The Economy Monitoring Committee (EMC) is to consider the much-talked about textile sector support package in its meeting on Thursday, official sources told Business Recorder. The issue was placed before the Economic Co-ordination Committee (ECC) of the Cabinet on Tuesday, which not only expressed displeasure over the performance of the textile sector but also decided that the package should be discussed by the EMC first.
"Most of the ECC members were of the view that the rupee had devalued by 22 percent in one-year time, and ultimate advantage of this had gone to the exporters. Then why they are asking for a special package," sources said. They said that the All Pakistan Textile Manufacturers Association (Aptma) was of the view that the government should 'give' it whatever it believes is reasonable.
The EMC, sources said, would submit its recommendations to the ECC in its next meeting. The proposal , if approved, would be a complete negation of the 2008-09 budgetary proposals to extend zero subsidy for R&D support to the textile sector. The budget for 2007-08 had envisaged zero subsidy on the R&D. However, the 'mafia' had successfully pressurised the previous government to extend 19 billion rupees for the purpose. Time will tell if the newly elected government will also revise its own budgetary non-allocations.
The ministry, in the new incentives package, has proposed that duty drawback may be granted to the industry on domestically acquired inputs including taxes on energy ie gas and electricity. The drawbacks would only be allowed to those products which do not require further value-addition.
The drawback on locally acquired inputs would not affect the eligibility of the exporters to claim the normal duty drawback. According to the ministry, the drawbacks would be allowed to manufacturers-cum-exporters who have in-house facility for at least cutting and stitching, and will cover shipments made with effect from July 1, 2008 to June 2009. The ministry has proposed that Rs 30 billion may be allocated to cover R&D expenditure during the financial year 2008-09.
It has also been proposed that this drawback scheme for locally acquired inputs may graduate into an investment support fund. This initiative, the ministry argued, would facilitate balancing of the value chain in the textiles and clothing industry, upgrade technology, bring unorganised sector into the organised sector, generate employment and create economies of scale.
The investment promotion fund would reimburse 5 percent interest on investments in machinery to the targeted textiles and clothing sub-sectors and would cover imports effected through letters of credit to be established from July 1, 2008.
The fund would be operational for 5 years and would be reviewed thereafter. The ministry has suggested that the scheme may also be announced, with the name of drawback scheme, to encourage investments which would not have financial implications in 2008-09. However, any claims may be covered from the amount allocated in the budget.
Another major proposed incentive is said to be 20 percent tax credit facility on investment under drawback scheme. It has also been proposed that reimbursement of interest on loans to the textile industry for 2007-08 may continue for another year at the rate of 5 percent. Sources said that textile industry has also sought separate power tariff for it, but it is unlikely to be approved by Prime Minister Yousuf Raza Gilani.
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