Concerns in the textile sector

The textile sector’s tussle with the tax authorities seems to be never-ending. In the latest development, the spinning sector is still paying taxes on the import of textile waste used in manufacturing value-added products, despite the government having agreeed to charging the textile sector’s supply chain at zero sales tax rate. Spinning mills cannot claim refunds from the government due to the zero-rated tax regime for textile units. The regime was re-introduced this fiscal year with the aim of helping a sector that contributes towards the bulk of Pakistan’s exports, which have been on a continuous decline for some time now. The aim was to assist industries with cash flow issues that have been impacted by stuck refunds.

This is not the first time the textile sector has been involved in a tax issue. The zero-rated regime had originally been set aside by the government after it was reported that the sector was selling its tax-free goods in the domestic market, defeating the purpose of the zero-rated regime, which was to increase exports. However, the government decided that taxes would be refunded if textile exporters could show proof of having sold their merchandise in other countries, which on paper sounded like a doable endeavour. But, as is often the case in Pakistan, this tax remained in government coffers and would be used to inflate revenue figures, never to be refunded. The situation worsened to the point that the government even contemplated borrowing money to pay back these refunds. In such a system, where one step brings with it so many complications, it is nearly impossible to incentivise all sectors of the economy. There are bound to be losers. The government, on the other hand, feels it can achieve all its goals, without sacrificing on any one avenue. Basics tell us that to benefit one segment of the economy, some other sector has to bear the brunt. The textile sector seems to be a priority and that is why its grievances are still heard. But the country’s exports are unlikely to increase until massive changes occur in our taxation and bureaucratic systems.           

Published in The Express Tribune, August 30^th, 2016.

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