KARACHI, June 17: The textile ancillary industry has criticized the government for allowing sales tax exemption on ginned cotton. The value added textile industry feels that the withdrawal negates the very principle of level playing field for all sectors.

The finance minister in the budget 2004-05 proposals announced on June 12, 2004, allowed the exemption. The textile ancillary industry believes it would only benefit the spinners and improve their liquidity.

The founder chairman of Towel Manufacturers' Association of Pakistan (TMA) S M A Rizvi in a statement said that the if the export of ginned cotton was the criterion for sales tax exemption, then towel should also be given the exemption as more than 95 per cent of towel production is exported.

As a matter of fact, 75 to 80 per cent of all textile manufactured in the country was exported so the whole sector should be given the exemption, he added. He cautioned that there is a possibility that unlimited discretionary powers to sales tax officials would be mis-used, particularly powers related to seeking police and military assistance for conducting raid on industrial units.

Instead he suggested that some powers should have been delegated to the recognized trade bodies to help the government and the sales tax payers to resolve the disputes which are the major reason for delays in collection and refund of sales tax.

He also drew the attention of the authorities towards the poor law and order situation and said if the government did not take corrective measures, particularly in Karachi, the economic condition would remain depressed.

Pakistan Hosiery Manufacturers Association (PHMA) also took serious note of the removal of sales tax on ginned cotton and feels that it would further benefit yarn exporters who were throwing away the much needed raw material (yarn) to their competitors in the world market, particularly China.

If the government could provide 'protection' to vendors of automobile industry, why the value-added textile sector could not be treated the same way? PHMA pointed out that the government should facilitate the value-added sector which has the potential and capacity to boost exports.

The chairman, Pakistan Bedwear Exporters Association (PBEA), Aziz L Jamal in a letter addressed to Minister for Finance Shaukat Aziz also criticized the removal of sales tax on ginned cotton.

Referring to the budget speech of the finance minister, he said it was right that Sales Tax was "tax of the future" but unfortunately the ginned cotton has been exempted from ST which totally negates the logic of implementing the sales tax regime itself.

He drew the attention of the finance minister towards the basis of sales tax and said by withdrawing ST on one item (ginned cotton) they have themselves broken the chain.

Aziz Jamal suggested that it would have been more appropriate if the rate of sales tax had substantially been reduced. The PBEA chief said, when ginned cotton could be exempted from sales tax, then why could the entire export sector not enjoy the same facility?

The textile sector is going through a very critical phase and will have to confront a free market era from 2005, therefore, at this juncture it would have been more appropriate if the textile export sector should have been facilitated in order to face new challenges but, he said, it appears that the CBR wants the textile industry to face these challenges with their hands tied.

He said that textile industry, besides cotton, also consumes polyester fibre as a raw material but no relief has been provided to ensure supply of this important raw material to the industry at the world market rates.