Pakistani exporters of textile sector would face serious liquidity problems under the new standard 15 percent sales tax payment regime of Reformed General Sales Tax (RGST) as compared to Bangladesh, China and India where exporters have no issues of accumulation of refunds.

Textile exporters told Business Recorder here on Monday that the textile manufacturers-cum-exporters of Bangladesh, China and India have no problems of blockage of sales tax refunds.

No sales tax is applicable in the said countries on export of textile goods.

Raw cotton is exempted from sales tax in regional counties.

At the same time, zero-rating facility to textile sector has averted liquidity problems in India, China and Bangladesh.

The entire supply chain of textiles in these countries does not pay any tax.

Similarly, there is no system to first take sales tax from the textile units for later payment of the same amount after export of textile products.

There are no taxes on exports due to proper zero-rating facility applicable in the said countries.

The textile sector zero-rating was a conscious decision taken by the government.

Textile sector is maintaining all kinds of documentations under the zero-rated regime.

The FBR has proposed to impose 15 percent sales tax on textile sector by taking away the zero-rating facility.

If the purpose of the new system is to collect tax and then refund the whole amount under the RGST, there would be no need to go through the cumbersome process of collecting GST for refunding the same amount.

Such practice is not applicable in India, China and Bangladesh and only results in liquidity crunch for the textile units.

Textile exporters further said that world-wide cotton production stands at 118 million bales against 120 million bales of requirement.

Value added production of textile sector stands at $600 billion of which apparel production is $400 billion per annum while Pakistan's cotton production stands at 11.3 million bales and apparel textile exports were $3.2 billion, which is less than one percent of the total production.

India cotton production stands at 30 million bales with 25 percent surplus exported while its share in apparel production export stands at $11 billion.

China produces 32 million bales and imports 18 million bales to meet its domestic requirements and value added production stands over $130 billion which is 32 percent of the total value added production.

Bangladesh produces 4 percent of the value added textile worth $16 billion.

At present Pakistan is fast losing its share in the global garment market because of high costs of production.

Garments exports from Pakistan's traditional competitors in the region - Bangladesh, China and India have picked up dramatically because the exporters of these countries are getting incentives from their respective governments.

At present the major thrust of garment exports from Pakistan is to the USA market.

The European Union is the second largest market for garment manufacturers from Pakistan.

Imposition of RGST would make it more difficult for the textile exporters to survive, as their cash flow would be negatively affected.

Copyright Business Recorder, 2010

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