Karachi, June 28, 2018 (PPI-OT): Textiles: New export package falls short amid tough global environment
We review and compare the new and previous export packages and potential impact on the textile sector.
The new package announced in May-2018 is a 3 year extension of the previous package with modifications, including exclusion of Yarn/Grey Fabric, reduction in DLTL for value added segments and inclusion of other sectors.
We view the new package as falling short of fulfilling expectations of the textile sector, given current challenging global and local environment to boost sustained growth in exports.
Comparison of new and old export packages for textiles
We review the new export incentive package announced by the previous government, and its potential impact on the textile sector, given the significance of the sector towards exports (~60% of exports). To recall, the previous export package, which ends in Jun-2018, had a tenure of 18 months, and amounted to Rs180bn, majority of which was allocated for textiles. The new package, announced towards the end of May-2018, is an extension of the previous package for three years, with some changes, such as drawback reductions, sectors under the package etc. The table below presents the key differences between both export packages, from the perspective of the textile sector.
New package falls short, given tough environment
As seen in the above table, various changes have been made to the new export package. Firstly, the amount has reduced from ~Rs120bn p.a. (Rs180bn in 1.5 years) to ~Rs65bn p.a. and additional sectors have been included. This has led to reduction by half in Drawback of Local Taxes and Levies (DLTL) for value-added segments, while low value added exports, i.e. Yarn and Grey Fabric have been excluded. Additionally, under the previous package, there was exemption on Customs Duties and Sales Tax on cotton imports, which has been re-imposed recently (to be effective from July 15, 2018). On the flip side, there have been some positives for the sector, such as inclusion of packaging material for zero-rating and reduction in duties on various raw material and machinery imports. Overall though, we view the new export package as falling short of meeting requirements of the sector in order to sustain growth in exports over the long term, particularly in light of challenging international (slow demand in China, potential trade wars, Brexit, etc.) and local (rising cotton prices, gas prices, interest rates, inflation risks) scenario.