"The textile sector, contributes over 50 per cent to Pakistan’s exports, and now it is facing tough times. A textile package of Rs 180 billion was announced in January this year. Under the package, Rs 38 billion was allocated for exports while a meager Rs 3.5 billion has been disbursed as of now. Textile manufacturers are in a fix if they should continue production, even after knowing that they would make losses. All sub-sectors of the textile industry are running under capacity and 25-35 per cent of all projects have shut down."

The textile sector, contributes over 50 per cent to Pakistan’s exports, and now it is facing tough times. A textile package of Rs 180 billion was announced in January this year. Under the package, Rs 38 billion was allocated for exports while a meager Rs 3.5 billion has been disbursed as of now. Textile manufacturers are in a fix if they should continue production, even after knowing that they would make losses. All sub-sectors of the textile industry are running under capacity and 25-35 per cent of all projects have shut down. Only garments and made-ups sub-sectors have been able to sustain production.

Non-starter policies

The budget deficit is resulting in non-payment of sales tax refunds which is estimated at Rs 250 billion. The Finance Minister had promised to clear sales tax refunds by August 15, 2017. The Minister’s promise relates to the Refund Payment Orders (RPOs) issued by the Federal Board of Revenue (FBR) till April 30, 2017. Government policies regarding refunds, payment of incentives, under-invoicing and smuggling are adversely affecting the textile sector. If the government solves these three issues, it will give breathing space to this sector.

The entire system is virtually controlled by FBR’s auditors to the exclusion of every other officer. This results in harassment of the assesses, delay in issue of RPOs, uncalled for rejections of input taxes, not giving in writing reasons for such rejections, and their resultant unaccounted shenanigans. RPOs issued in July2016 have still not been cashed. This entire entangled system of refunds has snowballing effect on the cash flow of the textile sector. Rs250 billion is still stuck in refunds cost, and in interest amounting to Rs22 billion or 1.75 per cent of total textile exports to exporters.

Afghanistan imports raw materials under the ATT for industries that do not exist in Afghanistan and these raw materials end up in Pakistan without payment of import duties. These two factors have resulted in losses to the national exchequer, as well as resulted in the closure of industries, leading to unemployment. As a suggestion, the government should create a Special Directorate or Collectrate whose sole job should be to control underinvoicing.