Pakistan Textile Council Debates Industry Challenges in Panel Discussion

Pakistan Textile Council held a panel on Saturday to discuss rent-seeking accusations and challenges faced by the textile sector. The panel also talked about restrictions on capital flow, unfair energy tariffs, entry barriers, opening regional trade, and the utter lack of intelligent policymaking in power corridors.

The panel was moderated by Ali Khizar the Head of Research at Business Recorder while experts included Musadaq Zulqarnain – Chairman of Interloop Holdings, Shehzad Saleem Chairman Nishat Chunian Group, and Dr Ali Hussnain Associate Professor of the Economics Department at LUMS.

“Ingenuine Capital Formation has been mixed with genuine capital formation and has been demonized. Capital flow in the world is free and if someone has paid taxes on his money, he can keep it anywhere in the world,” stated Musadaq Zulqarnain from Interloop.

He also pointed out that when Sri Lanka went bankrupt, Interloop did not encounter any disruption in shipments and when it paid millions in dividends, nobody asked.

“Our manufacturing sector shares 15% of the GDP and gives 56% of direct taxes. Wholesale and retail share 19% of GDP and pays only 1%. Agriculture shares 20% but pays only 1%. Real estate is totally negligible and undocumented.” stated Ali Khizar from Business Recorder.

He added that entrepreneurs are competitive and cut-throat, and they will jump on returns and opportunities. Rent-seeking policies should be blamed instead of businesses.

“Do we have done something strange from the international norms or people don’t have an understanding?” asked Shehzad Saleem, pointing out the rent-seeking accusations. He said that there are massive contractual issues, leakages, theft, and recovery issues in the energy sector and the textile sector can’t be liable for that.

He added that regional countries strategically subsidize to out-compete us while we are stuck in the unbelievable trap to blame industries. While the risk of inefficient policies in taxation and NAB is an issue, addressing this negative narrative is also critical for our growth.

He also pointed out that public sector losses i.e. PIA and Steel Mill should also be addressed but nobody talks about that and the state is not ready to listen. He also amounted the recent policy of imposing a super tax on companies’ tax-paid reserves to a near nationalization.

“We require public documentary evidence on policies, and it should be evaluated every five years and we need a more cohesive debate to start with,” commented Dr Ali Hussnain from LUMS. He argued that while energy incentives are rent-seeking in definition, development especially in R&D only occurs in such an environment.

“We have lived a crisis fast-forward in the last five years, and we still haven’t figured out what happened” he added. He also highlighted the need for more universities like LUMS and narrowing down policymaking at municipal levels.

He remembered the policy steps taken by India in 1992 when it was facing circumstances similar to Pakistan with public sector losses and messed up taxation policy. He pointed out that they developed plans that clearly defined their economic problems and their priorities. “Even if we get political will today, our bureaucracy lacks the required long-term planning.”, he added.

Musadaq Zulqarnain also highlighted the importance of opening regional trade for economic growth. He argued that indigenous cotton production has become our weakness as international apparel has been separated from textiles, and we are producing the lowest quality polyester.

He proposed to using organic cotton to increase yields combining strengths in regional countries like China and Sri Lanka.

Participants also pointed toward the hurdles faced by new and existing small exporters in establishing and running their businesses.

Banks are only comfortable in doing business with large enterprises due to low chances of recovery that take 10 years at a minimum. There is a major issue of capital availability,” argued Shehzad Saleem from Nishat Chunian Group.

He added that our taxation system encourages vertical growth. Outsourcing to SMEs will incur more income tax than the selling price and margins and that’s why we have the highest number of vertical factories in Pakistan compared to other countries.

He pointed out that the government is imposing turnover taxes out of fear that people may not pay taxes, but some sectors like spinning may never be profitable again due to this as they have 2-2.5% margins, but Govt will take 1.5%

“There is a big chunk of SMEs in other countries like Korea, China, and Turkey. We have barriers to imports of raw materials along with financing constraints and there is a culture of mistrust within businesses”, stated Musadaq Zulqarnain from Interloop.

He added that businesses outsource manufacturing to other SMEs and that’s how they grow, but we here try to cut other’s customers if we get that chance. He also added SMEs will have to invest in the work environment and train skilled labor.

Participants also appreciated the government’s step to establish a National Compliance Center and stated that it will help in ensuring safer work environments & building codes and better labor rights.
Musadaq also proposed opening their factory to educate people about safety and sustainability. 

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