Withdrawal of zero rating facility: textile industry nears standstill

The whole textile industry is near standstill with government's restriction of zero-rating on the export of textiles, carpets, leather, sporting and surgical goods only to registered manufacturers and exporters. Hence it is likely to end up on colossal losses in the absence of an immediate reversal of the Presidential Order issued on 15th March 2011, said industry circles.
Majority of the downstream textile industry, Chambers of Commerce & Industry and Federation of Chambers of Commerce & Industry besides all other associations in the downstream have rejected the SRO 231. A good number of spinning mills are closed down on daily basis with rest of the troubled ones heavily exposed to domino effect sooner than later.
A chaos like situation has engulfed textile industry fast with rising chances of collapse of the entire value chain. Textile industry circles have termed the SRO 231 unworkable and feared that it would benefit only to a few with spinning and composite units and who already carry with a longstanding prejudice against the single unit holders. They have always been advocating for closing down the weak players, nearly 40 percent of the industry, to benefit exclusively from government incentives, said one senior textile miller, owning single unit. "It is like a rapid fire round, leaving no room for the weak players of industry to stay anymore alive on business scene," said former Chairman Pakistan Hosiery Manufacturers Association Shahzad Azam.
According to him, the situation would end up on a fight between the have and have-nots in the industry while putting 50 percent industry at stake, leading to massive unemployment and poverty in the country. Interestingly, the spinners, weavers, processors and even value added manufacturers and exporters have expressed deep reservations on the SRO. They said it carries number of anomalies, already resulting into removal of Member Sales Tax from the Federal Board of Revenue. Shahzad said the government was committed to introduce it in the upcoming budget with consultation of the stakeholders but it opted for a Presidential Order to introduce mid-term finance bill, which is highly unfair and never happened earlier. He feared that it would open the window for smuggled items to the industry through Afghanistan, as nobody would pay additional 23 percent on local goods after the new arrangement.
Shahzad said the industry has rejected it out-rightly, as it would add 50 percent to the cost of cloth manufactured locally. He lamented that the government stabbed the industry in its back while prompting the beleaguered media to chase Raymond Davis. Meanwhile, according to some independent estimates, the government is likely to generate revenue of Rs 14 billion out of 25 percent domestic sales of industry with 17 percent General Sales Tax.