Withdrawal of import duties on cotton

In its meeting held on 30th December, 2019, the Economic Coordination Committee (ECC), headed by the Advisor to the Prime Minister on Finance, Dr Hafeez Shaikh, waived all duties and taxes on import of cotton and also allowed its import via the Torkham border from Afghanistan and Central Asian States. The decision, which was obviously made to meet the growing demand of the textile value-added sector, will be effective from 15th January, 2020. It may be mentioned here that the government imposed one percent customs duty along with a 5 percent sales tax on cotton import in 2014-15. In the following years, its import was subjected to a 3 percent regulatory duty, a 2 percent additional customs duty and a 5 percent sales tax. These duties were withdrawn in the beginning of 2017 but were later re-imposed in July-August. Commerce and food securities divisions were directed to engage cotton importers for establishing of facilities at Torkham. It was promised that necessary changes will be made in the Plant Quarantine Rules for providing facility of meeting Sanitary and Phytosanitary (SPS) requirements for the import of cotton through land routes. As trade with India remains suspended, Afghanistan and Central Asian states have become more viable economic sources for the import of cotton. Advisor to the Prime Minister on Commerce, Razak Dawood, has opined that availability of cotton, especially the long staple one, would facilitate the textile value chain to maintain a healthy growth in exports which are more value-added.

The decision of the ECC to exempt cotton imports form all kinds of duties and taxes would of course deprive the government of a reliable source of revenue and have certain budgetary implications but is timely and very much needed at this juncture. It is unfortunate that the cotton crop which is generally considered as life line of the economy has fared very badly over the past few years. For instance, its output has declined almost consistently from 13,960 thousand bales in 2014-15 to only 9,451 thousand bales in 2019-20 and Pakistan has now become a net importer of cotton while it was a net exporter a few years ago. The most significant challenge was a major drop in the cotton acreage due to significant competition from other crops like sugarcane, and unfavourable international prices. The production was also affected by unfavourable weather conditions, stunting of crop, attack of whitefly, pink bollworm and other pests/insects together with fake pesticides which hampered the cotton output. Additional negative factors this year were extraordinary temperature increases during the critical stages of crop development followed by an unexpected rise in temperature by 2 to 5 degrees Celsius during September, a rise in input costs and irrigation water shortage in Sindh, especially during critical stages of crop development. Since the cotton consumption in the country is about 14 million bales, there was no alternative for the government but to import a large quantity of cotton (about 5million bales) by spending a huge amount of foreign exchange. It may be added that exports of value-added readymade garments during July-November, 2019 have increased by 35 percent, knitwears' by 6 percent and bedwears' by 14 percent in terms of quantity as compared to the corresponding period of last year and it was necessary to maintain the upward trend in textile exports during the remaining period of the year. A positive aspect of the decision is that it will be effective from 15thJanuary, 2020. This will benefit the local farmers as most of the cotton crop will be lifted by mills by that time and they will not have to compete in terms of quality and prices with the imported cotton. It was also good to see that Hafeez Shaikh directed the national food security ministry to devise a comprehensive plan which could help in improving the local production of cotton and serve the interests of local farmers. There is indeed a great need to increase cotton production in the country which could at least meet the local requirements and promote the domestic textile industry. If this could be done, exports of textiles would get a boost, economic activities in the country would accelerate, foreign exchange could be saved, and employment would increase. While the government is striving to meet the requirements of the textile sector at lower costs by eliminating taxes and duties on the import of cotton, it is incumbent on the captains of textile industry to upgrade their technology level, improve their standards at least at par with the international manufacturers and raise their efficiency levels to compete effectively in the international market. In our view, it can be done because Pakistani soil and climate are suited to cotton production and our manufacturers are generally innovative and hardworking.