Government needs to embark on three-pronged strategy: APTMA

Export driven growth is imperative for creating jobs, reducing current-account deficit and attracting local and foreign direct investment. All Pakistan Textile Mills Association (APTMA) has conducted a series of serious studies and has identified appropriate areas and relevant measures that could provide impetus for achieving sustainable growth and has requested Federal policy makers for their incorporation in the budget.
The government needs to embark on three-pronged strategy that includes availability of electricity and gas, tariff rationalization of the textile value-chain and encouragement of new investment to create exportable surplus. Availability of energy at affordable cost could be a stepping stone for reducing the cost of doing business. Currently, electricity cost at Rs 11.40/kWh is unrealistically high and is inflated due to elements of cross subsidy and theft in the system. Removal of these loading factors will make electricity available at Rs 7/Kwh. This reduction obviously will incur no loss to the government rather will streamline generation and distribution of electricity.
Punjab, which is the principal hub of the Textile Industry, is getting gas at Rs 1300/MMBtu, whereas, for the rest of the country, the same is available at Rs 600/MMBtu. It will be in the fitness of things, if it is made available at the same rate in whole of the country.
According to the budget proposals it is quite surprising that FBR is collecting taxes on raw materials used in the manufacture of manmade yarn and making yarn price unviable. The government may take other measures to provide protection to local manufacturers of raw material rather than taxing raw material, which is contrary to the scheme of Custom tariff.
APTMA considers it necessary to provide incentives to farmers in order to enhance cotton productivity. Instead of imposing duty on import of cotton, FBR should zero rate inputs of cotton like fertilizer and electricity. The duty on cotton could only make a case if domestic cotton production was enough to meet local demand for cotton.
The government is aware that the world is rapidly switching over to manmade fiber and to follow the global trend the government would have to create space for reducing the cost of staple fiber through removing the custom duty, which is in excess of 10%. Similarly, the increasing trend in the import of synthetic yarn is adversely affecting its local production. Imposing 15% Regulatory Duty on its import will provide some breathing space for its local production.
The rationale of zero rated sectors means 'no tax'. It hardly makes sense to subject any of the zero-rated sectors to 1.25% turnover tax. This needs to be brought to zero as currently it is leading to recurring losses. Presently, we are seeing that corporate tax is being slashed the world over. As such, its maximum rate should be fixed at 25% in the forthcoming budget.
The government announced in 2016 to zero rate fuel, however, due to cumbersome procedures this incentive was a nonstarter. The FBR needs to streamline and expedite zero rating on the pattern of Expeditious Refund System. Strangely, FBR has disallowed tax adjustment on purchase of packing material and office equipment. Nowhere in the world in the VAT regime is anything used in manufacturing that is not entitled to adjustment. For this purpose, the government needs to delete such exclusions otherwise the buyer may switch over to informal market for buying without payment of tax.
It has also been found that non-payment of refunds and duty drawbacks has aggravated the liquidity crunch of manufacturers. The FBR needs to put in place an automated procedure for upfront payment of duty drawback as well as refund of sales tax and income tax.
The Export Led Growth package announced by the government in January 2017 still faces bottle-necks and has been unable to see the light of the day. Package delayed is package denied and as such government needs to make allocation of funds in the budget for the State Bank of Pakistan to make immediate payment on realization of export proceeds.