Relief in taxes for export-oriented industries demanded: Nike to stay in Pakistan

Nike, one of the world leaders in sports goods and sports wear manufacturing, has decided not to sever its business relations with Pakistan. Nike is a major buyer of millions of hand-stitched soccer balls produced in Sialkot, which are sold all over the world through its outlets.
The multinational company had worked closely, in the production of soccer balls, with 'Saga' sports of Sialkot for a number of years. However, it developed some differences on the issue of social compliance with its local partners and decided to roll back its operations.
The entire gamut of problems, that had arisen between the two business partners, was discussed at the highest level in an effort to remove the irritants to the satisfaction of Nike. Earlier this year, its CEO had a meeting with Prime Minister Shaukat Aziz in Davos, were the issue was discussed threadbare and some understanding was reached towards the resolution of the problems.
Safdar Sandel, Chairman, Pakistan Sports Goods Manufacturers and Exporters Association (PSGMEA), informed Business Recorder on telephone from Sialkot on Wednesday that Nike had decided to continue buying soccer balls from Pakistan.
"This time, Nike has arranged its business contract with 'Silver Star', a large firm of Sialkot, instead of 'Saga' sports which would also continue with its business with other customers."
He appreciated that Nike administration had cared a lot for social compliance for the wellbeing of workers of Pakistani industrial workers and had tried to bring home international standards of social welfare.
"This is something which our entrepreneurs must pay attention to," he said, adding that initiatives in that direction would attract other multinational companies like Adidas, Puma, Select, Derby Star, Grays of Cambridge, Dunlop and several others who have a comfortable base here.
Sandel said it was indeed heartening that Nike, which had almost given up Pakistan, had come back to Sialkot for purchases of hand-stitched soccer balls. "It is a great success story for the sports industry of the country. I must say that besides other things, it is the good quality product which has drawn Nike back to Pakistan," he said.
It will now continue to sell soccer balls to the whole world with higher prices mainly because of the high quality balls produced in Sialkot. This shows that Pakistani soccer balls, especially the hand-stitched ones, are much better in quality than those produced in India, China and other producers, he said.
The PSGMEA Chairman said that he was convinced that Nike must have possibly looked for other sources of production and supply and would have decided to come back to Pakistan due to the fact that Pakistan's soccer balls have no match in so far as quality and competitive prices are concerned.
He regretted the imposition of high rate of mark-up in the Export Refinancing Scheme on the manufacturers and exporters, particularly of sports goods, sports wear surgical instruments, leather garments and numerous other items produced in Sialkot.
He decried the arbitrary increase in the mark-up from three 3 percent to 8.5 percent which reflected a straightaway increase of almost 300 percent. The monetary burden of this increase on exports has posed a serious threat to small industries and it has become hard to control the rising cost of production, thus making the products uncompetitive in the international market, particularly with China and other regional export players.
This is restricting the volume of exports, on the one hand, and depriving the country of foreign exchange, on the other. He, therefore, demanded that the mark-up rate be brought back to its original 3 percent level. The purpose for which the Export Refinance Scheme was introduced and envisaged has ironically been lost to inconsiderate policy changes, he said.
Sandel said that to survive in the present scenario of free world economy the greatest need of the hour is that the government provides funds for research and development to the sports industry. A big challenge being faced by Pakistan's soccer ball industry is that the world is moving fast towards machine-stitched balls. The transition to this model is indispensable. To preserve businesses and jobs, the Sialkot industry needs to rapidly consider and review its expertise.
The present government had provided 6 percent subsidy growth (now made half) under the research and development scheme to the textile industry and leather garments industry, but it has failed so far to appreciate exactly similar needs of the sports industry which covers a large variety of sports items. It is required that all export-oriented units, which export 80 percent of their products be given 6 percent R & D on their exports.
The sports goods industry is making hectic efforts for enhancing the export volume despite many hurdles. The exporters of Sialkot are fully aware that machine-made balls are getting popular day by day in some markets, especially due to their low price. In order to cope with the threats of machine-made balls and for survival of soccer ball industry, the government should provide 6 percent subsidy of R&D to sports goods and surgical instruments industry of Sialkot. This facility would enable the local businesses in bringing innovation for ensuring improvement in their products and help benefit the country largely.
Sialkot, being a city of exports where more than 90 percent of the goods produced are meant for export, should be declared as a tax-free city in the larger interest of small and medium industries of this export-oriented city. The current taxes and levies should be abolished and the whole region be declared as export zone. The special zone created as Export Processing Zone (EPZ) in Sambrial, Sialkot must be de-notified, as it has lost its relevance and utility due mainly to lack of interest evinced in this project during the past two decades, he said.
Sandel said that business related travel to foreign countries play a major role in boosting exports. There are thousands of travellers going abroad from Sialkot to visit their buyers once or twice a year. Due to the imposition of central excise duty on air tickets, travelling cost has gone up by nearly 15 percent resulting in curtailment of business trips and contact with foreign buyers which is so crucial. He, therefore, suggested that it would be saner if all NTN holders are exempted from this duty.
The PSGMEA Chairman suggested following measures for the healthy growth of Sialkot's vital industries:
-- Exemption of 1 percent with holding tax from banks being charged at present which was originally 0.25 percent.
-- Special support subsidies should be given to export-oriented industries on consumption of utilities.
-- Petroleum products should be provided at subsidised prices to industries as expensive transportation adversely affects the cost of production.
-- Single-window operation should be started at a fixed rate for all fringe benefits. Thus heavy workers fringe benefits cost like social security and EOB/contribution group insurance etc should be done away with.
-- As declared in last federal budget, a 5 percent charge on letters of credit should not be imposed as the same adds to the cost of production of exportable goods.
-- The export development fund (0.25 percent) presently being charged from exporters should be abolished as no significant benefit is being derived out of this fund.
-- The 0.2 percent service charge on bank cheques is another financial burden on business community. This should be eliminated forthwith.