Pakistan’s spinning mills that import fabric waste are forced to pay 17 per cent sales tax and 5 per cent withholding tax at the import stage, which they cannot recover due to overall zero-rating status of the textile sector. About a tenth of the total spinning sector uses textile waste as a raw material, they said. Therefore, the Pakistan government continues to collect 22 per cent taxes on import of textile waste used as raw material in manufacturing value-added products in violation of an agreement with the textile sector to charge its supply chain at zero sales tax rates.
On an average, the industry has been importing 10-15 containers per month of waste cotton that is used for manufacturing of socks, gloves, blankets and other value-added products. The spinning industries that rely on fabric waste as raw material of yarn have started feeling the brunt of the move, fearing that they would soon become uncompetitive in the international market due to high input cost.
Since the last four years, the country’s exports are already on the decline. The value-added sector that has started gaining footprints on back of duty-free status granted by the European Union may be the biggest loser of the government’s move.
