With budget time nearing, All Pakistan Textile Mills Association has come up with a list of budget proposals for revival of the sector. An important demand is reduction in power tariff from Rs11/kWh to Rs7/kWh. The main bone of contention in this regard is the Rs3.63/kWh tariff equalization surcharge imposed by the federal government to cover up for inefficiencies of the power sector.
However, the government's fiscal space is constrained at the moment and Nepra has also allowed the continued imposition of these surcharges. The regulator cited the government's commitment to the International Monetary Fund (IMF) as a reason for allowing the surcharges to continue.
Another proposal is for a uniform gas price to be adopted across the country. Punjab-based industry is now getting RLNG at almost Rs1300/mmbtu whereas the rate is half for other provinces. But experts opine that given the first right of use of natural resources granted under the Constitution and the accompanying political realities, implementing a weighted average rate for gas will be difficult. Even if the government does find a way to issue a unanimous gas price, this will result in a subsidy of roughly Rs37 billion. Again, given the macroeconomic challenges and the twin deficits hovering over the economy, granting this subsidy will be a difficult task to manage. However, if the cost of production is to be brought down in order to make the domestic industry cost competitive, bringing down energy costs will have to be managed one way or the other.
APTMA has also proposed that no custom duty and sales tax be imposed on the import of cotton. This makes sense given the poor performance of the cotton crop over the past several years resulting in shortage of the raw material for textile firms. The association wants the government to reduce the input cost of farmers instead, while helping them increase their yield through the provision of quality seeds. Similarly, the textile representative body also demands that the custom duty on the import of polyester staple fiber (PSF) be abolished. Given the overwhelming shift of global consumer preferences towards manmade fibers (MMFs), this will help the local industry recalibrate its product range from over-reliance on predominantly cotton based products to MMFs. APTMA notes that even if the 7 percent customs duty is removed, there will still be an anti-dumping duty of more than 10 percent for protection of local PSF manufacturers. Other proposals include the payment of pending duty drawbacks and pending sales tax refunds, reduction in corporate tax rate, zero rating of coal, heavy fuel oil (HFO) and diesel, removal on input tax on packing material and amendment to the long-term financing facility (LTFF).
The Rs180 billion Prime Minister Incentive Package for the textile sector was launched last year. Yet, the impact textile stakeholders had hoped for has been missing mainly due to patchy implementation. In its budget proposals, the All Pakistan Textile Mills Association (APTMA) has demanded prompt payment of duty drawbacks and pending sales tax refunds. The list of budget proposals also includes reducing the corporate tax rate from 30 percent to 25 percent or at the very least bringing it down for the textile sector. Citing the previous precedent of granting zero percent turnover tax for rice mills in FY16's budget due to their financial woes, APTMA would like the government to give a similar treatment to textile firms. APTMA also wants the government to encourage value addition by amending the long term financing facility (LTFF). All these demands are logical but it remains to be seen how many of these budget proposals will actually be adopted by the government.