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Export of value-added textile.

Export of Value-Added Textile

The export of value-added textile is to be increased if we have to reach the level of developed countries. Inspite of four decades of Pakistan's existence we are still concentrating on exports of raw materials or basic raw materials. The most glaring example is of export of cotton yarn which is primarily a basic raw material for all value-added finished textile items. The indiscriminate export of cotton yarn - over 40% of its production in the last year and projected export of over 50% in the current year has crippled the local value-added textile industry.

Pakistan has to fight a bigger war than the Gulf war on the Economic front for its survival and attainment of self-reliance. Moving in the right direction, the new government has set its priorities, (a) Industrialisation, (b) Export Trade, (c) Denationalisation and Privatisation. The dynamic policies already announced to liberalise the controls over foreign exchange and the reforms in industrial policies are laudable. It is the first time in Pakistan's history that an economic revolution has been made the target instead of political revolution, with which our history is replete.

Export Policies are, although, made by the government but they are implemented in close liaison with private sector. Nearly 50 per cent of our exports is related to cotton and cotton textiles. We entered into textile industrialisation with a bang during the 60's but unfortunately its initial pace of progress could not be maintained in 1970's. Whatever increase in the export of textile has been achieved in the last 4 decades may be considered just a natural phenomenon rather than any spectacular growth which could be compared with that of Hong Kong, Korea, Taiwan and Singapore etc. whom we have always been quoting as our ideals. The main reason for this hampered growth is that our trade, industrial and fiscal priorities and policies have always been changing to suit the ever changing moods of our rulers and politicians.

Unfortunately the government of Pakistan, since its very inception, has been dominated by feudal lords and military and civil bureaucracy; except, strangely - for the Ayub era no government paid sincere attention to the industry and exports. Fortunately for the first time in Pakistan, we have a Prime Minister from the industrial sector and hence we look forward, optimistically, to a buoyant change in the economy of the country. But we are also aware that the Prime Minister alone cannot deliver the goods because he has to appease his party and coalition members, many of whom are, unfortunately, the same feudal lords. Their strong lobby wants to keep the country as their fiefdom.

Under the circumstances great responsibility lies on the Minister of Commerce and on various departments of his ministry to activate the trade and export in consultation with the private sector. The ministers will have to give more time to trade bodies and associations and make efforts to decentralise the departments controlled by their ministry. Particularly the Export Promotion Bureau will have to be decentralised by appointing a full time chairman for it from private sector. It should also be made an autonomous body to allow it to play its full role in the export sector.

An important aspect related to our textile exports is the successful negotiation of bilateral textile agreements expiring in 1991. Homework has to be done as early as possible, the EPB can play an important role in this connection.

The export of value-added textile is to be increased if we have to reach the level of developed countries. Inspite of four decades of Pakistan's existence we are still concentrating on exports of raw materials or basic raw materials. The most glaring example is of export of cotton yarn which is primarily a basic raw material for all value-added finished textile items. The indiscriminate export of cotton yarn - over 40% of its production in the last year and projected export of over 50% in the current year has crippled the local value-added textile industry. Availability of poor quality yarn on fantastic domestic prices has started affecting export of our value-added textile which is being out-competed by Pakistan's own yarn in International market. Our yarn is dumped all around the world at the cost of domestic prosperity. The government should immediately, as a first step, withdraw all concessions and reductions in export duty extended to open end yarn, and restrict the overall export of yarn maximum to 30% of its production.

If the Government is constrained to extend any fiscal facilities to exporters of value-added textiles on account of lack of resources, it should at least immediately increase the duty drawbacks on towels, madeups and other related items. The government will not be paying any thing from its pocket but only refund the amount collected by it as sales-tax and custom duty on imports of raw material used in manufacturing these items. It will help the value-added textile to increase its competitiveness in international market; which is facing an unpredictable period of recession in the aftermath of Gulf War.

The labour laws, applied on small and medium industries directly or indirectly affect the export. These can be streamlined both for the benefit of employers and employees. At present there is no participation of the labour in social security, EOBI, education & insurance programmes because all costs of these are paid by the employers. The government collects the money from the employers but the labourers are not getting proper benefit from the various social welfare agencies. It is recommended to the Government that industrial establishments employing less than 100 workers; the contribution of employers be collected by one government agency by clubbing all levies on the pattern of excise duty or sales tax by fixing it per machine or per head of labour employed. This will generate billions of rupees for the government without any tears or toil which can be utilised for labour welfare schemes. This will help to improve the condition of working class by providing facilities for free health, education and unemployment allowances by the government. On the other hand it will remove the impediments and harassments caused to small industrial entrepreneurs which they have to face due to more than two dozen government departments both federal and provincial interfering in the working of their establishments.

Most of the exporters of value added are either small or medium industries. They need government assistance to employ latest technology in textile and clothing. They should be at par with agriculturists as far as soft loans scheme is concerned.

The income tax procedure for exporters be simplified by charging a fixed percentage of tax on export proceeds as already suggested by the export promotion Committee formed by the government.

Actually the income tax in itself is not a problem. Businessmen would happily contribute more than that. Rather it is the discrimination between the different classes which causes dissension. More affluent people than the traders are totally exempt from all sorts of tax whereas a small shopkeeper having an income of Rs. 40,000 has to pay a tax which is collected under a tortuous procedure keeping, a sword of Democles hanging over his head for a period of ten years.

It is right time to do away the taxation system adopted by British imperialists. The collection of Income Tax is about Rs. 15 billion. Is it not possible to devise some new procedure to collect more than this amount from 11 crore people of Pakistan excluding those who cannot afford to pay. The Islamic conception of taxation is not based "on what you earn". It envisages a voluntary contribution on the basis of "what you are worth".

There is a need for having full fledged three days open seminars in Islamabad, Karachi, Lahore, Peshawar and Quetta in which consensus should be arrived at on the taxation system. Till such time these seminars give their verdict all those Income Tax returns should be accepted who agree to pay tax more than 20% what they paid last year.

All items; 75% production of which, is exported out be exempted totally from sales tax such as towels, toilet linen, terry cloth, made up of all sorts e.g. napkins, face towels, baby nappies, shop towels, dish towels, bathrobes etc. etc. The problem of sales tax on cottage scale industries such as towels and other toilet linen is very complex. Weaving is done in one factory, bleaching in another, dyeing and finishing some- where else, stitching in separate places including residential houses, baling and packing in another place.

Collecting sales-tax is a difficult problem. For this very reason a suggestion has already been made that exporting firms or houses including those industries who supply 75% of their manufacturer to the exporters should be charged a single tax on certain percentage to be determined individually on the merit of each item on total gross sales or export proceeds at one stage. Not only the tax will increase but it will give an unfettered incentive for growth of exports and export oriented industries.

Smaller countries, having no cotton, are growing in garment industries. A glowing example is of Bangladesh. Why is it that we are stagnant on export sector so far as value-added is concerned? Basically there is something wrong somewhere and unless the government and business community both sit down together this situation will not improve.

It is necessary that pre-budget meetings be held in all the capitals of Pakistan where not only the finance, but commerce and industry is also represented. Generally in such meetings only a certain class i.e. big businessman is invited. It is not necessary that a big businessman or an affluent person knows anything about economy as well. There are a number of talents in small business sector who can give a better advice provided they are given a chance.

It is expected that the government will look into all these aspects before formulating budgetary proposals.
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Title Annotation:Pakistan
Author:Rizvi, S.M.A.
Publication:Economic Review
Date:Aug 1, 1991
Previous Article:Readymade garment industry in Pakistan.
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