Delay in incentives package impacting basic textiles
The delay in the proposed incentive package for the five zero-rated export sectors of the country is impacting the basic textile sector more than others.
The package is finalised and ready, but is being delayed as it will be announced by the Prime Minister, who cannot spare time due to the ongoing political turmoil in the country. Businessmen stress that exports must be given the same importance by the government that is being given to China Pakistan Economic Corridor (CPEC) related projects. They said these projects are almost on target, despite strikes, agitation or sporadic terrorist hits in the country.
The package has much to offer all exporting sectors. The government has acceded to the demand of the exporters to provide duty drawback of local taxes and levies they paid on buying inputs from the local market.
It has fixed a drawback of four percent on export of yarn and grey fabric, five percent on export of processed fabric, and six percent on export of clothing. Fifty percent of this drawback will be provided in cash and 50 percent in the form of vouchers that could be cashed on import of textile machinery.
The industry requested that these vouchers should be allowed to be adjusted against government taxes also but it was turned down. The drawback rate for non-textile sectors will probably be five percent. This step will improve the competitiveness of all five zero-rated exporting sectors.
Another concession granted is allowing refund of packing material purchased from registered suppliers. This facility was earlier denied when the five sectors were declared zero-rated last year. This will promote the domestic packaging industry and discourage packaging imports.
To remove shortage of raw materials, government has agreed to withdraw four percent duty on imported cotton. At the same time, import duty on manmade fibres not produced in Pakistan will also be withdrawn.
Long term financing at concessional rates has also been allowed on indirect exports. Thus, a yarn manufacturer, whose yarn is consumed in producing exported fabric, will be entitled to low interest financing facility.
The demand to remove gas infrastructure development surcharge and lower the power rates has been rejected. However, government’s new package will lift the ban on providing new gas connections.
The package has been finalised in consultation with the textile sector, after long deliberations of over one year. The entire textile value chain met the Prime Minister on September 9, 2015 when the Prime Minister acknowledged the fairness of their grievances.
He promised that the issues will be resolved within days. Other pressing issues perhaps diverted the attention of the planners, and only few of these issues have been partially resolved. But it did not stop mill closures and constant decline in exports.
It impacted spinners and weavers more than the rest of the value chain. The millers continued operating their factories in loss, hoping that the announced package will stop the haemorrhaging.
Now, over 100 textile mills across the country are closed because of subdued demand of basic textiles in foreign markets and lower rates prevailing in the domestic market due to oversupply.
Almost 75-100 mills are operating despite losses by eating their reserves or assets. Some of them are on the verge of collapse as they have exhausted all available resources. They have been living on hope and despair since the last year.
Both textile and non textile exports have been on constant decline during the past two years. However, the decline in non textile exports was much higher than textile exports.
For the first time in September 2016, the decline in textile exports went higher than the decline in non textile exports. The entire value chain of textile is feeling the heat of reduction in foreign orders.
The announced package will support all five zero-rated sectors, including surgical goods, leather, sports goods, and carpets. The textile sector has promised $1 billion increase in exports in a year after the package has been implemented.
They also apprised the planners that the potential export of another $3.5 billion is linked to the revival of sick units. Another additional potential of $11 billion is also available if the industry consumes the low value-added yarn and fabric locally and convert them to apparel. Other sectors too will probably be able to stop the decline in their exports.