Tuesday February 07, 2023

Textile industry seeks zero-rated status

June 01, 2022

The textile industry sought restoration of zero rating status, duty free import of cotton, continuation of regional competitive energy tariff (RCET), extension of Long Term Financing Facility (LTFF) scheme for the entire value chain in the upcoming fiscal year.

A 20 pages budget proposal sent to the ministry of commerce unraveled 21 budgetary proposals for the next financial year of 2022-23 termed them vital for sustainable growth of the textile industry and export target of $30 billion by 2025.

All Pakistan Textile Mills Association (APMTA) asked a cut in corporate tax to 25 percent from 29 percent and withdrawal of 1.5 percent turnover tax. The textile Industry also proposed zero present duty structure on dyes and chemicals.

Industry has also proposed 7 percent customs duty on the import of polyester staple fiber with total import expenses approximately 20 percent including antidumping duty to be abolished. And it suggested imposing a 15 percent regulatory duty on the import of synthetic yarns entering into the domestic commerce of Pakistan. It also stressed the duty free structure on import of spare parts for export oriented industry arguing that currently, import of major spare parts frequently used in industry are subject to 17 percent and 3 percent sales tax with 5.5 percent income tax.

APTMA also proposed that import duty on spare parts for power plants should also be zero arguing that 100 percent of the textile industry is on self-generation of electricity. The industry imports spare parts for keeping power plants operational, import duty on spare parts for power plants added to the cost of production.

Textile industry argued that Pakistan's exports in the first 10 months of the current fiscal increased by 26 percent over the previous year to a record of $ 26.25 billion, the majority of which were textiles (61 percent). Growth was enabled by implementation of RCET, investment of over $ 5 billion in expansion and establishment of 100 new textile units resulting in enhanced export capacity of $ 500 million per month.

It said textiles have time and again proven to be a viable and long-term answer for leading the country towards exports-led growth and economic stability. “The textile industry is geared towards achieving $26 billion exports next year provided policy continuity and export facilitation by the government remains in focus.”

About restoration of zero rating or reduction in rate of GST, textile industry pitched its argument saying that sales tax of Rs296 billion was collected and refunded on an export volume of $15.4 billion last year. While barely Rs18 billion in sales tax was collected on domestic sales which indicates that the total production sold in the domestic market is approximately Rs106 billion.

“This translates to the assessment that 90 percent production is being exported while only 10 percent is being used domestically. This massive cycle of sales tax collection and refund operates for a collection of Rs18 billion, and as a result, exporters suffer in the form of delayed, deferred and pending refunds.”

Referring to a very recent IMF report, APTMA says the cascading effect of GST has harmed Pakistani exporters’ competitiveness.

“Due to the implementation of sales tax, Pakistani exporters charge higher rates at the final stage of dress production as compared to the harmonized system and owing to this very factor, the cost of working capital has skyrocketed.

This is the main reason for which the textile industry wants restoration of the SRO 1125 i.e., zero Rating for the entire textile value chain or reduce the sales tax rate to 5 percent in order to meet and make Pakistan exports truly zero rated the additional working capital requirement of the industry.”

About import of cotton, Industry said given the performance of the sector and the very achievable textile export target of $ 30 billion by FY2025, it is essential to increase the cotton production or availability from 7.5 million bales to 20 million bales within 3 years.

Cotton stock costs have grown sevenfold. Cotton trading has climbed from Rs8,000 per maund to Rs22,000 per maund, requiring three times the amount of money for the same amount of cotton. So the industry recommended duty free import of cotton for the whole next fiscal.

The Industry also asked for abolishing 17 percent sales tax on ginned cotton should be withdrawn which would effectively transfer a better price to the farmers.

Mentioning the energy issues, APTMA asked for continuation of RECT with provision of electricity at 7.5 percent and gas at 6.5 per MMBTU arguing it is vital for continuity in growth.

And to ensure the liquidity and credit availability, industry asked for extension of LTFF scheme to the entire value chain since the whole value chain requires upgradation and modernization to meet export targets.

It also asked the government that LTFF be provided to direct and indirect exports. Industry also proposed that LTFF should be extended to building Infrastructure costs of Garments and Knitwear sectors.