By Asad Cheema
ISLAMABAD: Textile millers in Pakistan have refused to pay cotton cess, despite receiving billions of rupees in subsidies from the government. This refusal has resulted in a severe financial crunch for the Pakistan Central Cotton Committee (PCCC), a government body responsible for dealing with textile millers.
The PCCC was supposed to run its affairs using funds collected through cotton cess. However, the textile millers have been unwilling to pay the cess, leading to a financial crisis for the PCCC during the last fiscal year of 2022-23.
These millers have been receiving substantial subsidies on gas and electricity as part of the export-oriented sector.
Previously, the release of subsidies was linked to the clearance of cotton cess. Mills that paid the cess were eligible for subsidies. However, during the Pakistan Tehreek-i-Insaaf (PTI)’s tenure, this condition was removed, allowing even defaulting mills to continue receiving subsidies from the government.
This meant that subsidies meant for the export sector were also going to millers who were not exporting their products.
The issue of defaulting textile mills and the non-payment of cotton cess was recently discussed during a meeting of the Economic Coordination Committee (ECC). The Ministry of National Food Security and Research (MNFS&R) presented a summary before the ECC, requesting approval for a technical supplementary grant of Rs666.640 million to pay for the salaries and pensions of PCCC employees.
The food security ministry informed the ECC that the PCCC was established under the Cotton Cess Act, 1923, as an autonomous body under the administrative control of the MNFS&R.
It derives its financial resources through the levy of cotton cess, which amounts to Rs54 per bale on textile mills for all cotton consumed or exported. However, due to non-payment of the cess by textile mills, the collection has significantly reduced over the years.
The Cotton Cess Act, 1923 authorises the collection of defaulted taxes under the West Pakistan Land Revenue Act, 1967 (XVII of 1967) through District Collectors. The cess amount was utilised for cotton research and development programs, as well as, operating (ERE and Non-ERE) expenses of the body. The expenditure budget estimates for the year 2022-23 are Rs1381 million
The food security ministry further informed the ECC that sextile mills have stopped paying cess and the matter had been in litigation since 2016. Resultantly, cess collection had reduced from Rs531.722 million in 2014-15 to Rs207.201 million in 2021-22. The economic body was also informed that during the month of July 2022 the actual income from cess collection was only Rs16.33 million.
This situation has had a detrimental impact on the functioning of the PCCC and its research programs. Despite curtailing operational expenses to the minimum level, the organisation has struggled to maintain its research activities. As a result, salaries and pensions of PCCC employees and pensioners have been reduced by 30% since July, creating unrest among the workforce.
To address the financial crisis, the ministry requested a grant of Rs300 million from the Finance Division, which was subsequently approved by the ECC. The ECC also directed the ministry to find a permanent solution to the issue and engage the All-Pakistan Textile Mills Association (APTMA) in the collection of cotton cess.
The ECC further instructed the MNFS&R to submit a viable program within two months to address the issue and present it for consideration. The involvement of APTMA in the cess collection process was also emphasised.
The non-payment of cotton cess by textile millers has created significant challenges for the PCCC, impacting its operations and research activities. The approval of a loan by the ECC provides temporary relief, but a long-term solution is needed to ensure the financial stability of the committee.
