Textile sector in knots over budget

The struggling textile industry of the country had hoped for some respite in the recently announced Federal Budget. But industry representatives lament that the fiscal plan has little for them. The Economic Survey 2011-2012 shows that textile exports declined by 9.6 percent in July-April 2011-2012, mostly due to decline in international demand and the energy crisis. Value-added items such as knitwear, bed wear, towels and readymade garments exports also showed negative growth. "Lower customs duty on imports will bring down dyeing and printing costs but the real menace for the textile sector is the power crisis and this budget has completely failed to address that" lamented managing director Multimat Incorporated, Zafar Saeed. Calling upon government to fix local cotton prices, Saeed told BR Research that volatility in cotton prices has wreaked havoc on textile manufacturers and exporters. He also criticised the discontinuation of export rebate through the State Bank of Pakistan. "The governments failure to address the power crisis and the deteriorating law-and-order situation is what has forced many industrialists to pack and leave this country," said the managing director. The budget does bring some respite, particularly for smaller businesses. A research report published by BMA Capital stated that the decrease in turnover tax rate from 1 percent to 0.5 percent would bode well for small companies and loss making entities in the sector. To discourage Presumptive Tax Regime (PTR), the tax rate on imports has been curtailed to 3 percent (previous rate: 5 percent). Decrease in the cost of imported raw materials and other items will provide further relief to the manufacturers. Also the allocation of Rs.10 billion for Export Development Fund (EDF) and providing 100 percent tax credit on equity financing of BMR will make it easier for companies to upgrade and renovate their plants and machinery. But industrialists contend that heightened political and social uncertainties are strong deterrents against fresh investments. Efforts to broaden the tax base include the imposition of one percent tax to be collected by manufacturers, acting as withholding agents. Textile manufacturers have expressed dismay over this measure, calling on government to reign in other sectors such as agriculture, instead of burdening the textile sector.