Textile industry, particularly in Punjab is in grip of unprecedented crisis and wheels of industry have come to a halt. Consequently, sizeable textile capacity had been severely impaired and country's exports are observing continuous decline both in quantity and value terms.
About 30% production capacity of textile industry is impaired. The potential idle capacity of textile value chain is mainly in Punjab. Textile Industry have the capacity to export 2625 million square meter of cotton cloth but currently, we are exporting 1880 million square meter with a shortfall of 28.4%. Similarly, there is capacity to produce and export 132 million dozens of Hosiery and Knitwear, 365 million Kg of Bedwear, 192 million Kg of Towel and 41 million dozens of Readymade garments but currently we are producing and exporting 111 million dozens of Hosiery and Knitwear, 322 million Kg of Bedwear, 160 million Kg of Towels and 31 million dozens of Ready made garments.
According to official export figures, textile sector exports have registered a significant decline in quantity terms during July-September period against the corresponding year. Exports of cotton cloth have declined by 15.94%, followed by 6.8% in bed wear, 6.54% in ready made garments; whereas textile sector exports have registered downward growth by 5.41% in value terms.
The major factor behind the decline is the erosion of textile industry's viability both in international and domestic market as cost of production in Pakistan has reached to an alarming stage rendering textile sector UNVIABLE. We are losing our hard earned export market developed after struggle of decades while regional rivals have accelerated export growth and have increased their market share in global textile trade.
VIABILITY IN INTERNATIONAL EXPORT MARKET:
Textile exports have lost their viability in international market on account of lack of working capital, extra burden of taxes & levies, high energy cost and unavailability of incentives.
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ELEMENTS Bangladesh China India Pakistan
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24/7 Energy Availability
to Textile Industry ? ? ? X
Energy Tariff (Cents/KWh) 7.3 8.5 9 14
Interest / Policy rate (%) 5% 5.4% 7.5% 8%
Minimum Wage Rate (USD/Month) 68 300 95 120
Currency Change 0% -0.43% -1.20% +5%
(% from Dec. 2013 per US$)
Corporate Tax Rate 27.5% 25% 34% 34%
Turnover Tao Rate x x x 1%
Duties/Taxes/Surcharges on Export 1% 1% x 5%
(% of sales)
Installed Capacity Utilisation 90% 90% 90% 70%
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Shortage of working capital is a major setback to textile. Key incentives of previous textile policy 2009-14 and existing textile policy 2014-19 are still unpaid.
To release the financial burden and make textile exports competitive in global market, exports may not be burdened. Zero rating of sales tax on entire export oriented textile chain from yarn to value addition should be allowed and all local taxes should be abolished or refunded within minimum defined period. Furthermore, energy resources and other production inputs should be provided to textile sector at regional competitive rates enabling it to compete well in international market.
Energy shortage has chucked the industry in a bottomless crisis which is facing difficulties to fulfil export orders and most of time it remains unable to execute the promises on time. Situation is becoming worsened with passing of every day. Under such circumstances not only the textile exports of the country would dip down but this would be colossal loss to industry.
Textile industry in Punjab is getting 25-30% gas supply out of their allocated gas quota and comes to zero for weeks in winter while gas shortage in other provinces is not a problem. Textile industry particularly in Punjab faced 27% gas load shedding in 2010, 41% in 2011, 46% in 2012, 66% in 2013, and 70% in 2014. Similarly textile industry observed 37 days average power load shedding in 2011, 66 days in 2012, 96 days in 2013 and 122 in 2014.
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MONTH 2010 2011 2012 2013 2014 2015
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January 57% 57% 100% 100% 75% 75%
February 43% 43% 57% 86% 75% 75%
March 29% 43% 43% 57% 75% 75%
April 14% 29% 29% 57% 75% 75%
May 14% 30% 29% 57% 70%
June 14% 29% 29% 57% 70%
July 14% 29% 29% 60% 70%
August 14% 29% 29% 60% 70%
September 14% 43% 29% 60% 70%
October 14% 43% 43% 60% 65%
November 43% 57% 43% 67% 65%
December 57% 57% 86% 70% 65%
Yearly Average 27% 41% 46% 66% 70%
Days/Year 100 150 165 240 260
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High cost of energy has increased the production cost. Textile sector is provided electricity at the rate of 15 cent per unit against the average rate of 8 cent per unit in the region. Huge gap in energy tariffs is severely hitting our viability in global market.
ELECTRICITY COST WITHIN THE COUNTRY:
Textile industries in KPK and Sindh generally produce electricity through gas which cost to Rs 7/kwh while due to severe shortage of gas, textile industry in Punjab have to purchase electricity from DISCOs at the rate of Rs 15/kwh along with 6 hours daily load shedding. Use of diesel to generate electricity during load shedding increased the electricity cost to Rs 18/kwh.0
ELECTRICITY COST WITHIN THE REGION:
High cost of energy has increased the production cost. Textile sector is provided electricity at the rate of 15 cent per unit against the average rate of 8 cent per unit in the region. Huge gap in energy tariffs is severely hitting our viability in global market.
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Bangladesh 7.3 cent/kwh
China 8.5 cent/kwh
India 9.0 cent/kwh
Pakistan 15 cent/kwh
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BURDEN OF MULTIPLE LOCAL, PROVINCIAL, FEDERAL TAXES ON EXPORTS:
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SPINNING WEAVING PROCESSING
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% of sales % of Sales % of Sales
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Turn Over Tax @ 1 % of Sales 1% 1% 1%
Transportation Cost (sales Tax on Diesel) 0.32% 0.19% 0.08%
EOBI @6% of Wages 0.18% 0.26% 0.14%
Export Development Surcharge 0.07% 0.25% 0.24%
@ 0.25% of exports
Social Security (c) 6% of Wages 0.18% 0.160/c 0.17%
Cotton Cess (Rs 50/bale) 0.13% - -
Stamp Duty (c) 0.2% of export documents 0.10% 0.20% 0.19%
Electricity Duty (c) 1% of Power Cost 0.10% 0.09% -
Textile Cess (c) Rs 1/spindle 0.0013% - -
Opportunity Cost of Outstanding refunds 1.87% 1.78% 5.00%
Professional Tax 0.004% - -
Custom Duty on Spare Parts - 0.08% 0.17%
Withholding Tax on imported Cotton 0.14% - -
Surcharges & Levies on Energy (NJS, EQS 1 35% 0 19% 0 23%
Debt Surchargeu Additional Surcharge)
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TOTAL 5.46% 4.20% 7.22%
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RESTORATION OF VIABILITY MEASURES:
Reduction of cost of doing business.
-- 24/7 electricity and gas supply at regionally competitive rates.
-- Zero rate export oriented textile industry from all incidentals including taxes, duties, surcharges, levies and cess.
-- Liquidation of pending refunds.
-- Bring PKR to its realistic value
-- Immediate Implementation of all Textile policy initiatives.
-- Removal of duties/barriers on import of MMF and other specially fibers.
Govt-Industry joint task forces to restore industry viability and devise growth path.
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