FBR to Analyze the Impact of Import Tax Incentives on Exports

The Federal Board of Revenue (FBR) is scrutinising tax exemptions granted on textile machinery import and their subsequent impact on exports and industrial expansion to spot any misuse of facility, sources said on Tuesday.

The government granted massive concessions and tax exemptions on textile machinery and raw material imports for the past several years, but preliminary studies revealed that such facilities didn’t reflect in local manufacturing or exports.

The data released by Pakistan Bureau of Statistics showed that machinery import grew 20.6 percent to $556.83 million in the fiscal year 2016/17. However, textile exports remained stagnant year-on-year at $12.45 billion during the last fiscal year.

The exemptions and concessions granted to textile sector for balancing, modernisation and replacement under statutory regulatory authority 1125(I)/2011 amounted to Rs. 50.5 billion in 2016/17 as against Rs. 45 billion in the fiscal year 2015/16, the Economic Survey of Pakistan document said.

Interestingly, FBR allowed Rs 55.5 billion in exemptions and concessions in the fiscal year 2014/15 when imports of textile machinery fell 25.06 percent to $449.3 million.

Sources said that FBR is compiling machinery import data for the past five years. They said that tax offices detected a few cases where registered taxpayers imported machinery but they didn’t install it at manufacturing facilities and still claimed the benefits.

“There are chances of machinery imports on mere invoices and no physical transactions have been done,” a FBR official said on condition of anonymity. The official said that an FBR team also observed that imports of finished textile products substantially increased despite tax incentives.

Imports of worn cloth and other textile products increased 10 percent to $1.42 billion in 2016/17. Industry officials say that high production and exports depend on cost of doing business, and since cost is high, production is low.

APTMA’s Recommendations

All Pakistan Textile Mills Association (APTMA), in a letter to the government, said that high cost of gas and electricity is making Pakistan’s exports uncompetitive in the global market.

APTMA added that gas and electricity tariffs are around 30 percent higher in Pakistan than regional competitors, like Bangladesh, India and Vietnam.

The association advised the government to take immediate steps to expeditiously settle payment of outstanding sales tax and other refunds to address the liquidity issue and check large-scale influx of imported yarn and fabrics in the country to save the domestic industry.

The textile body said the country has already entered in an era of de-industrialisation as industries are closing. “In 2005, the share of manufacturing sector in GDP was 19 percent, which has now fallen to 13 percent.”

APTMA said that around 140 textile mills shut down their operations and resultantly one million workers have lost their jobs. Another 75 to 80 mills are on the verge of closure, which would add to the unemployment by another 0.5 million in the textile industry.

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