Pakistan cotton mills have expressed great concern over the intention of the government to impose sales tax on raw cotton in the federal budget 2015-16.

They say such a tax will discourage production and inhibit the smooth flow of exports and run counter to the laid down government policy of encouraging cotton trade in the country. Any hindrance in the smooth export of cotton would prevent growers from getting a fair price for their produce.

Another point mill owners make is that nearly 80 to 85 per cent of the cotton crop is exported in the form of raw cotton, cotton yarn, cotton fabrics, garments and cotton made-ups. The sales tax, if levied on raw cotton, would be refundable at the export stage. Taking into consideration the substantial expenses involved in tax collection, administration and in the refund process, the balance available amount to the government would be comparatively insignificant.

In addition, since exporters of raw cotton usually operate on narrow margins, they cannot afford to keep substantial borrowed amounts stuck-up for six or seven months. Due to a delay in refund of sales tax, serious liquidity problems would be created for cotton exporters. Exports of cotton would adversely suffer and compromise the interests of cotton growers and ginners.