The textile sector’s response to the original incentive package announced last year by the government was lukewarm at best and understandably so. Even though the incentives included in the package such as enhanced duty drawback rates on exports were in line with what was desired by textile players, the implementation was shoddy.
Industry players that BR Research reached out to in the past had equivocally claimed that the package had existed mostly on paper while timely implementation remained elusive. The recent tweaking to the incentive package comes on the back of lackluster results in textile export growth. Faced with a rising current account deficit, the government has once again made adjustments to enable more conducive incentives for players.
Last month the government approved the revised package which provides for 50% of the drawback to be exempt from the condition of 10% increase in exports. The remainder of the drawback will be subject to 10% year-on-year increase in exports during FY18.
The modified package aims to improve the cash flow of exporters with the drawback being allowed after 1HFY18, provided the 10 percent increase criterion is met for the period. However, in the case the exporter is unable to maintain the 10 percent increase for the entire year; the excess drawback amount has to be returned to the government.
Additionally, the notification also provides 2% extra duty drawback if the exports are to non-traditional markets, and the list includes 143 countries. These are mostly in Africa, Latin America and the non-EU European countries.
But Pakistan needs to focus on reducing its cost of doing business and bring it line with regional competitors such as Bangladesh and Vietnam. There is also the lack of innovation in fibres with the local industry still producing largely cotton-based fibres whereas the global trend has shifted towards man-made fibres.
However, as far as the revised package goes, the biggest factor is implementation. No matter how lucrative the incentives are, unless the package moves from paper to action, there is little point of the exercise. Given that the State Bank of Pakistan (SBP) is slated to get involved with disbursements and verification of duty drawback claims, textile exporters are optimistic this time around.
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