Tax Policies & Garment Industry Future


Muhammad Nadeem Bhatti

A compulsory contribution to get
state revenue, levied by the gov
ernment on workers’ income and business profits, or added to the cost of some goods, services, and transactions. Pakistan’s largest export industry was the textile industry, with hosiery and readymade garments contributing 544 billion PKR/3.47 billion USD to total trade. Of a grand total of 2.2 trillion PKR earned from exports, 285 billion rupees were earned from hosiery (13% of total export earnings); 259 billion from readymade garments (11%); 227 billion from bed wear (10%); 211 billion from cotton fabrics (9%); 199 billion from rice (9%); 111 billion from chemicals and pharmaceuticals (5%); 110 billion from cotton yarn (5%); 77 billion from towels (3%); 47 billion from leather manufactures (2%) and 733 billion from other products (33%). However, total exports (2,263 billion) in 2018-2019, when compared to total imports (5,371 billion) paint a bleak picture of Pakistan’s economic standing. The 3,107 billion rupee difference between exports and imports highlights an urgent need for development of our trade sector. Garment industry is now suffering from some acute problems in productivity, in quality, in management & marketing skills and thus facing a serious threat of a reduced share of international markets and biggest of all is large sums of taxes implemented on garments products by Pakistan government. Pakistan’s current taxation system is defined by Income Tax Ordinance 2001 (for direct taxes) and Sales Tax Act 1990 (for indirect taxes) and administrated by FBR. The sales tax rate in Pakistan stands at 17 percent. Pakistan provides zero-rate of sales tax on inputs and products of five export-oriented sectors i.e. textile, leather, carpets, sports goods and surgical goods.FBR started the preparations for charging 17 percent sales tax on local supplies of manufacturers-cum-exporters of five zero-rated sectors from July 1, 2019. The board also initiated stock taking to avert any possibility of showing clearance of all stocks at zero percent (on papers) till June 30, 2019. According to this policy 17 percent tax should be imposed on export which is after that rebate able and therefore seven percent should be imposed on local manufacturer in export there are lots of flying frauds companies are still existing, which can watch by me even they are not watched by the department. The FBR has issued instructions to the Large Taxpayer Units and Regional Tax Offices. The pre-budget talks between the government and industrialists on contentious issue of withdrawal of tax concessions and energy subsidies have ended, as tax authorities claim to gain some ground due to a rift between exporters and local suppliers.
The draft of Pakistan Textile Policy for 2020-25 with 4 tier strategy and 21 recommendations is all set to be pitched before the ECC for approval. It will try to increase the country’s textile exports target by 2025 to $ 25.3Bn and $ 50Bn by 2030. The Pakistan Textile Policy draft narrates a clear roadmap to achieve the textile export targets along with vision to fully utilize the potential of home-grown cotton augmented by Manmade Fiber/Filament to boost value added exports and become a major player in the global textiles supply chain. Global textile trade stands at $ 837Bn. presently; Pakistan’s share is 1.6% in the world textile trade, which will be increased to 3% by 2025. If the fuel prices will still remain under the standard of cost of production. The primary reason for this poor performance is the narrow export base; even this narrow base is biased towards low value-added unsophisticated items. So if we produce better quality of products on low prices then our export will grown up and we will earn maximum profit.
Pakistan’s underperformance in exports can be attributed to a number of factors, divided into supply side, demand side and investment climate constraints. Pakistan faces higher production costs and lower productivity compared to its peers. High production costs are in the form of import duty on cotton & MMF, high energy tariffs and minimum wage (Supply-Constraint). This has led to fierce competition with other low-wage competitors leading to small export orders for Pakistan (Demand-Constraint). Pakistan faces unfavorable tariffs in garment exports in the international market such as ASEAN, which restricts market access, and its currency in the recent past was overvalued with respect to the dollar, making exports less competitive against China, India, Bangladesh and Vietnam. Other impediments include poor access to credit, delay in the payment of government-announced tax refunds, low technological adoption, and time-consuming export procedures.
Enhance role of industry associations need to be given a bigger role in vetting of government policies and in defining sustainable targets. Although garment sector exports have increased over the years and it has been the best performing segment of the textile value chain, the sector is grossly underperforming relative to its potential. Pakistan lags behind its competitors in the global share in export of garments. Development is not a very easy job after imposing lot of taxes and heavy rates of production. conclusion of lot of things industry can develop a one product but due to having different kinds of weather industry new to develop a different product, so cost of production of different products are different moreover the age has been mature of customer who is going to be demand maximum designer and durability in product so after development lot of work need to do that’s why cost of production raise high due to low value of rupees and industrial list cannot find good rate and more over in country lot of bad policies they had to bear in the shape of high rise tax system double rate of oil and gas triplication of electricity.
In these circumstance the dream of to be an industrial as a Pakistan and exportable Pakistan cannot be mature. So we as policy maker are responsible for our bad deeds in the shape of unsuitable policies for the industry. Regarding these objects if industrialist skips up industry the huge rate of unemployment will be spread which is not in the good favor of law and order situation for the Pakistan. This impression can give a setback to nation far behind others countries so radiant future of Pakistan industry and ruling government cannot be appreciate due to producing such a helpless condition and circumstances to the nation of Pakistan.
—The writer is an entrepreneur & senior economic analyst (Chairman) and can be reached at m. nadeem