Senate panel recommends 100pc increase in RD

SOHAIL SARFRAZ & ZAHEER ABBASI

ISLAMABAD: On the proposal of All Pakistan Textile Mills Association (APMTA), the Senate Standing Committee on Finance recommended increase in regulatory duty on the import of spun yarn and man-made fiber under chapter 55 of HS code from 5 to 10 percent.

The issue came under discussion during the Senate Standing Committee on Finance presided over by Farooq H Naek after chairman All Pakistan Textile Mills Association KP Zone complained that import of raw material for yarn has become exorbitant due to higher duties as opposed to import of finish product. The committee on the request of the industry proposed 10 percent regulatory duty (RD) on import of yarn. The FBR officials were of the view that cascading duties have been affected by FTAs signed with SAARC countries.

Former Secretary Finance Dr Waqar Masood reminded the committee that cascading policy should be adhered to in policy formulation process. The FBR high-ups told the committee that under South Asian Free Trade Agreement (SAFTA), the import duty on yarn was reduced to 5 percent.

The APMTA’s representative Affan Aziz told the committee there is 11 to 20 percent duty on raw material for textile sector and duty on finished products stands at 5 percent. There are 50 units operational while 25 have been closed down because of negative impact of tax and duty structure as the incentives of duty is available on import of yarn. They proposed to enhance RD on spun yarn up to 10 percent and the Senate panel recommended increasing the RD from 5 to 10 percent.

The government was further asked to protect cascading principles as these are cornerstones of duties structure in the country after officials acknowledged that cascading duties are being impacted by free trade agreements (FTAs) signed with regional countries.

The chairman Federal Board of Revenue (FBR) wanted the committee to refer the matter of RD to the anomaly committee which has already been constituted by the government to do away with anomalies. However, senators wondered whether the government has changed rules of game as previously duties on raw material were lower compared to finish products and now raw materials are attracting more duty then the finish goods. The duty on raw material is higher and lower on intermediary finish good import, they added.

The finance committee has also allowed continuation with creation of third tiers duty for locally produced cigarettes after chairman Federal Board of Revenue stated that third tier of locally produced cigarettes has significantly contributed to reduction in the production from 55 million sticks of cigarettes to 48 million sticks. He said that there was a significant reduction in production of cigarette by informal sector. He said that various kinds of vested groups are involved in the tobacco sector. He also informed the committee that Public Accounts Committee (PAC) has directed Auditor General of Pakistan (AGP) to carry out the audit of last five year and provide record of the illicit sector. “We are trying to bring informal sector into the formal sector and want to let the system of third tier continue at least for three years,” he added.

The committee also decided that the financial impact of equal to proposed health levy should be imposed in the form of tax on cigarettes. Officials of health ministry argued that creation of third tiers of cigarette has led to reduction in duty from 75 percent to 45 percent which is contrary to World Health Organization (WHO) which wants increase in price of cigarettes to discourage its use. They added that heath cost is twice to the revenue expected from creation of third of duty on cigarettes.

The representative of Fauji Fertilizer asked the committee to reduce duty on phosphoric acid but the committee referred this issue to the FBR.

On the demand of Matches Manufacturers Association, the committee recommended to slap tax on raw material of potassium chloride instead of finished products of matches so that the tax burden should not disincentivize formal sector.