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Sunday, July 14, 2024

Pakistan’s textile industry federal budget

The textile industry is extremely disappointed by the federal budget 2024-25. Some concessions enjoyed by the sector were withdrawn as they were already under severe stress due to high power and gas rates that resulted in closure of a large number of spinning mills.

The wish list of the textile industry was very long. They wanted restoration of a zero rated sales tax regime for exporters, instead the sales tax on local  sales has been enhanced (this was also their demand subject to waiver of paying advance sales tax on exports). The sector wanted the tax of 1 percent on export consignments as final tax liability be reduced but instead they have been asked to file annual sales tax returns that could be subjected to normal tax audit like normal taxpayers. They have lost a big concession.

The refunds of their sales tax and other taxes they pay during production is still a problem. The procedures have still not been reformed. They have to part with 5-10 percent of the refund amount to get refunds cheques. The global textile market has not yet picked up. The demand for textile products pickup for a while but then dip again.

There is a lack of trust between the economic planners and the textile players in Pakistan. The textile sector habitually overplay their disadvantages to grab more concessions. They never realized that the planners have finally learnt their lesson. This is the reason they ignored most of their demands during the past one year. The textile sector painted a doomsday scenario. But despite high energy rates and delays in refunds the textile exports surged during each of the past 8 months. In fact in May last month the textile exports surged by 27 percent on the strength of value added textiles. In comparison the Bangladeshi RMG exporters saw their exports decline by over 16 percent in May 2024. The Vietnamese also saw a dip as did the Indians in categories where they compete with Pakistan. The performance of the textile sector is in contrast to the doomsday scenario depicted by textile leaders which is the reason they are not being taken seriously by the planners. This does not by any way mean that there are no problems for textile exporters. They must regain the confidence of the planners to get their genuine issues addressed.

What our textile industry lacks is its low preference for sustainability. They have to comply with buyers demands on sustainability but on their own they have no desire to take initiatives in this regard. There are few Leeds or other agency’s certified textile factories in Pakistan compared with its competing economies where Bangladesh is the world leader. That augers well for Bangladesh’s textile future.

Moreover Bangladesh, India and Bangladesh are eyeing more lucrative man-made fiber and technical textile markets. Their exports would surge when the investments in these sectors mature. We have not really taken these sectors seriously. 

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