The government is well aware that the increase in GIDC will increase the cost of production of the textile industry, which is why it has offered a special package for this industry in budget 2015. PHOTO: FILE
The textile industry has refused to accept the recently-announced incentives package for the industry as it is a tradeoff in exchange for Gas Infrastructure Development Cess (GIDC).
Leading industry officials, who were jubilant on the incentives package, say that the expected jump in the cost of production due to the rise in GIDC would far exceed the benefits of the package.
“The increase in GIDC would cause an increase of over 40% in the cost of production,” All Pakistan Textile Mills Association (APTMA) Chairman Yasin Siddik told The Express Tribune.
The negative effects of this increase would surely nullify all the positive impact of the recently announced package for the textile industry, he added.
GIDC was introduced by the previous government to finance the Iran-Pakistan gas pipeline when foreign lenders, fearing US sanctions, refused to finance the multi-billion dollar project. The Nawaz Sharif-government decided to continue this tax and has now introduced a uniform rate of Rs300 per mmbtu for all sectors consuming natural gas.
At present, the textile industry is paying Rs100 per mmbtu but after the recent increase it will be paying Rs300 per mmbtu.
Analysts believe the government is well aware that the increase in GIDC will increase the cost of production of the textile industry, which is why it has offered a special package for this industry in budget 2015.
“I do not think that the government will take back GIDC increase for the textile industry. It is the IMF’s demand due to which the government is rationalising gas prices for different gas-consuming sectors,” Emerging Economics Research Managing Director Muzammil Aslam said.
The problem with the textile industry is that it cannot pass on the GIDC increase to its consumers because it is an export-oriented sector. Other sectors like fertiliser and cement have the capacity to pass on the impact of GIDC to the consumers because their product is being sold in the local market, Aslam explained.
Perhaps this is one of the major reasons why the textile sector is agitating against the rise in GIDC.
“If the government wants to trade off the textile package with the increase in GIDC, then it should take back this incentive and do not increase GIDC on the textile sector,” said a top textile tycoon.
Al Karam Textiles Mills – one of the country’s leading composite textile mills – Managing Director Fawad Anwar said that we are an export-based industry and even we want to pass on the rise in cost of production caused by GIDC.
Since January this year, the dollar has already depreciated 8% against the rupee that has badly affected profit margins, he added. “This is why I think the government should realise that if it does not take back the increase in GIDC, then the country’s textile exports will start declining from next month.”
Published in The Express Tribune, June 10th, 2014.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