The government has reportedly formulated a five-year export package of Rs 28 billion, without keeping in mind that Finance Minister has not earmarked funds in the budget 2018-19 for this purpose, sources close to Chairman FBR told Business Recorder. The package was tabled in the Economic Coordination Committee (ECC) of the Cabinet last week but could not sail through due to absence of Finance Minister, Dr Miftah Ismail from the meeting. However, the package will be presented in the next ECC meeting.
The ECC under the chairmanship of the then finance minister Ishaq Dar had approved Prime Minister's package of incentives of Rs 180 billion for exporters of textile and non-textile sector on shipments made from January 16, 2017 to June 30, 2018, aimed at improving competitiveness of the export sector which had been adversely affected due to high energy costs, exchange rate appreciation and high import tariffs on inputs. The package was improved upon by the ECC on October 6, 2017 under the chairmanship of Prime Minister Shahid Khaqan Abbasi by allowing 50 per cent incentives to all eligible sectors and the remaining 50 per cent to those exporters who enhance their exports by at least 10 per cent in FY 2018 compared with FY 2017. Besides, in order to encourage market diversification, 2 per cent incentive of FOB value was allowed for exports to non-traditional markets.
The sources said Prime Minister's export package has contributed towards the turnaround in exports in FY 2018 which had been continuously declining since FY 2014. During July-April 2017-18, exports registered an increase of 14 per cent compared with the corresponding period of the previous year. It has contributed additional $ 2.3 billion foreign exchange earnings from exports during this period. The additional gains are estimated to be around $ 2.7 billion by the end of the financial year 2017-18.
The export package is scheduled to conclude on June 30, 2018. During the recent months, though the exchange rate has been rationalized, reducing one element of extra cost from the export sector, the other major factors viz, energy costs and high tariffs on raw materials and intermediate goods continue to affect the export competitiveness vis-à-vis regional competitors.
Therefore, in order to maintain the growth momentum, the export package needs to be continued. However, the package in its present form, with only 10.4 per cent incentive for non-textile sector which contributes 40 per cent to the national export basket does not facilitate efforts towards diversification of exports into non-traditional sectors.
The Ministry of Commerce and Textile argues that in order to improve competitiveness and incentivize investment in export-oriented production, the drawback of local taxes and levies may be extended for five years as follows: (i) to promote value addition, the textile garments may continue to receive drawback; (ii) to support diversification, the already eligible non-textile sectors, excluding raw materials such as tanned and finished leather, may continue to receive drawback; (iii) to encourage more non-traditional sectors, electric fans, electrical appliances, electricity equipment and cables, transport equipment including motor bikes, sports bags, leather products eg wallets& belts, auto-parts, furniture, pharmaceutical products, fresh fruits & vegetables, meat, meat preparations including poultry, fish and fish preparations, juices & syrups and spices may be included in the package; (iii) to promote market diversification, 2 per cent additional incentives for non-traditional markets may be continue; and (iv) since the recent depreciation and reduction of tariffs on imported inputs have partially reduced the non-competitiveness of the export sector, the incentive may be allowed at the reduced rate for the eligible sectors. The proposed estimated cost of export package is about Rs 28 billion.
The cost of proposed PM package at reduced rate will be Rs 19.1 billion for textile garments, Rs 4.6 billion for eligible non-textiles, Rs 3.3 billion for new non-textiles and Rs 0.8 billion at the rate of 2 per cent incentive of non-traditional markets totaling it to Rs 27.9 billion.
The Ministry has also included the following observations of Minister for Commerce and Textile: (i) the textile made-ups may also be included in the package (estimated cost Rs 13.4 billion); and (i) the drawback of the garments and value-added textiles may continue subject to use of indigenous raw materials.
The sources said Finance Minister Miftah Ismail made a number of promises to the business community after taking over charge of the Finance Ministry but failed to honour a single commitment.
The exporters' refunds of Rs 20-25 billion given in the export package are still pending.
"Keeping in view, the allocations in federal budget 2018-19, I do not think Finance Minister is serious about extending incentives to the exporters," said one of the analysts.
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