Is an 'exclusive package of incentives' for spinners in the offing?

 Jun 22 - 28,1996

Contrary to the tradition, after announcement of the federal budget the ever-powerful textile lobby, All Pakistan Textile Mills Association (APTMA) has chosen to keep mum on the budget and let it be the exclusive domain of FPCCI to do the dirty job of criticising the tax proposals.

As things stand, the budget does not offer any incentive to the 'crisis ridden' textile industry (the spinners). However, it offers reduction of duty on specialized textile machinery for the value-added sector. Import duty on export-oriented machinery has been reduced to 10% and the tax exemptions already awarded to textile units located in the duty-free areas would continue until the period expires.

There appears to be a shift in the policy of spinners who may have chosen to have cordial relations with the government. Act one was to invite the prime minister at the annual dinner of APTMA. Not issuing any critical statements on the budget seems to come from some kind of understanding arrived at with the government and it is expected that an 'exclusive package of incentives' may be announced for the spinners shortly.

However, the imposition of GST at various levels of processing has created much confusion. Starting from ginning to the production of made-ups, the cotton goes through various processes carried out independently by different processors. The natural question is who would pay the GST, the ginner, spinner, weaver, processor or the manufacturer of made-ups. Or, would the GST would be paid at every stage?

Getting refund of duties paid is the most difficult job in this country. The authorities not only take more than resonable time in settling the claims but often it is necessary to grease the palms of officials to expedite the processing of papers. The exporters have long-standing complaints that duty drawbacks are the 'blood supply' of the industry and when the payments are delayed the units suffer from liquidity crunch and are forced to borrow at higher mark-up from traditional and non-traditional sources of money supply which increases the financial cost and reduces profitability of the manufacturers/exporters.

As a direct result of imposition of GST the prices of ginned cotton, cotton yarn and cloth are bound to increase. Currently, excise duty is levied on yarn sold in the domestic market but yarn meant for export is exempted from this duty. Hence, withdrawal of excise duty on cotton and blended yarn will have significant impact on the spinning units which sell the yarn in the domestic market.

Reduced import duty on export-oriented textile machinery would provide a paltry boost to the value-added sector. The machinery covered under the head is specialized ( jacquard, dobby, embroidery, lamination and flocking equipment) and not a regular part of most of the textile units operating in the country - most of the mills quoted at stock exchange (over 158) just produce yarn.

One of the moves to continue regulatory duty on PSF would support the local manufacturers. Abolition of this duty has been postponed. In fact, it would continue during the next financial year. However, the declining trend of PSF in the international market would not allow the local PSF manufacturers to increase the price.

It is on record that production and export of poly-cotton yarn has shown considerable increase. As the price of cotton is still high and the price of PSF has gone down, it provides more opportunities to the spinners to switch over to production of poly-cotton yarn and weavers to produce more blended fabric. It would not only ensure better capacity utilization but would also improve the profitability of the spinning mills.

Tax exemptions awarded to local PSF manufacturing units located in special industrial areas would continue. Dewan Salman would continue to enjoy tax-fee, status so would Dhan Fibre - it has already started trial production and may commence commercial production by the end of this financial year.

Although, in spite of great pressure by the spinners, the government has decided to continued free cotton trade policy, imposition of 10% regulatory duty on cotton import is a constraint for those spinners who would like to import better quality cotton for the production of superior counts of yarn. As pointed out time and again and also endorsed by the prime minister the way out for the spinners is to go for product diversification - production of fine and superfine counts as the competition in coarse counts had become something of an oddity.

In the proposed budget while GST has been imposed on most of the industries, it is regrettable that no fiscal or monetary incentives have been announced for the powerlooms sector which suffers from some genuine problems. As most of the powerlooms are owned by owner-operators, who are financially weak, it is feared that many units may close down in the days to come - some of them have already closed down. Some measures should have been announced to support the backbone of textile industry. Powerlooms not only meet the domestic requirement of fabric but also play an important role in the export of fabric from Pakistan.