No decision on removing duty on man-made fabric

Competing forces stand in way of reducing cost of doing business

ISLAMABAD:

Despite holding multiple sessions, Pakistan’s Tariff Policy Board remains indecisive on withdrawing the 5% regulatory duty on the import of man-made fabric due to the competing business interests, putting the government’s will to reduce the cost of doing business to test.

Sources said that headed by Commerce Minister Jam Kamal, the Tariff Policy Board had held multiple rounds of discussions on the proposal to withdraw the 5% regulatory duty on the import of polyester filament yarn. Although the majority of board members were in favour of withdrawing the duty, the board has not yet made a final decision, they added.

The commerce minister’s views could not be taken as he was on a visit to China along with Prime Minister Shehbaz Sharif.

The 5% regulatory duty had been imposed on the import of polyester filament yarn despite 80% shortage of raw material in the local market. This raises questions over the use of regulatory duty.

The Tariff Policy Board is again scheduled to meet on Monday to make a decision. Sources said that during the last session, some board members suggested that a compromise should be struck by cutting the regulatory duty by half to 2.5%.

However, there is a need for complete abolition of the duty as the local manufacturers do not have the capacity to produce 460,000 tons annually for consumption by the local industries.

Pakistan has long been providing protection to the local industries in various sectors at the expense of consumers.

The polyester filament yarn is a raw material for knitting and weaving to make polyester fabrics like clothes, curtains, bed sheets, ropes, etc. It is a basic raw material for Pakistan’s textile for knitting, weaving, sizing, doubling, twisting, covering and yarn dyeing, and garments.

The estimated local demand for the man-made fibre is about 460,000 tons per annum, of which 370,000 tons, or 80%, are imported, said the Pakistan Yarn Merchants Association (PYMA) in a representation to Prime Minister Shehbaz Sharif last month.

Despite the 80% shortfall, the government has imposed the 5% regulatory duty. The additional protection of 5% has been given despite levies of 30.5% on account of 11% customs duty, 18% sales tax and 3% additional tax.

Essentially, the importers are paying about 13% higher tax compared to the locally produced raw material for yarn.

Even if the government withdraws the regulatory duty, the local players having only 20% production capacity compared to the demand will still enjoy a protection of 8%. The over-protection causes efficiencies in the system and industrialists are tempted to avoid competing in the international market for exports. The share of natural fibre has declined to less than 30% all over the world and it is replaced by man-made fibre.

PYMA has long been advocating the withdrawal of the regulatory duty but the competing business interests were stopping the government from making a decision.

PYMA warned that the move would lock around 800,000 power looms, the lifeline of Pakistan’s textile industry. Importers have been working to get the duties withdrawn to save the small and medium enterprises from destruction. However, Gatron Industries, which produces the fabric locally, is seeking the continuation of the protection. In its Annual Report 2023, Gatron argued for the enhanced protection against the influx of cheaper imports from China.

Published in The Express Tribune, June 9^th, 2024.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.