Industrialists seek zero-rating for textile sector to spur exports

December 08, 2022

ISLAMABAD: Industrialists have painted a gloomy picture for Finance Minister Senator Ishaq Dar of the declining textile exports of Pakistan compared to regional competitors like Bangladesh, to demand restoration of the zero-rated regime for the sector.

Textile exports have declined 4 percent to $7.44 billion in five months of the current fiscal, from $7.76 billion during the same period last year. During this time, Bangladesh’s exports went up 16 percent year-on-year to $18.33 billion as compared to $15.86 billion, by exporting readymade garments.

All Pakistan Textile Mills Association (APTMA) patron-in-chief Dr Gohar Ejaz in an SOS letter written to the finance minister on Wednesday pitched his arguments saying that “currently, Pakistan's industry is struggling with costing and production issues, which include the realised 'value of exports’.”

The letter said the withdrawal of zero-rating (SRO 1125) and implementation of 17 percent general sales tax (GST) on export-oriented sectors resulted in low working capital, which coupled with the high interest rate had raised the cost of doing business.

It claimed that in recent years, increase in textile exports was wrongly attributed to a commodity price increase, and five-year data showed volumetric growth was the key driver with a double-digit increase in value-added items.

Ejaz asked the government to grant priority to the sector in gas allocation instead of providing it first to the domestic sector, as provision of gas to industries was more economically feasible in the long run. He also asked the government to do away with gas price distortion between export industries of Punjab and Sindh.

The government was urged to implement the weighted average cost of gas mechanism as the export sector in Punjab was being provided gas at $9/MMBtu even under the RCET, while households’ basic tariff was $1 and about $2 on average per MMBtu. Similarly, gas prices for fertiliser start from $1/MMBtu, signalling a non-transparent and inefficient subsidy to the agriculture sector.

Pointing to the dollar crisis, the APTMA chief said cotton and raw material cargoes were being held at the port and textile units were incurring detention and demurrage charges as the government was not providing the needed foreign exchange for clearance. More importantly, he said that the “detention and demurrage charges of Rs1.5 billion are not being refunded”.

APTMA’s chief also asked for the immediate approval of long-term financing facility (LTFF) and temporary economic refinance facility (TERF), at least for projects for which banks have already signed financing agreements with their customers.

“So much so, the regionally competitive energy tariff (RCET) facility to export units in the industrial states (LIEDA, FIEDMC, and SUNDAR) is not being approved which is why the textile industry in the said industrial states are facing an abnormal increase in their financial burdens.”

In FY22, the total amount retained by the Federal Board of Revenue (FBR) as sales tax on domestic sales was only Rs50 billion out of the Rs249 billion collected. Approximately, Rs250 billion of the industry remains with the FBR at all times as a result of this collection and refund mechanism.