According to a report, the textile sector has launched a public campaign to seek relief with respect to two major issues that are impeding its exports: a cumulative rise in pending sales and income tax as well as customs duty refunds and export incentive package that would minimize the cost differential between Pakistan's textile sector and their international competitors, regional as well as beyond. The prime minister's export package has been extended by three years, yet the sector's woes remain unsolved.
For this neglect the government is solely responsible.Refunds are not a subsidy but payment to the exporter withheld by the Federal Board of Revenue at earlier stages of production to be paid at the time of export of the finished product and zero rating domestic supplies used during the product's manufacturing process. In other words, an exporter legitimately calculates refunds as cash in hand and FBR's failure to refund has resulted in a severe liquidity crisis that in several instances necessitates borrowing at a cost that adds to the cost of the finished product making our exports uncompetitive in the international market.
Last week, the Pakistan Textile Exporter Association (PTEA) drew attention to the fact that not even one processed sales tax refund claim has been paid in the last eight months, while a large amount of sales tax RPOs is also pending payment. The association also highlighted the government's inability to honor the duty drawback of taxes under the incentive package with only 20 percent of the amount being paid. The Pakistan Hosiery Manufacturers and Exporters Association (PHMA) has also complained about the billions stuck in previous drawback of local taxes and levies (DLTL) with some going as far back as 2011.
It is estimated that refunds to be cleared by the FBR total over 200 billion rupees. In 2009 FBR, with assistance from the World Bank, had0 launched the Expeditious Refund System (ERS) which was designed to process claims electronically under certain riskbased parameters for manufacturers- cum- exporters in major export-oriented sectors. So why does FBR routinely delay refunds and allows them to pile up? The reason lies with the Ministry of Finance, with FBR under its administrative control, and its perennial shortage of revenue to meet its ever-rising expenditure. In other words, to show a lower budget deficit Pakistani governments instruct FBR to go slow, and in years like the present when the budget deficit is expected to reach unsustainable levels by end June, the instructions may well be to simply stop paying refunds. This unfortunately has a negative impact on exporters' capacity to be competitive.
The government has proposed yet another export promotion package of 28 billion rupees - the third since January 2017. The first 180 billion rupee export package announced in January 2017 was never fully implemented due to the government's financial constraints while the second one announced last year was abandoned half way as it was to be funded by savings from increasing duties on import items which were never implemented. The Economic Survey 2017-18 acknowledged that the textile industry contributes nearly one-fourth of industrial value-added and provides employment to about 40 percent of industrial labour force. Barring seasonal and cyclical fluctuations, textile products have maintained an average share of about 60 percent in national exports - a share that textile products achieved during the first nine months of the current fiscal year. The textile sector remains an extremely important contributor to the national economy. As such, its genuine concerns need to be addressed at the earliest possible.