When betting export incentives, play the percentages right

LAHORE: Government should realize that exporters face multiple problems and also that 35 percent of country’s exports are generated from outside those five blue-eyed sectors.

The cabinet decision on rationalising duties on imported input is good but other issues also need attention.

It seems that the government is betting on a wrong horse hoping that it will win it an export boost. The performance of textile, leather, carpets, and surgical instrument sector has been extremely disappointing despite huge decline in rupee value and zero rating facilities available to five exporting sectors.

The exports in December 2018 grew by 5.48 percent compared with exports in December 2017, but the textile exports inched up by only 0.68 percent, the other four sectors also posted nominal or negative growth in exports. The food group registered a growth of 9.54 percent, petroleum products and coal export increased 83 percent, cement was up 78 percent, furniture grew 115 percent, while exports of auto parts and accessories stepped up 49 percent.

It is pertinent to point out that the five sectors are getting power and gas at much lower rates than other exporting ones. The other promising sectors also need handholding from the government. The removal of regulatory duty (RD) and other levies on inputs used in exports will further facilitate the five pet exporting sectors but the boost needed from them is highly likely to remain elusive for there are many other pressing issues that beg immediate as well as undivided attention. One of those hard to crack nuts is the matter of stuck refunds, while the operating procedures of Duty & Tax Remission for Exporters (DTRE) are another.

The government is trying to resolve the refund issue. The refunds of the five exporting sectors will not pile up further as they are allowed to procure their inputs duty free; however, the refunds of other sectors continue to backlog along with withheld refunds. The DTRE on paper is an excellent scheme to facilitate exporters as they are allowed to import inputs without any government levies provided they consume those input in export goods and ship them within a year or six months of import.

In practice its procedures are most cumbersome ever. The bureaucracy rightly has to ensure that the facility is not misused and the inputs are used in the manufacturing of export goods only. This looks very fair. But the devil lies in details. First obtaining a DTRE license is a difficult job. Law mandates that the license could be issued for one year (in India it could be for two years). The licensing officers invariably issues license for six months only.

There seems no reason to deny the applicant a permission for one year except that may be there are standard rents to be taken on issuance of each license. The rents obviously are so high and subsequent audit of the utilisation of the input so strict that only comparatively large apparel exporters avail it.

The DTRE in fact was actually meant to facilitate the small apparent exporters but due to the cost of the rent it is out of their reach. There are tens of thousands of small and medium apparel exporters that export almost 70 percent of the garment and knitwear but they do not dare to avail the DTRE facility because of high unofficial cost.

The Federal Board of Revenue (FBR) officials along with industry experts have evaluated the quantity of each input imported under DTRE for each type of garment (shirt, blouse, trouser, shorts, jersey etc). While granting license the applicant has to inform the licensing officer of the quantity of each type of garment that will be exported.

If, during the course of manufacturing, the importer makes changes like increasing the quantity of shirts and reducing the number of trousers, he will be in trouble after the execution of the order despite consuming the entire input according to the documented use of say fabric for each type of garment.

The objection would be that permission was granted for trousers and not the shirts. These hurdles need to be removed and the license should be issued within a week for inputs for one year to every registered exporter cum manufacturer that applies.

All this should be done online at nominal fee. The exporter should only declare the use of inputs by providing the shipment invoice.

The DTRE is meant for all exporting sectors but most large textile exporters avail it and non-textile exporters dare not fall into DTRE trap.

The government would have to trust its businessmen instead of bureaucracy in matters that can be checked through technology in real time.