Finance Minister Ishaq Dar announced the imposition of a 10 percent regulatory duty on import of yarn/fabrics over the weekend subsequent to meetings with representatives of the extremely influential All Pakistan Textile Mills Association (APTMA). The Association’s influence can be gauged by approximately 53 percent contribution of cotton and manufactures to the country’s total export revenue.
However, the sector consists of several sub-sectors which are at odds with each other in terms of government policy decisions especially those relating to the imposition of taxes/regulatory duties on imports. The sub-sectors include raw cotton, whose unbridled exports may create domestic shortages and, is vigorously opposed by the spinners on grounds that they add value and hence increase the export proceeds of the country, to cotton cloth manufacturers who oppose export of yarn for the same reason namely their product has higher value addition, to readymade garments/other products, for the identical reason. In short, the value adders argue that exports must be limited to meeting domestic demand first and those imports must be discouraged through the imposition of a punitive regulatory duty that would compromise domestic sales/exports of the item produced by any sub-sector. For example, the weavers would support import of cheap yarn from India while the spinners would oppose such a move and demand the imposition of a regulatory duty.
It is in this context that the government decision to impose a duty on yarn imports from India has been opposed by the Faisalabad Chamber of Commerce and Industry. It has become the norm in Pakistan to invariably invoke national interest by stakeholders to lend credence to their point of view which may be premised on the profit motive with the government the final arbiter which has traditionally manipulated taxes/duties to appease one sub-sector over another.
However, a look at the contribution of various textile sub-sectors to our exports is in order: in 2014-15 out of total export proceeds of 11.28 billion dollars, cloth exports were the highest at 2 billion dollars – an amount that declined from 2.3 billion dollars the previous year when total exports of the sector were 11.4 billion dollars. The second highest export proceeds were from bed-wear and garments which registered 1.7 billion dollars each from the previous year’s total of 1.76 and 1.57 billion dollars respectively.
Knitwear exports also rose from 1.8 billion dollars in 2013-14 to 1.9 billion in 2014-15 indicating a rise in value-added products. In short, raw cotton and yarn constitute around 15 percent of total sector exports while cotton cloth contributed another 18 percent or a total of 33 percent which does leave scope for encouragement to the higher value-addition sectors to increase their share of total export proceeds.
Be that as it may, the government is currently on an International Monetary Fund (IMF) programme and has committed to desisting from extending special packages to specific sectors/sub-sectors which would have implications on government revenue or expenditure. In the context of raising regulatory duty on import of yarn, grey fabrics and processed fabrics from India there would be no negative revenue implications and it is doubtful if the government would have to provide an explanation to the Fund staff in the mandated quarterly review scheduled for the end of the current month.
However, the government has to take cognisance of the fact that our exports – apart from remittances, the only other good source of foreign exchange earnings for a country – declined by 20 percent in recent months and there is a need to support exports of higher value-added products to growth-related policies that include easing the focus on deficit reduction, promptly paying refunds to exporters and of course reducing loadshedding.
Source: Business Recorder