KARACHI, April 28: The textile ancillary industry is seeking immediate withdrawal of income tax facility allowed on yarn exports to check its unbridled exports and ease the local supply and prices for value-added and export-oriented industry.
Presently the government allows presumptive tax facility, under section 115(4) of Income Tax Ordinance 2001, to all those spinners who export 80 per cent of their production. However, there is a growing resentment and bitterness amongst value added textile sector that it was contrary to the interest of exports.
The ancillary textile industry and exporters strongly feel that as a result of this incentive allowed to manufacturers of yarn on their exports the readymade garments, knitting and other value added textile industry was being deprived of the much needed raw material (yarn).
They further say that it was not only creating shortage of yarn in the domestic market but also providing quality yarn at cheaper price to their competitors from China and other yarn importing countries.
Consequently, the value-added textile industry strongly feel that facility of presumptive income tax allowed under Section 115(4) to yarn exporters should be reversed and instead of giving this facility on export it should be given on local sale of upto 80 per cent by a spinning unit.
On an average the spinning industry exports around 525.13 million kg of yarn or 27.3 per cent per annum out of a total production of 1.92 billion kgs. The balance 1.32 billion kg or 72.7 per cent of total production is consumed locally.
The chairman, Pakistan Hosiery Manufacturers Association (PHMA), Imran Ali Sabir told Dawn that it was unfortunate that an industry which generates large scale employment and earns highest foreign exchange on value addition is being neglected by the policy markers.
He said that Pakistan was one of those countries, which supply primary products (yarn) to competing countries and in the case of yarn, Hong Kong and China, which were their main competitors in the world market, were the biggest yarn importers from Pakistan.
Mr Sabir said Pakistan's ring spun cotton yarn was well known in the world market and there was a lot of demand, which was mainly coming from China (Hong Kong). He apprehended that once trade was regularized with India a strong demand of this yarn would also come from Indian textile ancillary industry.
The ring spun cotton yarn of 16/1 to 30/1 count is mainly used in knitwear industry, therefore, if this primary product was exported at a cheaper price the local knitwear industry would badly suffer.
Another leading exporter of knitwear garments Iqbal Dossa said that due to high yarn prices since the beginning of this year four leading knitwear units have closed down in Lahore and more than 20 units have shut down in Karachi and feared that more would follow.
He said that a country like Bangladesh had chalked out a plan for its 600 garment units to face quota free regime starting from 2005, but in Pakistan the government was least concerned about such issues.
According to World Bank study, the cost of electricity in Pakistan was 3.5 per cent, the highest for apparel industry, in Bangladesh it is 0.7 per cent and in India 0.9 per cent of the production cost.
Similarly, dependence on imported raw materials and capital goods for input sourcing in the apparel and textile industries was very high in Pakistan. For apparel the domestic input sourcing is 59 per cent and on imported it is 41 per cent.
Compared to this the domestic input sourcing for apparel is 27 per cent and on imported it is 73pc. As against this India which was a main competitor the domestic input sourcing is very high at 94 per cent and on imported it is only 6 per cent.
Above all exporters in Bangladesh and India are getting 12 and 8 per cent incentive respectively and their electricity and gas charges are cheaper. Therefore, there was urgent need that the government should immediately take stock of the situation and take corrective measures so that exporters of value-added textile goods do not lose markets.
