Government moves in Pakistan to rationalise taxes, duties and other levies for exporting manufacturers have been widely welcomed by the country's textile sector.
The government has withdrawn a 3% customs duty, 2% additional customs duty and 5% sales tax on imports of raw cotton, meeting a further long-standing demand of the textile industry, besides allowing a five-year tax break for new textile manufacturing plants. Textile exporters say waiving taxes and duties on imported raw cotton will help ensure sufficient supplies of cotton in the country which is currently facing a shortage of 3.5 million bales.
Cotton was duty free until 2015 when the then Pakistan Muslim League (Nawaz) government imposed a 1% customs duty and 5% sales tax on its import. Subsequently, customs duty was increased to the 3%, 2% and 5% duties and taxes that have now been scrapped.
Presenting a mini-budget in the national assembly last month (January 23), federal finance minister Asad Umar for the new Tehreek-e-Insaf (PTI) government that was elected last July (2018) said easing the conducting of business and reducing its cost was a top priority of his government. "Such measures will encourage fresh investment, creation of jobs and allow manufacturers to increase production."
All Pakistan Textile Manufacturers Association (APTMA) chairman Syed Ali Ahsan says the government had taken steps in the right direction with a view to providing an enabling environment for the industry.
But more could be done. "Liquidation of pending refunds of claimants, a settlement of the gas infrastructure development cess (GIDC) [which was reduced in scope – but remains in place] and lowering of tax burden on manufacturing would go a long way towards regaining business confidence," he says.
Anis ul Haq, secretary general of the APTMA, explains that the package of incentives announced by the government would have a positive impact on the textile sector. He appreciates the withdrawal of sales tax and duties on imports of raw materials, enabling manufacturers to import cotton from central Asian states, the US and India to overcome its current shortage.
However, the government announcement to issue ‘promissory bonds’ or surety certificates to tax refund claimants instead of cash payment – as has been the past practice – probably would not be acceptable to small exporters since they would be required to pay interest to banks to cash in such bonds, he adds.
The secretary general adds that the government should also have withdrawn sales tax and customs duty on imports of polyester, which is used in high value-added textile products. Also, incentives for the agriculture sector to boost local production of fibre through a subsidy on agriculture inputs, such as seeds, fertilisers or pesticides provided to farmers would be useful.
As for the five-year tax breaks, “a sizeable investment in greenfield industry can be realised," Ahsan says.
He adds that the manufacturing sector’s share of GDP is 13% whereas the tax collection from it is about 60%. Now the time has come for contributions from tax to be spread evenly across all sectors contributing to GDP, he says.
Kanwar Muhammad Usman, spokesman for the textile division of the ministry of commerce, explains that the budget package, plus last year’s reduction in energy tariffs would “give a boost to the industry – resulting in an increase in exports,” he says. “However, the impact will take some time," he warns.
