The Rs180 billion Prime Minister Incentive Package for the textile sector was launched last year. Yet, the impact textile stakeholders had hoped for has been missing mainly due to patchy implementation. In its budget proposals, the All Pakistan Textile Mills Association (APTMA) has demanded prompt payment of duty drawbacks and pending sales tax refunds.

Almost every textile company has complained in its financial reports of the resulting liquidity crunch because of the delay in processing and payment of these refunds and duty drawbacks. APTMA notes that only Rs16 billion of duty drawbacks have been made to exporters till date. The Association wants payment of duty drawbacks to be made on the realization of export proceeds against an undertaking for increase in exports on a semi-annual basis.

The list of budget proposals also includes reducing the corporate tax rate from 30 percent to 25 percent or at the very least bringing it down for the textile sector. Citing the previous precedent of granting zero percent turnover tax for rice mills in FY16’s budget due to their financial woes, APTMA would like the government to give a similar treatment to textile firms. Recall, that the Finance Act, 2017 had raised the rate of minimum turnover tax to 1.25 percent from a previous 1 percent.

In the same vein, textile stakeholders would also like to see the further tax to be withdrawn on the textile sector which is zero-rated. They believe this 1 percent tax has a cascading effect which further increases the cost of production across the entire value chain.
Currently, no input tax credit is available for input on packaging material which APTMA believes to be a commercial requirement of any textile firm. The body would like the government to reinstate input tax refunds for packaging materials.

Finally, amongst other proposals APTMA wants the government to encourage value addition by amending the long term financing facility (LTFF). First off, it wants indirect exports to be eligible under the LTFF scheme which it believes will increase the supply of basic textiles to the value added sector. The other major demand is to allow the LTF facility to be allowed for building of garment infrastructure.

Even though most of the demands by APTMA have also been echoed by other textile representative bodies as well and the issues have been raised on multiple forums by stakeholders, it remains to be seen how many of these budget proposals will actually be adopted by the government. Given the macroeconomic challenges and shrinking fiscal space available, it will have to be a balancing act.