MoC withdraws textile, apparel policy 2020-25?

ISLAMABAD: Finance Ministry’s harsh conditions on new fiscal incentives have reportedly compelled Commerce Ministry to withdraw its Textile and Apparel Policy 2020-25 despite the fact the ECC has already approved it and the latter’s decision was ratified by the Cabinet, sources close to Secretary Commerce told Business Recorder.

According to the Finance Ministry, the government is consistently supporting the export sector. During last three years, an estimated amount of Rs 115.5 billion under DLTL schemes to textile exporters and over Rs 100 billion as power and gas subsidy were disbursed to zero-rated sectors. Further concessions included taxes and duty-free import of raw material and machinery, and market determined exchange rate and subsidized financing by the State Bank of Pakistan (SBP) were provided.

However, exports of five zero-rated sectors registered negative growth in 2019-20 vis-à-vis 2018-19 and annual cumulative growth rate remained 6 per cent in the last three years.

Finance Division argues that it is imperative for the Commerce Ministry to take a holistic picture of the unprecedented support and outcome thereof for informed decision making by the ECC/Cabinet.

Discontinuation of gas to hit textile exports in a big way

The Finance Division, in its comments, said that it shall continue to provide subsidy support within fiscal space subject to the following: (ii) considering highest ever increase in the LNG prices globally, i.e., US $ 25-30 MMBTU, the agreed rate of $ 9 per MMBTU is required to be made applicable with immediate effect till June 30, 2022 and to review energy supply rates in July-August of every financial year during the period of the policy;(ii) as DLTL policy is being separately contemplated, its numbers and references being duplicative may be deleted;(iii) Ministry of Commerce to apprise the ECC on quarterly basis about the export performance of sectors covered under the proposed policy;(iv) the comments of Federal Board of Revenue (FBR) and SBP may be solicited and incorporated in the proposal;(v) annual review of exports vis-à-vis targets to provide sufficient justification for continuity of the incentives;(vi) subsidized gas supply to captive power plants may be reviewed with definite timelines; and (vii) comments of Finance Division may be formed part of the policy document.

Federal Minister for Energy maintained that the co-generation plants that do not have any problem should be immediately shifted to the national grid.

“There will be a very good electricity package and it would save approximately 40-50 MMCFD gas, after shutting down spinning industry,” he maintained.

A follow-up meeting of the committee headed by Advisor to Prime Minister on Commerce and Investment was held on October 28, 2021. The committee recommended incorporating following points in the draft policy: Electricity and RLNG will be provided to the export-oriented units/ sectors of textile industry at regionally competitive rates throughout the policy years without any disparity among the provinces. During FY 2021-22, electricity will be provided at Cents 9 per KWh all-inclusive and RNLG at $ 6.5 per MMBTU all-inclusive.

However, an exercise will be conducted jointly with the Ministry of Energy (Power and Petroleum Divisions) during pre-budget consultative sessions annually to review the energy tariffs. In case of abnormal fluctuations in regional energy prices, the approved rates may be revised on an average of energy prices for industrial consumers for the regional competitors (Vietnam, Bangladesh, etc.) and announced in federal budget along-with budgetary allocations by Finance Division as actually required by the Ministry of Energy so that energy regime would remain fully funded throughout the policy years.

MoC to submit new textile and apparel policy to ECC

The committee further recommended that Ministry of Commerce and Ministry of Energy will jointly devise a mechanism in 2-3 months on targeting energy regime to real beneficiaries in a way that export oriented sectors/ units of textile industry would remain internationally competitive.

The committee maintained Duty drawback (DLTL) will be continued for value-added products only (i.e., technical textiles, apparel, made-ups and carpets); however, it will be de-linked with increment in exports. Moreover, diversification within products and markets will be offered an additional incentive. Ministry of Commerce will further pursue the SBP and FBR to automate disbursements process of the duty drawback schemes on the lines of custom duty drawback mechanism where payments are made directly to exporter accounts by SBP on receipts of foreign exchange for notified products export subject to allocation of funds by the Ministry of Finance.

On December 16, 2021, the ECC discussed the revised draft of Textile and Apparel Policy 2020-25 and approved it with the following amendments: (i) electricity and RLNG rates, indicated for fiscal year 2021-22, will be substituted, with regionally competitive energy rates;(ii) the regionally competitive RLNG rates will be applicable on processing industry;(iii) for the captive and the cogeneration units, a separate policy by the formulated by the Ministry of Energy, in consultation with the Ministry of Commerce, which will cover the benefits; and (iv) comments of the Finance Division shall be made part of the proposed Textile and Apparel Policy 2020-25.

The sources said, the Federal Cabinet, on December 21, 2021 also ratified the decision. However, Advisor to Prime Minister on Commerce and Investment, Abdul Razak Dawood has claimed that he requested the Cabinet that he wanted to withdraw the policy from Cabinet, but his viewpoint has not been recorded accurately.

Now, Commerce Ministry has written a letter to Cabinet Division, requesting withdrawal of Textile and Apparel Policy 2020-25.

Copyright Business Recorder, 2022