amended return has been extended to three years, which was 120 days as per the present law, ie Section 26(3). However, there is a news that a provision is going to be added in the proposed law to remove the restriction of the FBR permission for furnishing the revised return.
(To be continued)
Copyright Business Recorder, 2010
Dullness persists on cotton market
RECORDER REPORT
KARACHI (May 15 2010): Lacklustre trading was again witnessed on the local cotton market on Friday as main participants were on the sidelines to observe the latest development on the textile sector after the imposition of Regulatory Duty on cotton yarn, dealers said. The Karachi Cotton Association (KCA) official spot was unchanged at Rs 6700, they said.
In the ready business only a deal was finalised at Rs 6040 in process of slow trading, they said. Traders are worried under the circumstances as they are losing time and finance on this warpath in the absence of any kind of government's support, they said.
It is a fact that the problem has been shifted from one party to another. Value-added sector got some relief and is demanding complete ban on export of cotton yarn but spinners and mills were annoyed as they decided to go on strike twice a week against the RD on exports of yarn, experts said. It would be very interesting to note that how the ginners tackle the situation under the circumstance, they said.
Furthermore, it is also a surprising factor that the Karachi Cotton Association (KCA) official spot rate is still unchanged despite the sharp fall of Rs 400 in the ready business, they said. On Thursday the NY cotton futures finished higher on suspected mill and investor buying, with the focus fixed firmly on the spread trade between the spot July and new-crop December cotton contracts, analysts said.
The key July cotton contract increased by 0.39 cent to end at 80.76 cents per lb, trading from 80.39 to 81.60 cents. It was an inside day as that range held within Wednesday's 80.29 to 82.49 band. Volume traded in the July contract stood at 7,777 lots at 2:33 pm EDT (1833 GMT). New-crop December cotton futures rose 0.45 cent to end at 77.74 cents, ranging from 77.07 to 77.94 cents. A deal of 400 bales of cotton from Mian Chunu was done at Rs 6040, they said.
Copyright Business Recorder, 2010
New York cotton futures smidgen lower
NEW YORK (May 15 2010): Cotton futures closed with small losses Friday on investor sales although trade and mill buying kept the market supported despite the beating taken by the wider commodity sector, analysts said. The key July cotton contract slipped 0.04 cent to end at 80.72 cents per lb, trading from 80.40 to 81.53 cents. It was an inside day since the range was within Thursday's 80.39 to 81.60 cents band.
Volume traded in the July contract stood at 6,262 lots at 2:29 pm EDT (1829 GMT). New-crop December cotton futures fell 0.27 cent to end at 77.47 cents, ranging from 77.25 to 77.95 cents. Mike Stevens, an analyst for brokers SFS Futures in Mandeville, Louisiana, said fibre contracts again failed to reach the 82-cents level but the pressure from the risk aversion sales which struck other markets were offset in cotton by "enough commercial interest" around 80 cents, basis July. Going forward, analysts said the market must contend with how the certificated cotton stocks on ICE Futures US would be disposed of in the coming weeks.
Those stocks now stand at 1.062 million (480-lb) bales, with no bales being decertified. Stevens said the stocks are in the hands of a few merchants and the attention of the market will be focused on how those commercial houses will dispose of those stocks. One analyst said the market talk is that most of the cotton will eventually wind up with China.
Traders said the market will now look forward to the crop progress report from the US Agriculture Department due out on Monday. Brokers Flanagan Trading Corp sees support in the July contract at 80.50 and 79.60 cents, with resistance at 81.35 and 82.60 cents. Volume traded Thursday reached 15,161 lots, against the previous tally of 17,895 lots, according to ICE Futures. US Open interest in the cotton market was at 178,878 lots as of May 13, from the prior 177,974 lots, the exchange said.
Copyright Reuters, 2010
Call to postpone VAT: KCCI proposes gradual introduction
N H ZUBERI
KARACHI (May 15 2010): Karachi Chamber of Commerce and Industry (KCCI) has suggested that the proposed Value Added Tax (VAT) Act should be postponed till the GST, which is already in place, gained the confidence of the taxpayers by removing all the lacunas and irritants being faced by them.
"The proposed VAT bill was prepared without consulting business community and presented in the National Assembly for approval," it said. In a proposal sent to the federal finance ministry, the chamber recommended that VAT should be introduced gradually after giving proper education to the masses. "The system has been introduced in haste. The literacy rate is one of the key hurdles in the documentation of economy," it added.
The chamber noted that GST, when introduced in 1996 was in VAT mode, which even after the lapse of 15 years has not been extended to retail sector, the last element of the supply chain and has not been able to create an atmosphere and confidence among the taxpayers and tax collectors.
