Minister for Commerce Engineer Khurram Dastgir Khan is to preside over a stormy meeting of Federal Textile Board (FTB) on Monday (today) wherein issues being faced by the textile sector and reasons for the continuous decline in exports will be discussed threadbare.
Sources close to Secretary Textile told Business Recorder that the Minister has been requested to constitute sub committees of FTB comprising the associations'' chairmen to finalise the recommendations specially on the following: (i) RD on cotton yarn;(ii) custom duty and sales tax on imported cotton;(iii) zero custom duty on manmade fibres not manufactured locally;(iv) justification for drawback on entire exports as compared to incremental only;(v) refunds;(vi) simplification of temporary importation schemes and ; (vii) increase in wages on regular basis.
The country''s textile exports are showing dismal performance for the last three years and this trend has disturbed the government.
The meeting will explore opportunities to accelerate textile exports, steps to encourage textile exports and matters for policy recommendations to reduce cost of doing business. An up-dated status will be presented on implementation of Textiles Policy 2014-19.
The government has announced the following Incentives for the textile sector for the financial year 2016-17: (i) Sales Tax of five export oriented sectors namely textile, leather, sports goods, surgical goods and carpets has been made part of zero rated tax regime from July 1, 2016;(ii) all the pending sales tax refunds till 30th April whose RPOs have been approved by 31 April will be paid;(iii) The existing scheme on Drawback of Local Taxes (DLTL) will continue in the FY 2016-17; (iv) Technology Up-gradation Fund: Technology Up-gradation Fund (TUF) Scheme for the textile sector has been formulated. Currently, the notification is under finalization in State Bank of Pakistan;(v) the facility of duty free import of textile machinery will continue for FY 2016-17;(vi) In FY 2014-15 the Government reduced mark-up rate on export finance from 9.4% to 7.5%, and further in February 2015 to 6.0%, and still further to 4.5% from 1st July 2015. At present the rate is 3.5% wef November 2, 2015. The mark-up rates on Export Refinance Facility, has been brought down to 3.0% from 1st July 2016;(vii) In the budget 2014-15, the Government reduced mark-up rate on long term financing facility for 3-10 years duration from around 11.4% to 9.0% to allow export sector industries to make investments on competitive basis. This was further reduced to 7.5% in February 2015 and further brought down to 6.0% on 1st July 2015. At present the rate is 5% wef November 2, 2015. Further, Spinning and Ginning sectors have been included in Long Term Financing Facility.
The sources said, seven point agenda highlighted by the Federal Minister in 3rd FTB meeting held on April 27th, 201 is as follows: (i) payment of various refunds including sales tax, duty drawback, withholding tax etc;(ii) zero rating of the exports sector including textiles;(iii) cost of electricity and gas;(iv) opening of commercial connections to increase investment and enhance capacities;(v) raw-material / machinery, Customs Duty / Sales Tax ;(vi) comparative support for the supply chain; and (vii) real effective exchange rate.
The issue like zero rating of Sales Tax of exports sector including textiles and custom duty on textile machinery are already resolved.
However, the issue of payment of various refunds including sales tax, duty drawback, withholding tax etc was partially resolved.
