LAHORE – Federal Board of Revenue (FBR) has eliminated the tax refund system for textile sector earlier imposed in the previous tax regime making the sector more productive and competent. All Pakistan Textile Association (APTMA) Chairman Gohar Ejaz briefed textile sector stakeholders on Tuesday about the changes introduced by the FBR. According to the changes, there will be no tax on units, which produces material for exports and units producing for domestic consumption would be asked to pay 17 percent tax of the reformed GST. In the previous regime, the whole textile sector was taxed and later export oriented units are refunded sales tax through filing sales tax returns.
APTMA chairman said the previous tax regime had certain flaws with at least Rs 520 billion of textile sector being stuck with FBR and textile millers forced to file sales tax return for sales refund. The process was considerably time consuming but now the millers are given an attractive alternative under the new regime. He stressed that the entire textile sector chain including ginning, spinning, weaving and processors will have an opportunity to benefit from the new regime. However, all these units should be registered and units selling products to unregistered units would have to pay 17 percent tax either when they manufacture for local consumption or export the items.
Thus, sale of yarn, fibre to unregistered units is liable to sales tax at the rate of 17 percent. According to APTMA sources, almost all ginners are registered in the sales tax regime. In the case of spinning units (APTMA members), they are registered as manufacturers. They produce yarn from cotton. If they themselves export or sell yarn to registered weaving units, they neither claim any sales tax refund nor charge sales tax on their sales. The spinning units also manufacture yarn from man-made fibres or filaments, which they can obtain at zero rate sales tax from local registered manufacturers or registered importers.
In the case of weaving, units manufacture grey cloth from yarn either themselves or work on conversion charges for other registered or unregistered businesses. If they work for unregistered businesses, they will charge sales tax at the rate of 17 percent on their conversion charges from unregistered businesses. However, for the registered persons they will charge zero percent. In the case of processing units, they process their own cloth or process cloth of other businesses on conversion charges. If they process cloth of registered persons then they will charge sales tax on zero rates. In case of cloth of unregistered business, they will charge sales tax at 17 percent rate.
After processing, cloth is either exported or sold to other users like bed sheet manufacturers or garment manufacturers. Sales to unregistered businesses will be liable to 17 percent tax. It is pertinent to mention that any product earmarked for domestic consumption, either if purchased from registered or unregistered unit, will be liable for 17 percent tax.
