KARACHI: All Pakistan Textile Association (APTMA) has urged the federal government for immediate restoration of ‘Zero Rating’ for the entire textile value chain in order to make available working capital for a cash-strapped textile industry.
Gohar Ejaz, Patron in Chief APTMA, in a letter sent to Federal Finance Minister Ishaq Dar has highlighted the issues being faced by the textile industry and requested the federal government for supply of gas priority for export sector, zero rating regime for textile sector, payment of pending refunds, waiver of demurrage charges and make available forex for cotton and other raw materials.
“These issues need to be addressed for the textile sector to maintain & grow exports to contribute at par in line with capacity towards a sustainable Balance of Payments”, he said.
According to Gohar Ejaz, Bangladesh readymade garment sector exports witnessed a growth of 16 percent year-on-year basis by exporting garments worth $ 18.33 billion as compared to $ 15.86 billion last years, while Pakistan textile sector witnessed a decrease of 4 percent in exports as compared to same period from $ 7.76 billion to $ 7.44 billion.
Bangladesh’s significant export earnings are attributed to capitalizing on market availability, something Pakistan is not doing at the present.
Currently, Pakistan’s industry is struggling with costing and production issues, which include the realized value of exports, he mentioned.
He said that increases in Pakistan textile exports (in recent years) have been wrongly attributed to a commodity price increase. On the contrary, the textile export data for the last five years showed that volumetric textile exports are the primary driver with a double-digit increase in value added items.
Under current circumstances APTMA has requested immediate restoration of SRO 1125, i.e., Zero Rating for the entire textile value chain in order to make available working capital.
With the withdrawal of Zero-Rating (SRO 1125) and the implementation of a 17 percent General Sales Tax (GST) on export-oriented sectors, the cost of doing business has increased to unsustainable levels as a consequence of increased working capital and the much higher interest rates, said Patron in Chief-APTMA.
In FY22, the total amount retained by FBR as sales tax on domestic sales was only Rs 50 billion out of Rs 249 billion collected. Approxi-mately, Rs 250 billion of the industry remains with the FBR at all times as a result of this collection and refund mechanism. This indicates that 80 percent production is being exported while only 20 percent is being consumed domestically.
He mentioned that sales tax is consumption based, which inflates inventory and capital costs, serving as an impediment to new projects and expansion of exports as capital cost increases by 20 percent and refund can only happen after commercial operations.
Because of the high rate of sales tax, trade volumes outside the Sales Tax system have expanded, resulting in smuggling, outright fraud, and the import of used clothing into the country and Pakistan is among the top importers of used clothing.
Ejaz suggested that sales tax on domestic sales should be deducted at the Point of Sale. This will subject any product sold domestically from any source to a 17 percent sales tax, including smuggled goods, he added.
APTMA demanded change in gas allocation and urged the government for supply of gas to textile at priority. The present allocation of gas resources is highly unsustainable for the economy in the long term.
In order to ensure sustainable gas supply and competitiveness, priority of gas supplied to different sectors of the economy should be reviewed in a way that productive sectors of the economy that add more value to GDP be given preferential priority in domestic gas allocation and supply, APTMA demanded.
That means allotting the first priority of gas supply to industry including captive power ahead of the domestic sector and creating a two-tier allocation for industry in which export-based industry should be given preference.
Gohar Ajaz in his letter has also asked for pricing reforms in the Gas Sector and said that the export sector in Punjab is being provided gas at $9/ Mmbtu even under the RCET, while households’ basic tariff was $1 and about $2 on average per Mmbtu. Similarly, gas prices for fertilizer start from $1/MMBtu, signalling a non-transparent and inefficient subsidy to the agriculture sector.
Gas/ RLNG being supplied to Punjab is priced at 9$ for less than 50% of the average consumption of mills last year.
The Gas/ RLNG being supplied to mills in Punjab is less than 1/3 of the required quantity of 200 MMCFD.
At present gas supply to the Sindh export industry is supplied at $ 3.75/ MMBTU (Rs 840) and at a quantity meeting 80% plus requirements.
“This is contrary to the commitment that the differential in gas/ RLNG pricing within the country will be less than $2 to keep Punjab industry competitive. There is huge difference in gas pricing as Punjab-based industry is paying for gas at $9 and electricity at Rs20/ kWh while bulk of Sindh industry is generating their electricity at 4 cents/ kWh.
“This kind of differential and encouragement of non-productive use of a scarce commodity must be curtailed, and the government must make the much-needed pricing reforms in the gas sector, through a weighted average cost of gas (WACOG) and pricing reflecting the true economic value addition through gas”, he demanded.
He further mentioned that textile mills are facing difficulties since banks are not clearing import documents and the Collector Customs is refusing to waive port detention and demurrage charges.
As these are charges incurred/ paid by importers due to a lack of dollars in the country that is not the importer’s fault. So far, the total cost of demurrage and detention is almost Rs 1.5 billion.
He urged the federal government for waiver of demurrage and detention charges as a consequence of the non-availability of forex may be refunded from Export Development Fund (EDF).
The issue of raw material clearance subject to cash against documents remains unresolved due to the non-availability of forex and there is no other procedure in place to release the raw material from ports. Mills are currently unable to obtain cash against documentation and are closing owing to a shortage of raw materials.
Therefore, he requested the government to issue instruction to banks to make available forex for cotton and other raw materials as first priority.
APTMA has also requested for extension in submission of Duty Drawback Claims for FY21 as many exporters are failed to submit their Duty Drawback claims by the deadline due to delays in collation and availability of documents.
It has also demanded refund of Textile Upgradation Fund (TUF) as many of members have also submitted bank guarantees as per procedure. Bank guarantees have been submitted for the past 1 to 2 years, but mills have yet to receive the TUF refund, so their bank guarantees and liquidity are tied up as a result.
“SBP has not yet approved the limit for the Banks and the Banks have categorically refused any indication for approval of LTFF limits,” Ejaz mentioned and demanded immediate approval of Long-Term Financing Facility (LTFF) He also asked for provision of RCETs for Industrial Estates including LIEDA, FIEDMC and Sundar.
Copyright Business Recorder, 2022