THE government’s policy of ‘taxing’ the organised export-oriented industry through various surcharges and fees on their energy supplies, as well as through the implementation of numerous levies, has steeply raised the manufacturers’ costs during the last two years.

The electricity bills of textile companies, for example, have gone up by almost Rs67bn or just under 5pc of the industry’s export earnings of $13.7bn. This is because of the 57pc spike in power prices, from the weighted average of Rs9.10 (inclusive of the Neelum-Jhelum surcharge of Rs0.10) per unit to Rs14.32 since the Nawaz Sharif government returned to power in June 2013.

And textile manufacturers estimate the implementation of the gas infrastructure development cess (GIDC) to inflate their gas bills by an additional Rs34bn — or 2.5pc of their exports.

Theoretically, exports are zero-rated in Pakistan just as elsewhere, said S.M. Tanveer, chairman of the All Pakistan Textile Mills Association (Aptma).

“In reality, however, the combined impact of the increased electricity and gas prices, as well as the different surcharges, levies, taxes and fees etc on export-oriented textile companies is around 12pc of their turnover,” he added.

He said the abolition of the zero-rated status of textile exports and the raised cost of production has eroded the economic viability of the industry, affected its competitiveness, and made its products much more expensive compared with the massively subsidised exports from India, China and Bangladesh.

“In reality, the combined impact of the increased electricity and gas prices, as well as the different surcharges, levies, taxes and fees etc on export-oriented textile companies is around 12pc of their turnover,” said Aptma chairman S.M. Tanveer

“The solution to the crisis lies in reducing the cost of doing business and making exports zero-rated,” he concluded, adding that the majority of textile manufacturers are losing money. “If you read the balance sheets of listed textile companies, you will find that most of them are suffering from losses.”

Leather exporters agree. “The cost of our exports has skyrocketed in the last couple of years owing to the increase in energy prices, energy shortages, direct and indirect taxes and levies,” Agha Saiddain, former chairman of the Pakistan Tanners Association (PTA), said.

“We are unable to compete with our regional rivals — India, Bangladesh and China — where the energy tariffs are much lower than ours. In Bangladesh, for example, the electricity price is half of what we have to pay, and their exports completely zero-rated.” The burden of un-refundable taxes on export-oriented industries is 5pc.

“The manufacturing industry is doomed in this country unless you unload all refundable and un-refundable taxes before the export shipments leave our ports, bring down energy prices to the regional level of Rs7-9 a unit, and remove the power shortage,” Agha contended.

A leather garment exporter from Sialkot, who requested anonymity because of his relations with a federal minister, said Finance Minister Ishaq Dar was not even prepared to listen to their problems, let alone solve them.

“Dar has transferred the cost of the state machinery’s failure in preventing electricity and gas theft and collecting taxes on to the exporters by spiking energy prices for them, imposing various taxes, fees and levies on their bills, stopping their [export] refunds, and making the imported raw materials dearer through increased import taxes,” he argued.

Instead of passing on the benefit of falling global oil prices to the industry, he said, the government has imposed rationalisation and other surcharges to recover the cost of the 35pc electricity that is stolen or lost during transmission and distribution and unpaid bills from honest consumers. On top of that, the rupee is being artificially propped up to add to the losses of the exporters, he added.

Agha was also critical of Dar’s claims of having stabilised the economy. “What economic stability is he talking about? The foreign exchange reserves have been built by accumulating debt. The exports are declining and the imports rising in spite of the falling oil import bill. Foreign investment has bottomed. Growth has slowed down. No new industry is being set up.”

On the other hand, he said, Bangladesh had increased its foreign exchange reserves ‘far higher than us by increasing its exports’.

Ahmed Kamal, a textile exporter from Faisalabad, said Pakistan’s tax-to-GDP ratio would rise to around 14pc if the revenue the government is collecting through ‘innovative’ measures (like the rationalisation and debt surcharges etc on power bills) were also added to the Federal Board of Revenue’s collection.

“When state-owned companies make profits, the government pockets all of it to increase its revenue. When these companies make losses, the government transfers the entire burden on to the consumers. Aren’t our economic and finance managers being very clever and intelligent at the cost of jobs and exports,” he wondered.

Published in Dawn, Economic & Business ,July 21st, 2015

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