Federal Board of Revenue (FBR) is planning to deduct income tax on the facility of Research and Development (R&D) for the textile sector. Sources said that the board was considering deduction of income tax on Rs 4 billion allocated for the development of the sector in 2008-09.

They said the board was of the view that the R&D facility should be considered as taxable income and had directed all Regional Tax Officers (RTOs) to send proposal in this regard. The Federal government had been allocating sufficient amount annually under the head of R&D support since 2005 to textile units. The State Bank of Pakistan (SBP) had also withheld release of R&D support for the period of June 2008 on account of fraud on the part of some exporters. In spite of receiving around Rs 50 billion from the government in past four years, the textile sector did not provide fruitful results. They said the issue was in limelight, when Mirza Ikhtiyar Baig, Adviser to Prime Minister for Textile sent a letter to the Chairman, dispelling that the R&D fund could not be considered as income of the textile units.

According to the letter, the SRO-437 (1)/2005 and SRO-803(1)/2006 have allowed R&D support to garments and home textile exporting units from the Federal government for activities like product development, skill and training development, up-gradation of information technology and professional consultancy and it had been mandatory for these exporting units to show said R&D as expenditure in their annual account, therefore the question of income does not arise in this context.

Dr. Baig requested the Chairman of FBR for his assistance in this matter and to resolve it and since the textile industries are experiencing down fall in exports, this move would affect these exports more.