Tex­tile woes

The Pak Banker - - FRONT PAGE -

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.

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