Approximately 400 members of All Pakistan Textile Mills Association (APTMA) decided to observe a 'black day' yesterday in protest against the delay in announcing the relief package promised by Prime Minister Nawaz Sharif. APTMA was earlier assured that the package would be announced by the end of September, a package already overdue by about two weeks, and one may safely assume that the objective of observing a 'black day' is to remind the relevant government ministries of their time-bound commitment.
It is extremely unfortunate that Pakistani governments, past as well as the present, remain blithely unconcerned about the woes of organised productive sectors as well as of other pressure groups until and unless they increase their nuisance value through protests and/or shutting down their productive activities with an obvious negative impact on the country's total productivity. The government support for the export sector has been limited to direct injections and/or diverting energy from other sectors to the sector that raises its nuisance value especially if there are political implications for the PML-N.
Be that as it may, cotton and textiles, besides being the largest employers of manpower, account for a sizeable portion of our total exports (over 50 percent), thus there is an urgent need to resolve the issues of the sector that are largely sourced to government policy. It is imperative that the government resolves these issues on an immediate basis if its goal is to generate foreign exchange reserves from our exports rather than borrowing from external sources as has been the trend since the PML-N government took over power. The International Monetary Fund (IMF) has opposed any special package to the textile sector with implications on revenue as well as expenditure, an opposition that was patently evident during a recent teleconferencing with the IMF mission chief for Pakistan's 6.64 billion dollar Extended Fund Facility. It is this opposition that is being held responsible for the delay in the announcement of the package or such is the consensus in the Ministry of Textiles, Finance and Commerce. In other words, the Finance Ministry's focus on accessing the next IMF tranche that would be contingent on the success of the ninth mandated quarterly review scheduled for the end of this month is outweighing an attempt to raise export revenue. Our exports have been declining due to several reasons including a sustained energy crisis, an unrealistic exchange rate as well as delays in refunds.
The APTMA Chairman recently revealed to the media that in a presentation to the federal government 10 demands to revive the industry were put forth - demands that would enable the sector to again compete internationally. These demands include: (i) withdrawal of electricity surcharge; (ii) removal of gas infrastructure development cess (GIDC); (iii) zero rating of local taxes on textile exports; (iv) adding of spinning industry in the long-term finance facility (LTFF); (v) three percent tax on unregistered buyers instead of two percent; (vi) rebate on focus market exports; (vii) strengthening of domestic market; (viii) duty on import of yarn and fabric; (ix) clearance of pending refund claims by the FBR; and (x) direct subsidy to cotton growers and farmers.
Taking India and China as examples of our regional competitors, the APTMA chief pointed out that 90 percent of Pakistan's textile machinery is around ten years old compared to India's 30 percent and China's 10 percent. Export incentives extended by the Indian government to its textile industry include the introduction of Export Promotion Capital Goods (EPCGs) scheme focused on promoting import of capital goods at zero duty subject to minimum export obligations and its extension from March 2013 as well as a reduction on export obligation by 10 percent for domestic sourcing of capital goods. As a consequence of this policy India is investing billions of dollars in upgrading machinery which is not possible for Pakistani textile industry because at present it is struggling for survival rather than considering any expansion. He concluded that "investment support measures should be compatible with the region and no further increase in minimum wage should be announced without getting a substantial growth in textile industry as well as exports."
Given the PML (N) government's penchant for taxing the already taxed, it is unclear whether he would be able to increase taxes on other sectors/groups to provide relief to the textile sector given the current rate of heavy taxation that is already negatively impacting on productivity as well as on household income. In addition, the government has shown a reluctance to revisit its flawed policies that account for its heavy reliance on domestic borrowing thereby crowding out the private sector borrowing or to identify and implement tax reforms that seek to render the system fair, equitable and non-anomalous.
The time to undertake reforms based not on dictation by the Fund but by a more informed analysis of domestic needs is at hand and one would hope that the government takes appropriate remedial measures focused on raising output rather than by disincentivizing the productive sectors.
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