The textile sector has launched a public campaign to seek relief with respect to two major issues that are impeding its exports: a cumulative rise in pending sales and income tax as well as customs duty refunds and export incentive package that would minimize the cost differential between Pakistan's textile sector and their international competitors, regional as well as beyond. The prime minister's export package has only this week been extended by three years, yet the sector's woes remain. It is simply inexplicable as to why Pakistan Muslim league (N) that understands the industrial sector like no other national party, or such is the perception, failed to take account of its long standing woes that are attributable to policy.
Refunds are not a subsidy but payment to the exporter withheld by the Federal Board of Revenue (FBR) at earlier stages of production to be paid at the time of export of the finished product and zero rating domestic supplies used during the product's manufacturing process. In other words, an exporter legitimately calculates refunds as cash in hand and FBR's failure to refund has implied a severe liquidity crisis that in several instances necessitates borrowing at a cost that simply adds to the cost of the finished product making our exports uncompetitive in the international market.
At present, refunds to be cleared by the FBR are estimated at over 200 billion rupees by exporters while this figure is disputed by the tax agency which legitimately seeks time to validate claims. However, manual validation would no doubt be time consuming but as far back as in 2009 FBR, with assistance from a World Bank consultant, launched the Expeditious Refund System (ERS) which was designed to process claims electronically under certain risk-based parameters for manufacturers-cum-exporters in major export-oriented sectors. So why does FBR routinely delay refunds and allows them to pile up? The reason lies with the Ministry of Finance, with FBR under its administrative control, and its perennial shortage of revenue to meet its ever-rising expenditure. In other words, to show a lower budget deficit Pakistani governments, past as well as the incumbent, instruct FBR to go slow, and in years like the present when the budget deficit is expected to reach unsustainable levels by end June, the instructions may well be to simply stop paying refunds. This unfortunately has a negative impact on exporters' capacity to be competitive.
The government has reportedly proposed yet another export promotion package of 28 billion rupees - the third since January 2017. The first 180 billion rupee export package announced in January 2017 was never fully implemented due to the government's financial constraints while the second one announced by the Abbasi-led administration last year was abandoned half way as it was to be funded by savings from increasing duties on import items which were never implemented. This third and final one for PML-N as it ends its tenure on 31 May is unlikely to be implemented as the budget 2018-19 has not provided any funds for it.
The Economic Survey 2017-18 highlighted its significant contributions to the national economy: "the sector contributes nearly one-fourth of industrial value-added and provides employment to about 40 percent of industrial labour force. Barring seasonal and cyclical fluctuations, textile products have maintained an average share of about 60 percent in national exports - a share that textile products achieved during the first nine months of the current fiscal year. To conclude, the textile sector remains an extremely important contributor to the national economy and one would hope that its genuine concerns are dealt with as soon as possible.