Zero sales tax to be charged on 12 textile raw materials

ISLAMABAD (May 06 2005): The Central Board of Revenue (CBR) will charge sales tax at the rate of zero-percent on the import and local supply of 12 major raw materials of textile industry including polyester staple fiber to enhance exports of textile products. The CBR has amended SRO 500(I)/2004 through SRO 363(I)/2005, issued on Thursday.

Zero-percent sales tax will be applicable on Mono Ethylene Glycol (PCT heading 2905.3100); Pure Teriphthalic Acid (PTA), (PCT heading 2917.3610); Acrylonitrile, (PCT heading 2926.1000); Polyester Chips (Yarn-Grade), (PCT heading 3907.6010); Synthetic Stable Fibers of Polyester, (PCT heading 5503.2010); Polypropylene Staple Fiber, (PCT heading 5503.4000); Viscose Rayon Staple Fiber, (PCT heading 5504.1000); Artificial Staple Fiber, (PCT heading 5504.9000); Nylon Staple Fiber, (PCT heading 5506.1000); Polyester Stable Fiber, carded, combed or otherwise processed for spinning (PCT heading 5506.2000); Acrylic Staple Fiber (PCT heading 5506.3000) and Synthetic Staple Fiber (PCT heading 5506.9000).

Official sources told Business Recorder that the decision would reduce the undue hardship of capital blockage of exporters and create a more conducive atmosphere for the manufacture of goods to be exported.

This will also minimise the creation of sales tax refund, which later results in backlog of cases. Thus, CBR has included 12 major raw materials of the textile sector in the list of zero-rated goods.

The exporters will now be entitled to buy tax-free textile raw materials, both local and imported, thus freeing a substantial amount of fund to invest in and increase exports.

The CBR has introduced ''no input no refund culture'' in the textile industry, which is the largest sector contributing 60 percent in the total exports.

The supply of ginned cotton was zero-rated in last budget. Subsequently, sales tax at the rate of zero percent was applicable on the import of ginned cotton. However, the base of textile chain remained incomplete as far as zero-rating was concerned, as staple fiber, over a period of time has become one of the major raw materials in the manufacture of yarn and remained outside the scope of zero rating.

Now the two main building blocks of the textile chain ie ginned cotton and polyester staple fiber are under the zero-rate regime, thus providing a complete and smooth platform for zero-rating of next steps/tiers of production of textile products.

This will enable the exporters to have additional funds (that used to get stuck as input tax credits on purchase of these raw materials) as well as sufficient time and human resource (that was required to seek/pursue refund claims) to invest in the export of textile products.

This facilitation measure is multi-dimensional, as it will also reduce the financial cost of procurement of these raw materials, reducing the cost of production.

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