A question of liquidity: How delayed tax refunds reduce textile exports

Textile companies claim they face a liquidity crunch preventing them from increasing international sales.

FAISALABAD:

If the government speeds up the process of paying out tax refunds to textile companies, Pakistan’s textile exports can rise significantly, claim textile exporters.

“Huge amounts of several companies’ cash is stuck in local taxes drawbacks, customs rebates, and federal excise duty refunds,” claims Rana Arif Tauseef, chairman of the Pakistan Textile Exporters Association, a lobbying group. “If that amount is released, exporters can deploy that capital towards expanding their businesses, which in turn will help Pakistan’s export earnings grow.”

Pakistan exported $7.6 billion worth of textiles in 2011, according to the World Trade Organization. Tauseef claimed that the number for this year is currently on track to be lower by $2 billion, or about 26%. He, however, admitted that the trend for the first three months of the fiscal year ending June 30, 2012 had actually been good for textile exporters.

The textile lobby has often viewed itself as indispensible to the Pakistani economy, frequently complaining loudly about not getting enough subsidies and tax breaks. Yet as Tauseef describes it, the fundamental problem facing textile exporters over the past few months is a cash-flow crunch.

“Exporters are currently facing a liquidity crunch,” claimed Tauseef. “If we get more cash, we can expand our business.”

The expanding business opportunities for Pakistan’s textile exporters is a particularly encouraging sign, considering the fact that close to 40% of Pakistan’s textile exports go to the European Union, which is going through a severe economic crisis and recession.

As with any statement issued by a member of the textile lobby, there was the demand for government subsidies as a means of enhancing the sector’s export competitiveness. The demand this time was for Rs30 billion in spending, though there was relatively little detail as to where the lobby would want that money spent.

Tauseef, however, did specify where he did not want the money spent: on the Trade Development Authority of Pakistan (TDAP). Instead, the textile lobby wants the Rs10 billion budget for TDAP to be directed towards directly subsidising the textile industry. TDAP’s mandate includes helping all of Pakistan’s exporters, not just the textile sector. It does so by arranging trade shows within Pakistan and helping Pakistani companies gain access to markets abroad.

Tauseef claimed that TDAP was funded by the 0.25% export development fee paid by exporters on their revenues. Textile exports constituted about 30% of Pakistan’s total exports. The single biggest export item from Pakistan continues to be raw cotton, a position that cotton has retained since 1971. Before that, Pakistan’s leading export used to be raw jute from what was then East Pakistan.

Published In The Express Tribune, June 13^th, 2012.