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LAHORE: The incentives package for the textile and clothing exports rewards the use of imported yarn and fabric by the manufacturers of made-ups and garments because the deal offers duty drawback of taxes on the dollar/rupee value of overseas shipments instead of quantum of value added locally by an exporter.

While manufacturers of home textiles prefer to import cheaper yarn and fabric to keep their cost down because of up to 15pc price advantage over local procurement, the spinners and weavers say the duty drawback of taxes should be available only to indigenous raw materials in the value chain.

“The purpose should be to encourage the use of local raw materials and boost investment in value-added industry in the country, and not subsidise manufacturers of yarn and fabric across the Wahga border. Look at the example of Bangladesh that has developed a modern spinning, weaving and dyeing industry by subsidising garment exporters who have preference for locally produced yarn and fabric,” a former chairman of the All Pakistan Textile Mills Association (Aptma) argued.

The revised PM Package of Incentives for Exporters allowing duty drawback of taxes collected from textile and clothing manufacturing-cum-exporting units was notified by the government on October 20 and covers shipments made during the present financial year.

The deal provides cash subsidy to yarn and greige fabric exporters at the rate of 4pc, processed fabric 5pc, made-ups 6pc and garments 7pc. Compared with original package, the revised deal removes the condition of 10pc increase in exports over the last year for claiming half of the drawback.

A fabric manufacturer insisted that the domestic manufacturers of basic textiles could bring down prices if the government reduced energy tariffs to help cut their cost of doing business to enable them to compete with their regional rivals and ward off cheaper yarn and fabric imports.

“Instead of a level playing field what we have is a policy that encourages establishment of textile industry in the Indian Punjab. If cotton imports from India can be stopped to protect our farmers, why can’t they raise barriers to safeguard spinners’ and weavers’ jobs?,” he asked.

The industry claims the government could revive closed capacity of $4bn of export potential and boost overseas sales of clothing by $12bn by converting basic textiles into garments if right policies are pursued.

“Besides reduction in energy prices to encourage investment in value-added industry, the scope of LTFF scheme should be extended to indirect exports to increase supply of basic textiles to the value-added sector. The LTFF facility should also be allowed for building infrastructure for garment plants and be available under the Islamic mode of financing,” the former Aptma head concluded.

Published in Dawn, November 3rd, 2017