"Government considering the ground realities and the business practices prevailing in the country tried and formed different rules and procedures for different sectors, such as special procedure for importers, exporters, steel sector, CNG sector, ship breakers, retailers, which proved successful, considering the fact that government achieve it revenue target in the last 5-7 years," it added.
The government, on the other hand, is of the view that the increase in revenue collection has come to standstill and feels imposition of VAT law the only way to increase collection and, therefore, suggests introducing VAT on all sectors of economy including sales and services, it said.
It is also claimed by the government that enormous distortions through exemptions and special procedures become part of the GST, which could only be addressed through VAT. However, the five exporting sectors which were exempted only after realising the fact that due to corruption in the Federal Board of Revenue (FBR), the tax collected was much less than the refunds claim paid in these sectors. "We feel that if the measures taken initially for documentation of economy are implemented in its true spirits then the required goal can be achieved in the present regime of GST," the chamber said. "Internationally, VAT law is in practice in almost 130 countries, however we have observed that all these countries have adopted after due diligence, considering their ground realities in a gradual phase. Unfortunately in Pakistan no such pre requisite was followed, instead it is being done in haste," it added.
Countries, like UAE and India also intends to adopt VAT, are working on its pros and cons from last couple of years and have decided to defer its implementation till completion of their home work.
Countries like China and South Africa, where VAT is in practice, have adopted lower rate for retail and SME sector, whereas in Pakistan, the government is working on introducing 15 percent single rate of tax on all segment of business, despite considering the grave picture of tax net, where very insignificant number of retailers are registered tax payers at a very attractive rate of 1.5 percent of the turnover
The government has not yet come with any scientific study to arrive at an estimate of tax increase through VAT, in fact the government has a view that they will suffer a loss of Rs 50bn in its transmission from GST to VAT if the VAT is introduced at the rate of 15 percent. The loss will further increase if the rates are reduced to 10 percent or 12 percent.
The question further arises that revenue generation will heavily rely on documentation of the economy after implementation of VAT to the all sectors including whole sellers & retailers, which are not yet in the tax net. "Hence, we can easily conclude that the key remains in the increase in the tax base and not in the introduction of the new law," the chamber opined.
The rate of literacy in Pakistan is very low in comparison to other regional countries. The documentation is the essence of the VAT law, the whole supply chain mechanism requires proper documentation and reporting of sales, purchase & stocks, which is a big hurdle in true implementation of VAT.
Furthermore, in the prevailing Pakistan socio economic environment, where the higher corruption is the root cause of all economic evils, it will not be possible to easily implement such a complicated law, it added.
The implementation of this complex and cumbersome law is another aspect which is not yet considered by the government, we must keep it in mind that it is almost took ten years, where both the business community and regulators actually understood the GST law. The initial five years of the GST regime, there were number of litigation cases, hue & cry among the masses and actually remain the cause of concern for adopting that regime. Now the government is again going towards back to square one and may need to educate all the stakeholders, the chamber said in its proposals.
The proposed VAT law contains massive discretionary powers with the tax officials, unlimited liabilities of tax payers and extending it to the associates and other related persons, including the arrest powers u/s 72 of the proposed vat act, 2010.
Provision for forensic audit u/s 69 of the proposed VAT Act 2010, has been introduced for the first time in this law, under which the bar on payment of refund u/s 82 of the proposed Act where on the basis of just suspicion an officer may reject the claims.
Many business leaders were not happy over the issue of including the five export-oriented industries exempted from GST, in the VAT regime. Even after the assurances by the FBR officials that the refund claims will be processed electronically and in no time but the confidence can only be gained if such a system is implemented in the current GST regime, which even after the lapse of 15 years has not been done.
Government has not given considerable importance to ensure that the design of VAT is in consonance with local requirement of the business without compromising the basic features of VAT. General public has not been informed that GST will be replaced by VAT as there is wrong impression.
"We are of the view that the proposed VAT Act should be postponed till the GST which is already in place, has gained the confidence of the taxpayers by removing all the lacunas and irritants being faced by them. The proposed VAT bill was prepared without consulting business community and presented in the national assembly for consideration," it added.
There should be minimum exemptions in VAT design. In fact GST already exist, govt should remove the distortion ie exemptions etc. The present exemption of sales tax should be continued in proposed VAT to save the five exporting sectors.
Export should remain zero-rated. Problems being faced in refund and harassment in audit by auditors. Automated refund system be developed. Under the VAT, it is not a practical way that first to pay VAT and then get the refund. It will create huge problems of refund, as government machinery is not efficient to make automated refund payment, it added. The chamber termed the VAT totally contrary to the recommendation of 7th National Finance Commission (NFC) award relating sales tax on services.
Innumerable clauses encroach upon the provincial jurisdiction limiting the role of provincial government. Complex system of input and output adjustment, it becomes impossible to ascertain what are "goods" and what are "services". These are separate domain thus should be treated separately. NFC award recognises that sales tax on services is provincial subject under the constitution and may be collected by respected provinces if they so desire, it added.
