Textile sector and VAT collection

Editorial May 12, 2010

The textile lobby is at it again. In a bid to pressure the government into acceding to their demands for a ban on yarn exports, the value-added sector staged a strike on May 11. They were protesting what they said was the non-availability of yarn in the country, bringing one of the largest industrial sectors in the country to a grinding halt. It seems that the textile manufacturing sector has not fully understood the concept of free markets. People and companies are free to choose with whom they buy and sell goods and services. In this particular instance, the yarn manufacturers are getting a higher price for their product from buyers outside the country and so they are exporting it.

The decision to do so is purely logical and bears no malice towards the local industry. Yet the textile composite sector seems to be unwilling to pay the new price for yarn and instead claims that a shortage of yarn exists in the country. The fact remains, however, that there is no shortage, just an unwillingness by a perennially uncompetitive sector to pay market prices. Their recalcitrance is understandable; their attempt to hold the entire economy hostage is not. The government seems to have struck a compromise, announcing that it will impose a duty on yarn exports rather than an outright ban. But why should the yarn manufacturers be penalised for the inefficiencies of the value-added sector and locked out of the international market for their product? The truth is that the Pakistani textile industry has been uncompetitive for quite a while now, relying on government subsidies and tax exemptions. The government needs to remove some of the protection so that the industry can grow and mature.

Published in the Express Tribune, May 13th, 2010.