The government has set an ambitious target to take Pakistan’s exports of textiles and apparel industry to a whopping $40 billion by FY25.
ProPakistani has gained exclusive access to the Draft Textiles and Apparel Policy, 2020-25, approved by the Economic Coordination Committee (ECC) of the Cabinet on Thursday.
Value addition for each segment of the supply chain is a central goal of the policy, the result of which will be export projections of $20 billion for FY22, $25 billion for FY23, $31 billion for FY24, and $40 billion for FY25.
The policy outlines a 24-point incentives agenda for the textiles and apparel industry. Some of the key incentives proposed under the policy include the uninterrupted supply of electricity and gas/RLNG to the export-oriented units at regionally competitive rates throughout the policy years without any disparity among the provinces. For FY22, electricity will be provided at nine cents per kwh all-inclusive, and RLNG at $6.5/MMbtu all-inclusive.
The Long Term Financing Facility (LTFF) and Export Financing Scheme (EFS) rates will be continued at five percent and three percent respectively during FY22. Furthermore, a review of the LTFF and refinancing scheme for small and medium enterprises (SMEs), indirect exporters, and building costs will be included.
A brand development and acquisition fund will be launched and the Karachi Garment City Company (KGCC) will be revitalized under the policy. Additionally, a mass-level training program, especially for industrial stitching, will be launched for women in particular.
The e-commerce policy that is being implemented is also expected to provide open access to textiles and apparel manufacturers and exporters to tap the available business opportunities across the globe.
The State Bank of Pakistan will allocate sufficient funds for the LTFF and the EFS. Moreover, textiles and apparel machinery, spare parts, accessories, and dyes and chemicals will also be included in its schemes.
The government will establish state-of-the-art infrastructure having an electricity and steam generation system backed by the combined effluent treatment and water recycling plants to reduce the cost of manufacturing.
It will develop new garment cities for SMEs to have plug-and-play buildings in a number of cities including Sialkot, Sahiwal, Multan, and Hyderabad. More state-of-the-art buildings will be added, and buildings and procedures for rent will be designed in accordance with the SMEs in the existing garment cities. Additionally, expo centers will be developed in Sialkot and Multan under the policy,
The government will also allow back-to-back letters of credit (LCs) to boost value-added exports, and expects them to become the basis for development and provide a launchpad to SMEs.
It will also provide tax exemptions, free spaces, and other incentives for international buying houses to open offices in Pakistan, and will hold annual textiles and apparel exhibitions in Pakistan and other countries.
The duty drawback scheme (DLTL/DDT) will be continued for technical textiles, apparel, and made-ups. Moreover, diversification within products and markets will be offered an additional duty drawback.
The textiles and apparel machinery which has been customs duty-free since the first Textiles Policy will be continued, and the customs duty on spare parts that are not manufactured locally will be made zero.
The Ministry of Commerce will consult with the SMEs and large-scale industries to review federal, provincial, and other organization-based taxes/cess, and will provide recommendations to the government to rationalize them to reduce the cost of manufacturing. Similarly, federal taxes will be reviewed jointly with the Federal Board of Revenue.
Tax credit for investment under 65B of the Income Tax Ordinance, 2001, will be restored, and the import tariffs of accessories, dyes, and chemicals utilized by the textiles and apparel value chain will also be rationalized.
Challenges
The policy underlines the restoration of the profitability of cotton farmers as a major challenge. Product diversification is another serious challenge that can hinder achieving the targets set under the policy.
The lack of foreign direct investment in textiles and apparel is another major challenge. The government expects the favorable China-Pakistan Free Trade Agreement-II and the development of Gwadar Port and projects under the China-Pakistan Economic Corridor (CPEC) to help attract investment in the sector.
The policy document highlights the looming challenge of the textiles and apparel sectors’ demand for the restoration of the zero-rating regime, and the release of delayed refund payments by the government. It details that these measures are crucial for the enhancement of the capacities and production of exporters.
The document also mentions that the targets will only be realized with long-term commitments from the federal government and the full fiscal support of the Finance Division.
Source: Pro Pakistani