Copyright Business Recorder, 2010
| Centre, Sindh tussle likely to delay VAT bill |
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| Pakistani delegation to hold pre-budget talks with IMF in Doha from Monday
Saturday, May 15, 2010
By Mehtab Haider
ISLAMABAD: Differences between the federal government and Sindh government over the right to collect Value-added Tax (VAT) on services is likely to further delay the passage of its draft bill from the parliament, a senior official said.
The federal government appears in serious trouble in fulfilling its promise with the International Monetary Fund (IMF) to pass the draft VAT bill by May 31, 2010, he said requesting anonymity.
"It was the commitment of Islamabad's economic managers that they will make efforts to get VAT bill passed from the Parliament by May 31, 2010, now another commitment would be made that this would be accomplished by first week of June."
The National Assembly was prorogued on Friday and next session is expected after May 31 for Budget 2010/11.
The National Assembly Standing Committee on Finance and Revenue cancelled its scheduled meeting on Thursday in which, the agenda was to consider approval of VAT on goods.
"The meeting was cancelled because no decision was made regarding the ongoing row between Centre and Sindh on right of collecting VAT on services," a senior FBR official told The News on Friday.
The economic wizards of Islamabad led by Adviser to PM on Finance, Dr Abdul Hafez Sheikh are going to Doha for pre-budget talks with the IMF. Pakistan's economic team including Chairman FBR and two other members will depart Islamabad on Sunday to kick-start talks with the Fund from Monday, he said.
The whole next week will be consumed by the IMF-Pak team talks at Doha and there is no possibility for holding the NA Standing Committee meeting for approving the law for imposing VAT on goods, the FBR official said.
He said that the Centre had offered Sindh to allow FBR to collect VAT only on banking, insurance, telecom and air travel. The collection of services tax on telecommunication is estimated to generate around Rs50-55 billion, but Sindh turned down the offer.
However, a senior official of Sindh government told this scribe that they were in the process of approving a bill to withdraw power to collect tax on services from the FBR, which were given during the Musharaf regime.
The official alleged that the Ministry of Finance and FBR were pressurizing the Centre by stating that the VAT could only be implemented in integrated shape by allowing the FBR to collect it on both goods and services.
"They are misguiding the government. In Brazil and India the VAT on goods and services is separate," the official said.
Sindh triggered a controversy when its provincial government stated that the federal government's effort to impose VAT in its existing integrated shape would be a violation of Constitution and NFC Award.
The Constitution and NFC Award clearly define that the VAT on goods is the jurisdiction of federal government while imposition of VAT on services as well as its collection is the right of the provinces.
The Sindh government is only asking the Centre to follow the Constitution and NFC Award.
But Ministry of Finance official say that there was no option available except imposing VAT on both goods and services under the IMF's Standby Arrangement (SBA) program if Islamabad wanted to complete the existing Fund program for avoiding to being recognized as one tranche country on the pattern of decade of 90s. |
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| Plug revenue leakages, instead of levying new taxes, experts |
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| Saturday, May 15, 2010
By our correspondent
KARACHI: The government should concentrate on plugging revenue leakages instead of introducing new and high rates of taxes, said speakers of a panel discussion on Federal Budget 2010/11 organized by Applied Economics Research Center of the University of Karachi on Friday.
The panel was unanimous in concluding that around $22 billion were lost due to revenue leakages including non-recovery or short recovery of taxes, which was much higher than $4-5 billion aid sought from foreign donors each year.
They said that introduction of value added tax (VAT) would harm poor and it would increase inflationary pressure.
The panellists stressed on policy formulation for sustainable growth to help develop the manufacturing sector.
Dr Kaiser Bengali, Advisor for Planning and Development to Chief Minister, Sindh recommended that the country had to invest in infrastructure for sustainable growth. "The investment in infrastructure would not result in instant GDP growth but growth acceleration would result in next five years on sustainable basis," he added.
The introduction of indirect taxes will not resolve the issues because it will further deteriorate economic conditions.
"The enhancement in rates of direct taxes and reducing expenditures would result in economic betterment," Dr Bengali said.
Dr Bengali said that proposed Value Added Tax (VAT) is not workable, as the government had failed to collect existing taxes.
Syed Muhammad Shabbar Zaidi, senior tax analyst and partner A F Ferguson and Company Chartered Accountants in his comments highlighted policy errors, which encouraged non-documentation in the system.
The opposition on VAT imposition is natural because the policymakers had not studied the real issues in the sales tax, he said. The new measure through VAT would tax people who were not paying their liabilities.
Muhammad Rajper, Managing Director General Shipping suggested to lower the tax rate and widen the tax base to enhance revenue and improve national economy.
He criticised that the focus is on new industrial zones instead improving the existing industrial zones.
