Trade competitiveness and economic growth: Govt focusing on tariff rationalisation, its implications: Jam

ISLAMABAD: Commerce Minister Jam Kamal has said that the government is focusing on tariff rationalization and its implications for trade competitiveness and economic growth.

Addressing a pre-budget seminar he underscored the significance of tariff rationalization in enhancing trade competitiveness and fostering economic growth.

He emphasized the Ministry of Commerce's commitment to simplifying and streamlining tariff structures to reduce costs for domestic industries, boost exports, and attract foreign investment.

Jam Kamal reiterated the government's dedication to supporting the business community and highlighted key priorities including boosting exports, combating smuggling, and curbing tax evasion.

He also praised the growth of Pakistan's textile industry and recognized opportunities in the evolving global landscape, reaffirming the government's commitment to driving Pakistan towards a more dynamic economic future.

The Secretary Commerce, Saleh Ahmad Farooqui, highlighted that the seminar provided a platform for stakeholders to engage in meaningful discourse on tariff rationalization's benefits and implications.

He emphasized the importance of stakeholders gaining insights into tariff rationalization initiatives and providing inputs to aid strategic changes to the existing tariff structure.

All Pakistan Textile Mills Association (APTMA) took centre stage at the Ministry of Commerce Pre-Budget Seminar, addressing the pressing challenges confronting Pakistans textile and apparel industry.

In recent months, the country witnessed an unprecedented decline in exports, plummeting from an all-time high of $19.3 billion in FY22 to a concerning $16.5 billion in FY23. This stark downturn signals an alarming departure from our installed capacity and is a call for introspection and strategy.

APTMA informed that the key reason of to this challenge is the paradigm of our energy tariffs that have become shackles inhibiting our potential. The escalation of grid electricity tariffs to approximately 17.5 cents per kWh, paired with the surging cost of gas, has left us in a predicament where the production cost exceeds the competitive threshold on the global stage.

"It is not merely about numbers; it is about the sustenance of an industry that employs millions and the livelihoods tethered to its success. We have unequivocally identified the hurdles prohibitive energy costs, hindrance in tax refunds, an adverse duty structure for key raw materials, to name a few, " said APTMA representative.

The textile industry said that the way forward is charted with both immediate and long-term solutions that demand which require an actionable roadmap, one that envisions bringing power tariffs for industrial consumers to a regionally competitive level of 9 cents per kWh.

"This is not an arbitrary figure but one that aligns with the successful growth we experienced when our tariffs were competitive. The removal of cross subsidies and stranded costs is a strategic recalibration of our resources that will revitalize our textile and apparel exports, "said APTMA.

The Association also envisions the empowerment of the industry through business-to-business (B2B) power contracts, which would enable our textile mills to secure green energy at competitive rates. By setting an upper cap of 1000MW/annum for these contracts, the country can judiciously manage financial spillovers while fostering an environment conducive to export expansion.

Moreover, increasing the cap on solar net-metering for industrial consumers from 1MW to 5MW would propel our strides towards a net-zero future, essential in an era where international trade is increasingly contingent on sustainable practices.

APTMA has also taken cognizance of the imminent threat posed by the EU's Carbon Border Adjustment Mechanism (C-BAM). To maintain our export competitiveness under C-BAM and similar green regulations, it is crucial to enable a transition to green energy immediately, and the measures we have proposed, including B2B contracts for power wheeling and increasing the cap on solar net-metering will also support this.

Additionally, the rationalization of tax rates, deepening of the stock market, and incentivizing exports, are the catalysts to our financial rejuvenation. As we juxtapose our corporate tax rates with regional economies, the imperative for rationalization becomes ever so clear. With the highest corporate tax rates in the region, we are inadvertently hindering the influx of both domestic and foreign investment.

The challenges of supply chain traceability are also not to be underestimated in an era where consumers and international markets demand ethical sourcing and sustainability. The need for a robust National Compliance Centre (NCC) is clear.

Pakistan's import and anti-dumping duties discourage MMF production, keeping us from tapping into this lucrative segment of the global textile market.

"We have pinpointed the need to remove the import duty on raw materials such as Purified Terephthalic Acid (PTA) and Polyester Staple Fiber (PSF), the building blocks of MMF textiles that represent two-thirds of international trade. The current duty on PTA and PSF hampers our competitiveness and stymies growth," APTMA continued.

The 5% import duty on PTA should be reduced to zero, and the PSF import duty should be adjusted to 2%. It is also imperative to reevaluate the anti-dumping duties on PSF to stimulate the production of MMF-based products and diversify our export basket.

In addressing the Duty Structure for Raw Materials, APTMA said that it's also important that we continue the import of duty-free cotton. Local production stands at around 9 million bales, starkly insufficient against a demand exceeding 15 million bales. The bridging of this gap is crucial to the sustenance of our textile sector.

Moving to the Duty Structure for Intermediate Inputs, it's evident that fostering growth in the nascent industry of recycled and regenerated polyester is essential. We propose that differentiating recycled from virgin polyester, and more importantly, remove the import duty on recycled polyester. This measure will signal our commitment to sustainable practices and support industry growth.

Moreover, dyes and chemicals, fundamental to the competitiveness of downstream industries, currently face duties that are antithetical to our goals of export enhancement.

"APTMA was of the view that the government has to take decisive action to zero-rate these crucial inputs, thereby bolstering our textile sector's global position.

"When we consider the Duty Structure for Machinery & Equipment, the inequity in the imposition of customs duty on industrial spare parts and gas generators is clear. Our recommendation is unequivocal: to withdraw customs duty on these items, including spare parts used exclusively with machines and those for power plants. It is equally imperative to zero-rate spare parts for power plants, echoing our commitment to sustainable energy practices and international competitiveness," said textile sector.

Copyright Business Recorder, 2024