The US-Pakistan Business Council and the US Chamber of Commerce have recommended to the Obama administration and the US Congress to reduce tariffs on Pakistani textiles in order to help make Pakistani exports stable and reduce the countrys heavy reliance on aid and loans. These recommendations are primarily based on the convergence of the two countries policies on war against terror.
This is not the first time that Pakistan side as well as their two trade bodies have lobbied for such a change in the US trade policy. Unfortunately, however, the Bush administration was not able to zero rate Pakistani textile imports into the US despite the special relationship between President George W. Bush and President Pervez Musharraf.
In his first term, President Bush reportedly had said that the vote from a North Carolina senator was vital for him to get passage of his proposals in the Senate. The good senator, however, felt that zero rating Pakistani textile imports would be detrimental to the textile producers in his own state.
In the second term of President Bush, a proposal was floated to have a special zone in Pak-Afghan border areas. This proposal is yet to materialise with anything concrete on the ground. Both the Pakistan government and exporters should continue to press the US side to accept all the recommendations emanating from the two US trade bodies regarding Pakistan-US trade.
However, at the same time in the present economic downturn while looking outward we also need to look inward to make Pakistani exports, especially textiles, more competitive. Finance and textile ministries have undertaken specific studies to examine the cost structure of the textile industry.
Enhancing capacity with mergers, reducing energy costs, improving skills for quality improvement and having better marketing techniques, are among vital issues that need special attention in the medium and long terms for sustainability of textile exports. But in the short term there are some immediate measures that can be adopted to help the existing exporters retain as well as enhance their market share.
Foremost among them is to zero rate value added textile products in true spirit. Let us not get into a rebate mode which allows misuse, making the exchequer end up paying more than what it collects in taxes and duties on raw materials and other inputs. Instead, we need not collect taxes or duties levied on inputs of zero rated export industry.
At present, the impact of incidence of indirect taxes on textiles among others, includes: one percent withholding tax on raw cotton (impact 0.35%); cotton levy (0.57%); turnover tax on yarn (2.14%); turnover tax on weaving (2.19%); turnover tax on stitching (2.23%); withholding tax on dyes or chemicals (2.44%); export development surcharge (2.73%); federal excise duty on insurance etc.
The list goes on and on. Both the Finance Ministry and Textile Ministry have the requisite data supplied by export bodies. The data is verifiable and has been quantified. Companies which obtain zero rated export status must not be charged taxes, duties and levies on "all inputs".
The total of government take on their inputs is around 10 percent of the total cost. What this exchequer loses in rupees by non-taxing zero rated export industry is more than compensated with several times more earning in dollars through enhanced exports. Not only will the expansion of industry generate more employment, an expanded workforce will also pay taxes.
The Advisor on Finance to the Prime Minister, Shaukat Tarin has enormous banking experience. He is, therefore, in a better position to appreciate exporters problems. His understanding of such issues should be better than any consultants or bureaucrats report. A booming textile export industry can also attract investment.
There arent two opinions about the need to diversify and broaden the export base. But until that happens, let us improve upon where we at present have the competitive advantage. We print rupees to meet the fiscal deficit. We cannot print dollars and go around with a begging bowl to bridge the current account deficit. The choice is clear. The tilt has to be towards trade not just aid.
Comments
Comments are closed.