Sources told Business Recorder Thursday that the textile sector and other value-added export associations took up the taxation related issues during the last meeting of reconstituted Federal Textile Board. The chairmen and senior representatives of member textile associations like All Pakistan Textile Mills Association (APTMA), Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA), Pakistan Textile Exporters Association (PTEA), All Pakistan Textile Processing Mills Association (APTPMA), Towel Manufacturers Association (TMA) All Pakistan Bed-sheets and Upholstery Manufacturers Association (APBUMA), Pakistan Hosiery Manufacturers Association (PHMA), Pakistan Carpet Manufacturers and Exporters Association (PCMEA), Pakistan Bed-wear Exporters Association (PBEA), etc, participated in the meeting.
The secretary Textile Division gave a comprehensive presentation about the export performance, cotton crop situation, Prime Minister Package of Incentives Phase-II and allocation of funds for phase-I, and acknowledged the increasing trend in exports after the announcement of Prime Minister Package and hoped for further increase in the coming days.
The meeting discussed multitude of issues being faced by the largest export industry of Pakistan and the facilitation given by the federal government. The representatives of textile associations appreciated the federal government for providing policy and budgetary facilitations to textile industry of Pakistan, which has resulted in increase of textile exports in comparison to previous year.
The chairman AFTMA appreciated efforts of the federal minister for commerce to solve various issues of textile industry at various forums and Prime Minister's Package of incentives for exporters, which resulted in increase of exports. He stated that the APTMA has been recommending export-led policy for the last few years. Current biggest challenge of Pakistan is trade deficit. The Textile Division is working with textile associations to come up with short and long term recommendations for viability of textile sector, which could enhance textile exports from US $12 billion to US $32 billion. The APTMA placed following recommendations before the meeting:
Domestic inefficiencies cannot be exported; therefore, tariff rationalization of Rs 3.10 per unit and financial surcharge of Rs0.43 per unit may be withdrawn, to bring energy cost at par with regional competitors.
The GIDC which is Rs 100 per MMBTU for industrial gas and Rs 200 per MMBTU for captive gas may be withdrawn. Gas price disparity among provinces is source of concern for the textile industry. A uniform price of Rs 600 per MMBTU for natural gas and RLNG may be offered to all textile captive and industrial users to align their costs with those of regional competitors.
The sales tax refunds and customs duty drawback are capital of exporters, and majority of claims are stuck up, creating liquidity crunch. Field offices of the FBR may be made efficient in order to clear the pendency, especially the sales tax refunds, which have been rolled back.
Mechanism for disbursement of claims for Phase-II of the Prime Minister's Export Package of incentive may be finalized and circulated by the SBP on priority basis. The cotton production this year is expected to be 12 million bales; however, there is still gap between production and consumption. Therefore, the customs duty and sales tax on cotton imports may be withdrawn from January 2018, on previous pattern as provided in Phase-1 of Prime Minister's Package of Incentives.
The APTMA proposed that the mechanism for zero rating policy for coal and furnace oil is still to be implemented by the FBR.
The import duty on raw material under chapter 55 may be withdrawn, whereas intermediary materials may be given protection, the APTMA added.
The APTMA proposed that the textile industry and exports of Bangladesh are far ahead of Pakistan; therefore, the policy measures may be taken to establish new garment factories. The building infrastructure may be included in LTFF for garments and stitching factories, as this requires huge capital as well.
The APTMA proposed that the limit of rebate for garments and made-ups should be enhanced one percent each year, whereas that of semi-processed may remain same. The training of new workers/laborers takes around two years. The government may share half cost of the worker/laborer for first year to facilitate exporters.
Due to security reasons, leading brands shifted buying houses to India and Bangladesh, which has resulted shifts in orders as well. The government may build free of cost commercial enclaves in Karachi and Lahore, on the lines of diplomatic enclaves where top 100 international brands establish their houses.
Time barred cases in PM's Package/drawback scheme may be allowed to take the rebate, the APTMA added. The representatives of member textile associations endorsed the proposals given by the APTMA, and added their proposals.