Mian Zahid Hussain, president, Pakistan Businessmen and Intellectual Forum, said that the country with the existing tax structure has potential of collecting two trillion rupees.
He claimed that according to credible estimates, effective measures could bring $22 billion in the national economy. "Instead of improving governance, the government requests the foreign donors for $4-5 million aid," he said.
Dr Nuzhat Ahmed, Director AERC proposed measures for allocation in Public Sector Development Program (PSDP) 2010/11 for energy development, which she said was the major impediment in economic activities.
She urged the government to allow private sector for establishing small and cheap community power plants. Imported power plants should be exempted from imported duties, Dr Nuzhat suggested. |
| Cotton market remains lacklustre |
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| KCA urges govt to ask India to lift ban on cotton exports, release 0.2m bales
Saturday, May 15, 2010
By Gohar Ali Khan
KARACHI: The local cotton market on Friday witnessed lacklustre trading after the value-added sector and the All Pakistan Textile Mills Association (APTMA) developed a rift over the regulatory duty on export of cotton yarn, dealers at the Karachi Cotton Exchange said.
The overall turnover stood at 400 bales as ginners from Mian Chunnu sold 400 bales at Rs6,040, the dealers said.
Spot rates would fall as deals are being finalised below Rs6,700, they said. However, spot rates of the Karachi Cotton Association remained unchanged at Rs6,700 a maund and Rs7,180 per 40kg for average quality lint.
Spinners have expressed reservations over imposition of 15 per cent regulatory duty on yarn exports and announced to close their mills for two days a week for two months.
Representatives of the value-added sector have urged the government to impose 25 to 30 per cent duty on yarn exports.
Karachi Cotton Association Chairman Sohail Naseem has asked the government to exert pressure on the Indian government to release 0.2 million bales of cotton worth millions of dollars as the Indian government had suspended cotton export for an indefinite period to reduce prices at the domestic level.
Pakistani mills finalised deals of 0.2 millions bales of cotton with their Indian counterparts before the imposition of the ban on raw cotton export on April 19 this year, said Naseem. The local mill-owners face an acute shortage of the commodity, but the government is not giving any heed to the issue, he said.
Meanwhile, around 20 active brokers of the Karachi Cotton Exchange have expressed serious reservations over the working of the Karachi Cotton Brokers Forum, saying that the forum is not playing its role to promote genuine rights of the brokers.
However, when contacted, Naseem Usman, Chairman, Karachi Cotton Brokers Forum, refuted the allegation and said he has been fighting for their demands for years and he has often asked the government to reopen hedge trading in the KCA so as to stabilise commodity prices. The New York cotton market rose by 0.39 and 0.47 cents at 80.76 and 77.14 cents per pound for July and October contracts. |
Value-added textile sector fears shortage of cotton, yarn
Published: May 15, 2010
KARACHI (APP) - Value Added Textile sector, major contributor to the country's exports and single largest jobs provider, has reiterated its demand of total ban on export of cotton or yarn to save this very important segment of the national economy.
Muhammad Jawed Bilwani, Coordinator of Value Added Textile Forum having representation from all value adding textile associations of the country, on Friday apprehended that the value added textile industry would be facing serious problems unless export of these vital textile raw materials is completely banned. Besides huge loss of foreign exchange to the country and big increase in the pertaining un-employment, it would take us much time to re-organize this sector.
Bangladesh, which has strong value adding textile sector, now-a-days faces serious crisis for non-availability of cotton and yarn. This country grows not single bale of cotton but earns around dollars 15 billion per annum by export of textile products after value addition, he pointed out.
He said India has already imposed total ban on export of cotton and yarn to save her domestic value-added textile industry. India was the main source of cotton supply to Bangladesh who is now looking for sources of cotton. This might encourage our cotton or yarn producers to export their stock for high profit which would prove a great blow to our entire chain of value added textile sector, he maintained. "Like Bangladesh, we would be crying for cotton/yarn if the leakage is not immediately stopped," Mr Bilwani remarked.
The leading textile industrialist and exporter argued that WTO does not restrict Pakistan from banning export of cotton and yarn. India, he continued, is also a signatory to WTO but has gone for complete ban on export of these two commodities in its national interest.
M. Jawed Bilwani said value added textile associations have shown strong reservations over the Government decision of levying 15 percent duty on export of cotton and yarn, and demanded at least 30 percent duty to discourage export of the textile raw materials.
" If the Government is hesitant to impose ban, there should be not less than 30 pc duty on cotton and yarn export," he asserted.
For next couple of days, value added textile sector operators would observe the impact of 15 pc export duty on domestic cotton/yarn market. If not satisfied with availability of this stock, we would re-start our country-wide campaign against export of cotton or yarn.
He maintained that it would be in the best interest of the country to make exports only through value added sector.
