KARACHI: Around 400 ginning units are in trouble after the Federal Board of Revenue (FBR) increased its tax demand under the Normal Tax Regime (NTR).

The ginning industry has called the FBR’s move “illegal and unjust”. Sources said the FBR recently issued notices under the NTR, creating a huge tax liability for ginning units.

The ginning sector was earlier paying taxes under the Final Tax Regime (FTR) at the rate of one per cent.

There are around 1,300 ginning units in the country. Punjab and Sindh have 1,000 and 300 units, respectively.

Around 400 units are either closed or inoperative due to the unavailability of sufficient phutti (seed cotton) following short crops for the last two years.

Pakistan Cotton Ginners’ Association (PCGA) Chair­m­an Dr Jassu Mal T. Leemani told Dawn that ginners were paying 1pc final tax, but the FBR has now “illegally” placed them under the NTR.

Dr Leemani said ginning units paid 1pc tax on the value of lint under the FTR irrespective of their profit or loss. But switching to the NTR is forcing many ginners to declare bankruptcies.

The ginning sector is facing hardship as cotton production came down from 15 million bales to around 10m in the last two seasons.

Due to a production loss of one-third, 400 ginning units did not function this season, he said. “The industry will collapse if the FBR presses for more taxes. Many ginners have told the PCGA that they will not be able to operate their units in the next season,” he said.

It will be more damaging if the ginners pass on the tax burden to growers, he said. Cotton growers have suffered immensely due to bad crops following heavy rain, pest attack and climate change for the last two seasons, he added.

Dr Leemani said he met the FBR chairman twice to resolve the issue, but it yielded no result.

Published in Dawn, March 29th, 2017