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The real issue is that instead Businesses working on their business plans their main focus and time is spent on Their businesses the business men today spend time on meeting the sales tax Requirement for this is the most important task as an inefficient sales tax Management can drive a business out of business. Suggestion Remove unnecessary reporting requirements of sales tax. Simplify the sales tax With consultation of the stake holders and then freeze new changes.
Duty exemption is available under various SROs which require undertakings that a certain percentage of the production is exported in the next 5years. It has to be understood that machinery imported by any segment of the textile industry is ultimately exported in one form or the other. When an undertaking is given that the production from that unit will directly be exported, it may be depriving the local industry of the required raw material.
An example is that finished woven fabrics. These are projects which require huge investments and there is a shortage of much required quality finished fabric in the country. There have been only a few projects set up in the last few years. The production from these would feed the local industry.
In order to get the required duty exemptions, the investors commit themselves to export the fabrics themselves rather than supply to the local garment factories. It is needed that this requirement of direct exports be dispensed with and the project is also allowed to supply to local garment factories for ultimate exports. If quality fabric is available locally, it would encourage setting up of stitching factories. Finishing projects specially have a rather long gestation period.
Certain projects set up in the last 2 years valued in excess of a billion rupees have taken more than 2 years to come to even break even levels. Pakistan does not have the necessary know how and there fore these type of projects need to be encouraged instead of levying taxes on import of machinery.
What this law does not consider is that it is forcing the mill to export the fabric to another country rather than making the finished fabric available of the domestic industry.
The local stitching industry does not have availability of good quality fabric while the fabric maker is forced to export the fabric in order to meet the requirement of export to be elegible for duty free import of machinery. Suggestion Machinery imported for any segment of the textile should be completely duty free without any compulsion of exports. Machinery imported by the textile sector is in one way or the other imported for the purposes of ultimate export and the industry should be freed from all the record keeping and periodic audits.
For the projects already set up, the present requirements of duty free import under SRO should be amended to allow indirect exports. If the tax laws are amended so that a withholding tax at the same rate as export, is deducted on local sales also becomes the full and final settlement.
This law actually already exists but the procedure is for indirect exports and payment is made through a SPO Special Purchase Order. The procedure is quite cumbersome and difficult to comply with.
The difference between the organized sector and unorganized sector will be removed. But the real benefit would be that the producers would be free from tax issues and can concentrate on what they should be spending time on, i. It is my opinion that even the tax revenue will increase. The BOI and the ministry of Commerce should clearly define and develop a strategy for the era of quota free regime. A goal should be made to encourage an X number of mills in the organized sector to move upstream into manufacture of made ups.
This may involve review of the present quota policy. Unless the industry readies itself now, there will be a lot of difficulties in the future. Unfortunately the quota policy has discouraged vertical integeration since quota has been given on performance and apart from a small qnty available through auction, qouta can only be bought with cash payments at exhorbitant rates. This has discouraged much of the organized textile sector to do busiess in the value added sector. In future there will be a lot of actions against exports from Pakistan, such as anti dumping duties.
The industry finds itself in a panic when ever a new action is initiated. A permanent body needs to be set up comprising prominent lawyers, government officials as well as business who are well conversent with dumping laws. It should also be clearly defined that when an action is initiated who will bear the legal costs. A case in point is the recent dumping investigation initiated by the EU. First, at the beginning of , EU removed all duties on made up exports from Pakistan.
The advantage was fully taken by the industry through increasing exports, of course through investments.
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