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May 27, 2020

Pakistan Unveils New Textile Policy, Extends Duty Exemption on Import of Machinery

ISLAMABAD – Pakistan has announced the much-awaited Textile Policy 2014-19 which seeks to double the textile exports to $25 billion, increase share of value addition and improve product mix, especially in garment sector, from 28 percent to 45 percent.

The duty exemption on the import of textile plant and machinery has been extended for another two years to attract additional investment of $5 billion in the textile sector, which employs 40 percent of the industrial labor force, consume more than 40 percent banking credit and accounts for more than 8 percent of the country’s gross domestic product.

The policy also include reduction in export refinance rate (EFS) and long-term financing facility (LTFF), 64 billion rupees ($63.13 million) subsidy on long-term loans and development subsidies and special duty drawbacks.

Pakistan’s textile sector contributes around 50-55 percent ($12-13 billion) in the country’s exports which totaled $25.13 billion in the year that ended June, 30, 2014. The government is targeting to increase the textile exports to $25 billion in the next five years through various incentives.

Drawback of Local Taxes and Levies (DLTL) scheme would continue under the new policy. Under it, if any textile exporter achieve incremental textile exports beyond 10 percent over the previous year, he will be given DLTL at the rate of 4% for garments, 2% for made-ups and 1% on processed fabrics.

Moreover, duty drawback for garment sector has been increased from 3% to 4% to encourage textile companies to go for value-addition. Rates on made-ups (at 2%) and processed fabric (1%), however, remained at the same level as announced in the Federal Budget 2014-15.

Notwithstanding the incentives, energy shortages remain one of the major issues facing the textile sector in Pakistan. Frequent gas and power cuts, lasting for several hours a day, have hampered companies’ ability to fully reap the benefits of Generalized System of Preference (GPS) Plus facility granted by the European Union last year.

Another issue is the level of protection provided to the local players. Recently, spinning segment of textile sector raised its concern against the “dumping” of Indian yearn in the local market

“Unfortunately, this new policy doesn’t provide any solution on the energy front,” according to Muhammad Tahir Saeed, an analyst with the Karachi-based brokerage Topline Securities. “However, we believe composite units having captive power plants and uninterrupted supply of electricity will get some benefits because the government is focused to enhance value-added products.”

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