Issues raised by the textile sector are as follows: (i) electricity tariff- associations demand that tariff should be in single digit. In last Board meeting it was recommended that "electricity prices may be Rs 8 per KWH including all taxes";(ii) gas tariff- associations demand tariff should be reduced and in last Board meeting it was recommended that "gas prices may be Rs 600 per mmbtu including GIDC". The current rate of GIDC is Rs 200 per mmbtu for captive power plants and Rs 100 for industrial gas. Current rate of gas for Captive Power Plants (CPPs) and industrial gas is Rs 600;(iii) new gas and electricity connections- in last meeting it was recommended that "new connections for electricity and gas may be allowed";(iv) RLNG prices in case oil prices increases- deliberations were made in the last meeting and it was proposed that "for industry costing of RLNG may be on weighted average cost of RLNG and domestic gas"; and (iv) water (Karachi Specific)-in last Board meeting it was recommended that "water may be provided to industry in Karachi on priority basis, uninterrupted supply of water may be ensured";(v) sales to unregistered person attract 2% sales tax- after zero rating APTMA has raised a question that there is some ambiguity about the SRO 491 related to zero rating. The ambiguity in their view is that sales to unregistered person would attract 2%. They want that sales to unregistered persons should also be zero. The FBR has categorically refused this proposal; (vi) sales tax refunds have not been fully paid off- the textile associations would request to entirely pay off sales tax, custom rebates, and withholding taxes;(vii) Custom Duty on manmade fibres- textile associations may demand to encourage product diversification, manmade fibres not manufactured locally may be placed at zero percentage import duty;(viii) Custom Duty and Sales Tax on Cotton- Pakistan is net cotton importer since 2001, moreover, Pakistani cotton is of short to medium staple and long and extra long staple cotton along with contamination free cotton is in any case is required to produce high value added products so to reduce the cost of doing business both these measures may be withdrawn. Although sales tax on imported cotton is refunded but on upfront it loads the cost of doing business;(ix) Sales Tax on machinery- currently 10% sales tax on machinery has been placed, although it is refundable, however, it increases the up-front cost of investment, when it is to be refunded then why collect it at the first stage;(x) drawback on entire exports values not just on incremental exports- in lieu of effective exchange rate, the associations may demand drawback on entire exports ;(xi) Textiles Policy 2009-14 pending liabilities- last year Rs 6 billion was allocated, however, Rs 2.7 billion was utilised for DLTL 2014-15 and funds were released for pending liabilities of Textiles Policy 2009-14.; (xii) RD on cotton yarn and fabric- 10% RD was imposed on cotton yarn and fabric on 30 October 2015. The matter would be raised by the value added association and they would be emphasising that due to increase in cotton prices cotton yarn prices be reduced;(xiii) simplification of temporary importation schemes- for export and product diversification it is required that temporary importation may be simplified (xiv) simplification of labour laws and increase in wages on regular basis- labour laws may be simplified to encourage value addition and specially to discuss the increase in wages on regular basis; and (xv) numerous holidays by the provincial governments- in last meeting the Board recommended that "domestic textiles value chain is facing stiff competition from regional countries and to encourage exports its proposed that only federal holidays may be followed for export oriented textile units and provincial governments may be requested that while issuing notification of provincial/local holidays export oriented textile sector may be exempted".
The sources said, if associations do not agree on the joint sub-committees then sectoral committees or associations based committees be established to explore various options to resolve above issues.
The Minister may lead the delegation comprising associations'' chairmen to departments concerned to resolve issues. The minister may then seek appointment from the PM to address the issues as exports are continuously decreasing.
According to sources, the government has taken the following steps to implement Textiles Policy 2014-19: (i) Payment of Rs 2.7 billion made for the claims of Incremental DLTL 2012-14 Scheme;(ii) SBP has issued letter to all claimants for submission of revised claims of Incremental DLTL 2013-15 Scheme;(iii) DLTL 2014-16 notification prepared after taking input from SBP. The notification has been amended to resolve the issue of time barring due to nominated banking negligence. The notification is being sent to Finance Division for concurrence;(iv) TUF 2014-19 notification approved by Finance Division last month. SBP has put some recommendations on procedure which are being forwarded to through Finance Division; (v) draft Textile Act sent to Law Division for getting legal advice;(vii) projects of Carpet Association, TMA and PKTI have been forwarded to EDF Board for initiatives linked to Textiles Policy, the project for product development prepared by NTU will be sent soon;(viii) project for labour compliance, water efficiency and energy efficiency initiated with support from GIZ;(ix) project for skill development, market and product diversification initiated with support from JICA; and (x) meetings with Governments of Balochistan, Punjab KP and FATA already held for co-ordination in implementation of Textile Policy Initiatives.
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