The chairman Pakistan Readymade Garment Manufacturers and Exporters Association (PRGMEA) stated that exports could be enhanced by reducing costs of electricity and gas, in comparison to regional competitors. For Karachi, cost of water is further adding burden on exporters; therefore, water tariffs should be rationalized as well. There should be a long-term policy for textile sector. The chairman PRGMEA said that textiles value chain consists of raw material and finished products. To increase the exports, there should be separate policy for garment sector. He emphasized that pending claims of Textiles Policies 2009-14 and 14-19 and sales tax refunds should be paid off on priority basis.
Chairman Pakistan Bedwear Exporters Association (PBEA) stated that the previous stuck-up refunds should be paid off on priority basis. The EDF Surcharge should not be collected from export sector, as no other country is practicing this and he said that the government is facilitating imports as there is no equivalent taxation on imports. Facilities provided to export processing zones should be extended to export-oriented sectors as well to encourage exports. The cotton production in India has increased tremendously, whereas in Pakistan, the cotton area and production both have decreased over the years. He said that providing drawback on yarn has facilitated Pakistani competitors, adding that yarn should not be provided drawback. There are more than 150 regulations governing a manufacturing unit.
The representative of PTEA endorsed the proposals forwarded by the chairman APTMA and said that the cost of doing business is problem of whole textile value chain, hence measures at the government level should be taken to reduce it. Contamination-free cotton and other types of cotton including long and extra long staple cotton are required for value added industry to make variety of products; therefore, cotton imports should be open. Liabilities in various schemes are still stuck up, which should be paid off on priority basis. The condition of 10% or more increase in exports should be company-wise and not category-wise, with slabs on each category. He also highlighted that a few RTO zones are ahead in RPOs and also in payments. He said that Punjab-based industry was generating electricity initially through installed furnace engines, then through diesel engines, later government encouraged gas-based engines and recently to overcome the gas shortage, coal has been introduced; however, it is subject to duties and no mechanism has still been introduced by the FBR. Further, he said that there should be a tracking system of decisions taken in previous meetings of the FTB. Zero rating should be extended to packing material as well. There should be tax period queue rather RPOs, for tax refunds.
The chairman APTMA Punjab said that textiles is a long value chain and they can only increase exports if all segments of the chain work together and policy provide balance among them. He highlighted that a few international agencies have highlighted that rupee has been kept over valued and is one of the prime reasons for their increased cost of doing business. He also mentioned that cotton from India and Brazil is not importable due to bio-safety concern of Plant Protection Department although such regulations were not enforced many years back. He also requested that time barred cases may be condoned on compassionate basis. The LTFF financing should be available through Islamic banks and to indirect exporters also against SPO.
The representative of TMA stated that to resolve the issue of exchange rate, the government once had Bounce Voucher Scheme. The same can be re-introduced, which won't affect other government functions. Pending refunds should be cleared off for smooth cash flow. He said that due to various issues quite a few companies which were once the benchmark for quality and value addition have been closed or in non-performing loans (NPL) and if they may be revived then they can contribute in exports. The NPL issue should be resolved to reopen the closed units. Image of Pakistan has deteriorated; therefore international campaigns should be launched to uplift it.
The chairman APBUMA pointed out that cotton belt in south Punjab is being converted into sugarcane. Why sugar industry was allowed and encouraged to work in declared cotton areas. There should be proper legislation for seed certification. Technology up-gradation is important for whole industry; however, benefits of TUF scheme are not reaching the cottage industry. Cost of doing business should be at par with regional competitors.
The chairman PCMEA said that the biggest reason for low export share of hand-knotted carpet is lack of proper marketing and facilitation by the government. For single country exhibition EDF share should be at 80:20 ratio. The government should provide rebates on the pattern of India, Bangladesh and Malaysia. The TDAP should enhance facilitation for participation in international fairs. He also recommended that materials which cannot be re-exported should be discouraged for imports.
The chairman PHMA said that to continue GSP Plus status, it should be worked out in advance. The regional competitors like India, Bangladesh and Vietnam are entering into agreements with developed countries like US and regional blocks like BRICS. The commercial sections of Pakistan embassies are not at alt effective and of no use for the exporters. He also highlighted that Sindh government imposed Infrastructure Development Cess on imports, which was initially only 0.3% and then subsequently it was increased to 1.05%. Similarly, Punjab government has also imposed Infrastructure Development Cess at 0.9%. The FTB meeting may be held regularly on quarterly basis to review the decisions.
