Reformed GST, making it difficult for textile industry

The government seems determined to implement the reformed general sales tax, which is just a nomenclature change for value-added tax, on the textile sector.

Sanuallah Abdullah October 10, 2010
It seems that the government is determined to implement the reformed general sales tax, which is just a nomenclature change for value-added tax, on the textile sector. Although in its true spirit VAT should be implemented across the board, we need to analyse our current scenario and tax practices before we take any further step.

Through the Finance Act 2005, the GST was waived or made zero-rated on textile and other export-oriented sectors after legitimate exporters-cum-manufacturers convinced the government of its negative implications on the export sector as well as on the government exchequer. The manufacturing-cum-export sector, which is the backbone of the economy, was under a severe cash crunch due to delays in refunds and rampant corruption. Before the implementation of this act, the government exchequer was refunding more sales tax than it actually received from textile companies because of the corrupt and inefficient system and existence of fraudulent companies. These are truly testing times for the textile sector of the country. On the one hand, general interest rates and export refinance rates have again started to move upwards, in addition to the crowding-out effect of private sector credit in view of excessive government borrowing. This at a time when cotton pricing is at the highest level in 15 years, thus requiring more working capital for operations.

On the other hand, constant increase in energy cost, inflationary pressure and deteriorating country image are making our products uncompetitive in the global marketplace. Textile exports are surviving in an environment where comparative countries are benefiting from better market access and rebates from their respective governments. The government should at least not make things worse for the exporting units by levying sales tax and thereby sucking up the much needed liquidity and putting the units into the quagmire of refunds.
Sanuallah Abdullah An MBA from Lahore University of Management Sciences, he is the President of Entrepreneurs’ Organization, Karachi chapter, which represents 9,500 business leaders around the globe. He is also a former Vice Chairman of the S.I.T.E. Association of Industry and served on the Executive Committee of the All Pakistan Textile Processing Mills Association.
The views expressed by the writer and the reader comments do not necassarily reflect the views and policies of the Express Tribune.


canflex | 11 years ago | Reply This is a nice blog about reformation of GST.Thanks for sharing your great information which is very helpful to our textile chemicals industry.Thanks a lot.
Naveed Ahmed | 11 years ago | Reply Dear Sanaullah & Shoaib Altaf Actually I would support arguments from Sanaullah, we have only 2 entities at the moment who is generating Jobs for people of Paksiatn. 1) Government of Pakistan 2) Textiel Sector. Now if we talk about Govt. authorities, you guys must be aware that to have Govt. Jobs you should have very extra relation with some higher authorties and you should have enough money in you pocket to offer, so we conclude that Govt. are not on merit, and also not for common deserving Pakistanis.Now if we talk about 2nd option of job generation is textile sector which is providing jobs on merit to valubale number of common man. I am not really advocating, that textile sectors should not pay tax, but Govt. should provide them with subsidies fo nay kind so jobs could be available for common man. As far as RGST is concerned, this is not the only way to make your collection better. May be you guys aware of the fact that only 30-40% of our population payes the tax. Why we dont adopt any policies to extand this ratio. In any economy you will have to buck up your exports, unfortunatley we are known as a popular industry only in textiles. We are producing planes,automobiles,helicopters etc. There should not be a question that Govt. will have to take steps to survive textile industry.
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