THE INCENTIVES PACKAGE

Spinners seen to be the major beneficiaries

By Syed M. Aslam
Nov 30 - Dec 06, 1996

The caretaker government has announced a package to revitalise the spinning sector of the textile industry.

The incentive package announced in Islamabad by the caretaker federal minister for commerce, Dr Muhammad Zubair on November 23 will allow the export of cotton and its duty-free import and also reducing the withholding tax to one percent while retaining the 2 per cent service fee.

Announcing the package Dr Zubair who was accompanied by the caretaker prime minister's advisor on finance and economic affairs, Shahid Javed Burki said that textiles represent the largest industrial sector which is responsible for over 60 per cent of our exports. He, however, stressed that the quality and production of various textile products have substantial scope of improvement.

The approval of the package by the Economic Coordination Committee of the cabinet is the first step towards the removal of anomalies and problems faced by the industrial and export sectors by enhancing capacity utilisation and value addition.

The following are the measures which were announced:

  • Removal of 5 per cent customs duty on the import of cotton for the spinning sector.

  • Reduction of the existing regulatory duty of 15 per cent on polyester and 10 per cent on viscose fibre to 5 per cent.

  • Withdrawal of 10 per cent regulatory duty on PTA and MEG which are basic inputs of polyester fibre.

  • Withdrawal of 5 per cent customs duty on paraxylene, the basic input fot PTA for which ICI is establishing a plant at Karachi, so as to retain the protection level of the project.

  • Removal of 5 per cent excise duty on polyester fibre to help bring down polyester prices.

  • Availability of adequate credit to the sector by the State Bank of Pakistan.

  • Automatic adjustment of duty drawback in case of any change in the exchange rate effective 90 days after the change.

  • Import of man-made fibres not produced locally will be allowed under the existing no-duty-no-drawback scheme under SRO 68(1)/70 and 69(1)/70.

  • Export rebate will be paid for duties paid on all inputs of the domestically produced polyester fibre.

The commerce minister said the initial measures are taken to enhance the availability of cotton and polyester fibre to increase value addition in the textile sector, in order to provide cheap and assured working capital, and to improve the duty drawback scheme.

The government held discussions with the Federation of Pakistan Chambers of Commerce and Industry, the cotton ginners, polyester fibre manufacturers, and the All Pakistan Textile Mills Association (APTMA) to devise measures to revitalise the spinning sector, of which the package is the initial part, he added.

He said that the measures would give a boost to the value-added and spinning industries which in turn would enhance exports. They would also result in increased profits for the industry to enable it to pay back its debts to the banking sector to help ease the load of bad debts on it to some extent.

He conceded that though the reduction in duties would have impact on the amount of revenue, it would be more than offset by the substantial boost the economy would receive from the package.

Hailing the withdrawal of duty and reduction of withholding tax on the import of cotton and polyester fibre, he added that it would ensure easy availability of the items at cheaper rates which in turn would result in rendering the Pakistani exports competitive in the international market.

The vice chairman of APTMA, Hummanyun Ellahi Sheikh, welcoming the package said that it would help in reviving the spinning units hundreds of which have been closed in the past few years in the country due to shortage of cotton.

The spinning sector, he said, was facing hard times for the last four years during which out of an installed capacity of 8.6 million spindles only 6.9 million are in operation at present and that, too, at heavy loss. The measures announced in the package would ensure that the working spindles which used to remain closed due to shortage of cotton between July and September will now remain open the whole year, he added.

Meanwhile, the caretaker government has also said that it would announce similar incentives packages for weaving and garments sectors of the textile industry in the near future.

The recently announced package will help addressing the problem of shortage of raw materials particularly when uncertainty prevails about the size of the cotton crop amidst reports of severe pest attacks in the cotton growing districts of Punjab.

While the previous government predicted a production of 12 million bales of cotton at the beginning of picking season, it is estimated that no more than 9.5 million bales will the produced in the country this year.

With the requirement of local textile industry estimated at 8.5 million bales, plus another 1 million bales as buffer stock, there will no surplus for exports.