The chairman APTPMA said that the provincial disparity of gas prices should be ended. There is coal tax, caustic soda tax, etc, and no system of adjustment; hence, zero rating should be extended. He said when GIDC was imposed then matter was taken to the court. Later, the industry started paying the GIDC; however, still the notices have been received for the previous payments. He categorically said that amount of pending GIDC, in majority of cases, is more than the total worth of the processing factory. The RLNG prices should be equal to system gas prices, He also said that every year the government has been increasing the wage rate, however, their turnovers and profits have not been increasing to accommodate such increase. Regulatory duties have been imposed on dyes and chemicals.
The CEO TUSDEC representing Ministry of Industries and Production stated that there is a need to diversify the fiber base, investment in human resource is required and on public private partnership design studio needs to be established.
The senior joint secretary Finance Division said that the Finance Division supports proposal to reduce cost of doing business and on electricity and gas there is a need to find out a way. He mentioned the budget constraints and informed that payments are available with the State Bank of Pakistan for duty drawback of taxes. Furthermore, he stated that the Finance Division will prioritize their payments.
In response to APTMA's comment about SPS measures taken on import of cotton from India and Brazil, Secretary National Food Security & Research said that seed in imported cotton have brought various viruses, diseases and pests to domestic cotton, therefore, these measures are taken, however, the government will look into the matter further. He said that these measures are for all imported cotton not just for India and Brazil.
The cotton commissioner said that Plant Breeders Act is enacted and Ministry of National Food Security and Research is developing rules on it. This will open avenues for internationally recognized companies to start operation in Pakistan. Public sector University (CEMB) has developed new cotton seed technology. He further said that cotton growing area has increased this year in comparison to previous years. Cotton commissioner also assured this year Pakistan would yield a crop of over 12.60 million bales - an improvement over last year. The secretary food security said that he will expedite the formulation of rules.
The state minister for commerce and textile said that to provide further facilitation to textile sector, short-term policy measures should be taken on priority basis like rationalization of energy prices ie energy and gas, working capital, sales tax refund. The state minister said that Bangladesh has no cotton; however, their textile exports are more than double to Pakistan's textile exports and the key to success is in value addition. He said that raw cotton should be converted to value added products and then exported. The minister for state also proposed that power loom associations may be given representation in the Federal Textiles Board.
The federal minister for commerce and textile informed the meeting that the government has allocated Rs 14 billion till date for the implementation of Phase-1 of the Prime Minister Package of Incentives. He further informed the meeting that the ECC of the cabinet amended the PM Package to further facilitate the textile sector, and now 50% of the drawback will be provided without condition of increment, and remaining 50% will be provided if the exporter achieves an increase of 10% or more in exports during FY 2017-18 as compared to FY 2016-17. To further facilitate the exporter and to diversify the market, an additional 2% shall be allowed for exports to nontraditional markets- Africa, Latin America, non- EU European countries, Commonwealth of Independent States and Oceania.
The textile associations requested that in order to devise medium to long -term plan for textile sector, the government has to consider a number of recommendations such as reduction in tariffs by withdrawing tariff rationalization surcharge, GIDC and importantly disparity in gas prices across Pakistan, sales tax and customs refunds and extending zero rating facility to packing material and power looms.
The federal minister requested the associations to diversify markets by accessing non-traditional markets for which government is also providing facilitation. He further requested the associations to encourage new investment feasibility studies should be carried out, come up with proposals for social and environmental compliance, skill development, research and development, product and market diversification.
The federal minister also assured that there have been no issues in submission of report for the implementation of 27 conventions required under EU Regulation for GSP Plus. Furthermore, he and the secretary Commerce Division along with the support of Ministry of Law & Justice and the Foreign Office have been working closely. On matter of GIDC, the federal minister stated a judicious settlement must be reached as waiver of arrears since 2012 would also entail refunds of GIDC made by many mills to-date. Hence, a fair proposal should be debated amongst associations and government. This matter is also pending in the high court and the Supreme Court.
The federal minister for Commerce and Textile in his closing remarks said that the government has already taken bold steps to reduce cost of doing business. He said that the government has limited resources and within those limitations it has to develop its proposals. The meeting has been called to finalize the proposals of the textile sector and then these matters will be taken up with the Prime Minister.
Copyright Business Recorder, 2017