March 18, 2007	Sunday	Safar 28, 1428

ISLAMABAD, March 17: Tax evading textile industries are seeking taxpayers’ money in the shape of subsidies to depress the price of their products to finance purchases of the rich countries’ consumers.

This rent seeking of the billions of dollars by the export-oriented textile industry also helps the rich countries to keep their inflation low and the interest rates at lower side at the cost of the poor taxpayers of a third world country like Pakistan. They are pushing the government for further subsidies rather to focus on better quality, adherence to delivery schedule, promotion through modern techniques and other marketing tools.

Official figures available with Dawn indicated that more than 70 leading textile units of the country had declared losses, which stood at more than Rs100 million mentioned in the income tax returns filed during the tax year 2005-06. Only seven textile units have shown more than Rs100 million profits in their income during the year under review.

Contrary to the industry claims of losses in income, however, the exports of textile products reached $16.5 billion during the year 2005-06 from $14.41 billion in the previous year, indicating 15 per cent growth.

This indicates that the textile manufacturers are evading payment of income tax on their huge profits, which is clear from the fact that textile exports are steadily on rise during the last years. The government had already zero rated the sales tax on the inputs of the whole textile chain.

Currently, there was no audit system in place in CBR to verify the records of the textile tycoons, who are seeking the poor taxpayers, money in the shape of cash subsidies on the pretext that they are uncompetitive with their rival countries in the world market.

Official figures indicated that the whole textile sector paid only Rs1.3 billion as income tax up to December 2006 as against Rs700 million in the same period of the last year.

Maximum portion of this income tax was raised from the whole textile sector, including the tax deducted at source from employees’ salaries while the tax paid by the manufacturers was around Rs400 million. It shows that the sector contribution in the income tax is meaningless as compared to their share in the GDP and more than 64 per cent contribution in total exports.

On the other hand, the government has dolled out more than Rs11 billion under the head of so-called six per cent research and development support to the industry during the period under review. Many more billions are offered in re-scheduling of loans and under the export refinance scheme.

Analysts said the government policy of increasing exports through subsidies in the past years led to mushrooming of exporters instead of improving the quality of products and developing skills of workers.

In addition to these subsidies, both covert and overt, duty exemptions and tax concessions were also rampant. Despite all these incentives country's exports would barely touch $17 billion this year, said a senior official on condition of anonymity. "More people join the trade with eyes on incentives instead of adopting the profession seriously focusing on its improvement and innovation," the official said and added that this was even clear from the misuse of freight subsidy, which was originally announced for the promotion of new products to new markets.

Analysts said the subsidies intensified cut-throat competition and price war among the exporters, resulting in reduction in per unit price. Consequently, more goods are exported for a lesser price.

Interestingly, the market share of countries like India and China selling expensive products swelled during the first year after the end of quota regime, especially in the European Union countries. Pakistani products, despite being offered at lowest prices, failed to gain foothold in the EU market.