The governments attempts to lubricate the countrys fiscal machinery through new tax impostions have left many exporters jittery. In particular, textiles - the largest export sector of the country - bears the brunt to quite an extent.
Soaring cotton prices had already punched the textile sector quite a bit through rising input costs.
Domestic shortage of cotton, delay in arrival of the cotton crop in local markets, and burgeoning international cotton prices, which make it unfeasible to import the commodity, had rendered the scenario quite precarious for local textile players.
The extent of gravity can be gauged from the concerns expressed by Chairman, Gul Ahmed Textile Mills, Bashir Ali Mohammad, on Bloomberg this week. "Due to bad weather in Pakistan our crop is delayed by three weeks and if the crop is not coming in because of these high prices, we fear a mill closure, a considerable mill closure, in May and June," Mohammad said.
Though global cotton prices have fallen over the past few days as wary investors dumped cotton in international markets, and local markets also witnessed a consequent dip in domestic cotton prices, concerns regarding the long-term price outlook persist.
And now the imposition of 17 percent sales tax on local sales for export-oriented sectors, including textiles, comes as another challenge for the sector.
What add to the ado are the constraints of textile players in passing on high input costs, including sales taxes, to consumers.
Speaking to BR Research, Anwar Tata, former Chairman, All Pakistan Textile Manufacturers Association (APTMA), explained that because many undocumented players, who are not liable to pay taxes, are also present in the market, passing on price increases to consumers becomes uncompetitive for documented players.
Besides, the purchasing power of consumers is quite limited in the current inflationary environment.
Interestingly, at the time of writing this note, some voices in the textile industry also claimed that this decision of imposing GST on local sales would be withdrawn. Talk about uncertainty.
Whether sales tax is imposed on local sales or not, an interesting drama is likely to happen in the days ahead.
If the imposition of GST is an ultimate decision, not falling prey to futile vagaries, the uproar in the textile sector will be humongous. And recent media reports on the issue are a testimony to that.
If the decision has actually been reversed, it speaks volumes about the lack of rigid enforcement and weakness on the governments part.
But regardless of the hullabaloo created by textile players, taxes on the export sector are a necessity for the overall economic health of the country.
The process, however, has to be streamlined, with missing links - undocumented intermediaries such as wholesalers, retailers, etc. to be precise - brought into the tax net.
Taxing the export sector is a feasible move, but taxing the documented players alone is not an agreeable solution since it will discourage players from becoming a part of the formal economy.