Circular to members # 107
June 15, 2015
Pakistan Knitwear & Sweater Exporters Association
1014-16, Park Avenue , PECHS Block 6,
Shahrah-e-Faisal, Karachi-75350
Tel: 34544035-37 SG: 34544039, email: info@paksea.com
Budget FY16: No relief to textile
With regards to the textile sector, Friday's budget has received varying responses. Some papers, brokerage firms, and chambers of commerce say yay, but most industry stakeholders say nay. The column thinks that
Finance Minister Ishaq Dar has failed to quell most of the textile industry's underlying concerns, and has taken lukewarm steps for aiding the struggling textile manufacturers.
That isn't to say that there weren't any positives; one of the biggest (and perhaps only) selling points of the new budget was the cutting down of export refinance rate from 6 percent to 4.5 percent and long-term refinance rate from 7.5 percent to 6 percent. This will encourage borrowing in the sector. The establishment of an EXIM bank for the promotion of exports in FY16, if implemented, also comes as a positive.
Dar announced an Rs64 billion package for the textile industry to generate employment for 3 million people under the existing Textile Policy by 2019. This was not something novel, but rather a reiteration of an existing policy that has yet to see implementation.
Another announcement was to maintain the zero-duty rating on imports of machinery - again, not something of a development. Dar also vowed to pay the much-needed tax refunds to textile till September. However, given the track record, not too many people are holding their breath.
"We know what we'll get and what we won't," mused Sohail Pasha, Chairman
Pakistan Textile Exporters Association. He expressed his discontent with the policy, saying that textile is a dying industry and the government has done little to save it.
The sales tax on the spinning, weaving, and processing segments were raised from
2 to 3 percent, whereas the tax on unfinished cloth and garments were kept constant at 3 and 5 percent, respectively. Pasha said that exports all over the world are zero-rated and that's how it should be in Pakistan as well. He said that the government has to pay around Rs15-16 billion in custom duty drawbacks and
Rs20-25 billion in sales tax refunds.

What remains unaddressed, despite all the mentions of increased tax collection and tax-to-GDP ratio, is a broadening of the tax base. Dar wants to keep squeezing more and more taxes out of wherever he's getting them. The textile industry's global lack of competitiveness on the back of an overvalued rupee also remains unaddressed.
Five export-oriented sectors: FBR enhances ST on textile inputs, goods
The Federal Board of Revenue (FBR) has enhanced sales tax on textile sector in consultation with the sector in budget (2015-16) by proposing 3 percent sales tax on all presently identified inputs including yarn and fabrics and 5 percent sales tax on finished goods of leather and textile sectors. Official sources told Business Recorder here on Monday that prior to June 2005, sales tax on the five export-oriented sectors, ie, textile, leather, sports goods, surgical goods and carpets was levied at standard rate of 15 percent, as prevailing at that time.
However, in order to facilitate exporters, all the products of these sectors, and most of their inputs were zero-rated. Unfortunately, this facility was widely misused leading to great loss of revenue. Therefore from 2013, zero-rating has been replaced with various reduced rates of sales tax, which are presently 2 percent on raw materials including yarn, 3 percent on fabric and 5 percent on garments. But even now, this concession is being misused, and most of the imports and supplies under this regime are being made at the lowest rate of 2 percent. To address these issues, after discussions with the textile sector, it is proposed to levy the rate of 3 percent on all presently identified inputs including yarn and fabrics, and 5 percent on finished goods of leather and textile sector. The textile sector is being proposed to be compensated for above measure by decreasing the rate of value addition tax on commercial imports from 2 percent to 1 percent; allowing sales tax refunds on monthly-basis to persons making local supplies at reduced rate under SRO
1125(1)/2011; and to be excluded from the mandatory requirement of payment of
10 percent of output tax under section 8B of the Sales Tax Act.
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M. Siddique
Secretary General
0320-8364130