Electoral politics lurks behind Rs180bn export incentive packagePakistan
ISLAMABAD: Politics seems to be the real motivation behind the Rs180 billion export incentives package that Prime Minister Nawaz Sharif announced on Tuesday.
At least the timing of the policy announcement lends credence to this idea as exports have been consistently declining since the Pakistan Muslim League-N came to power in May 2013.
Why now? This question is answered by the fact that the next elections are due around May 2018. The incentives are meant for the intervening period and the PML-N may count on the support of its beneficiaries in the coming polls.
In the last year of the PPP-led coalition government, Pakistan’s exports stood at $24.5bn in 2012-13, which gradually fell to $20.8bn in the outgoing fiscal year.
Two export policies — one announced by the PPP government in early 2013 and another by the PML-N government in April 2016 — remained only on paper, while exports were constantly falling.
The 18-month package revolves around cash support and waiver in duty and taxes for five sectors — textile, leather, surgical equipment, sports goods and carpets. Approximately, 87 per cent cash support of the package will go to the textile and clothing sectors and a mere 13pc to the remaining four sectors.
Ahead of the announcement of the package, the prime minister met representatives of the exporters from two houses of traders to finalise proposals for increasing exports.
President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) Zubair Tufail and Chairman of the All Pakistan Textile Mills Association (APTMA) Aamir Fayyaz Sheikh were prominent among those who attended the meeting.
The prime minister said that the package would strengthen the national economy as it would lead to an increase in exports.
The package was evolved by a core cabinet team led by Finance Minister Ishaq Dar in consultation with Mr Tufail.
But a source privy to the process of finalisation of the package says that the prime minister was directly involved in the preparation of the package.
PM Sharif said the package would help put an end to poverty, illiteracy and backwardness and generate employment opportunities.
He regretted dismal performance of the previous governments, saying they had practically done little to promote different sectors of the economy while paying mere lip service to the matter.
Under the package, the government has offered 7pc rebate in the shape of cash support of Rs58bn on all types of garments and 6pc or Rs39bn on home textile in the next 18 months.
For the exports of fabric, the rate of cash support will be 5pc or Rs16.5bn, and 4pc or Rs12bn on yarn and Rs2.25bn on grey fabric.
The rates were increased during the meeting with the prime minister.
The original agreed package rates were 5pc for garments, 4pc for home textiles and 3pc for fabric. Yarn, a raw material, was included in the package during the meeting with premier, the source privy to the meeting told Dawn.
In other non-textile sectors, a cash support at the rate of 7pc will be given on export of finished leather goods, including garments, and 5pc on finished leather. The cash support will be provided at the rate of 7pc on export of sport goods, 5pc each on cutlery and surgical instruments and 6pc on carpets. The total amount to be given in the shape of cash support to these sectors will be Rs22.5bn.
On the import of raw cotton, customs duty and sales tax has been abolished; duty has been waived on import of man-made fibre; and did away with 10pc sales tax on textile machinery imports. The total impact of these measures for the textile sector will be Rs22.5bn.
The cash support will be unconditionally provided in the first six months — Jan to June 2017. However, for the next fiscal year — July 2017 to June 2018 — exporters will have to show 5pc growth in export proceeds.
The original target for achieving cash incentive was 5pc growth in exports in the first six months and 10pc in the next whole year.
At the ceremony, the details of the package were announced by Finance Minister Ishaq Dar. He said refund of sales tax up till June 30, 2016 had been cleared, besides lowering of electricity tariffs and announcement of the largest ever package for agriculture sector.
At a separate press conference, Minister for Commerce Khurram Dastagir said the package would help increase exports to the tune between of $2.5bn and $3bn by 2018, which would still be lower than the export proceeds achieved in 2012-13, last year of the PPP-led coalition government.
Asked whether the package was part of the election campaign, he avoided answering the question and, instead, said exports would start picking up with the support package.
The FPCCI president lauded the measures taken by the government for the business sector. He expressed the hope that owing to the dynamic measures, Pakistan’s industrial and business sectors would flourish. Now the responsibility lies on the shoulder of exporters to fulfil their promises for the increase of exports.
APTMA chairman Sheikh said the package was a welcome change for the textile sector as today the country had achieved economic stability and days of electricity loadshedding were over.
Meanwhile, the opposition parties have rejected the package terming it a “political move that is aimed more at next general elections than at boosting exports", adds our staff reporter from Karachi.
“It’s a joke,” said Pakistan Peoples Party Senator Saleem Mandviwalla. “It would be meeting the same fate as the Kissan Package and Agriculture Package of this government.
“The measures announced by the prime minister would take more than two years to deliver while the industry is in deep crisis demanding immediate rescue.”
He said the production cost, which was expected to be reduced by the government through subsidy, would stay unchanged as electricity charges for the industry had been fixed at 11 cents per units compared to seven cents in other countries of the region, which is aimed at boosting their exports by making products’ prices compatible.
“Leave all that measure and pay back the return of all taxes — withholding, income and sales — to the industrialists worth Rs250bn, you would never need such packages,” Mr Mandviwala said.
“The government after assuming charge in 2013 has not paid the payback — the return of all taxes to — exporters and businessmen and no one is worried about that in the cabinet,” he said.
Published in Dawn January 11th, 2017