The Trading Corporation of Pakistan (TCP) has asked the Federal Board of Revenue (FBR) to clarify the rate of withholding tax on purchase of lint cotton under the prevailing laws, as the rate would have future implications for TCP if government intervenes in the market during the current season. The TCP has written to the FBR seeking clarification of withholding tax rate on purchase of ginned or lint cotton.

As per the government's directive TCP has purchased lint cotton from cotton factories located in different parts of the country and deducted income tax on the following rates, i.e. 4.5 per cent of the gross amount in case of non-corporate sellers and four per cent of the gross amount in case of corporate sellers.

TCP’s tax consultant has stated that withholding tax will be applicable on purchase of ginned cotton under section 153(1)(b) of the Income Tax Ordinance, 2001, and not under clause 1(a) of division III of part III of the first schedule of the income Tax Ordinance, 2001. However, Pakistan’s cotton ginners do not agree with this rate. They say ginned or lint cotton is covered under the lower rate and, according to the Income Tax Ordinance, 2001, withholding rate on ginned or lint cotton is one per cent.