The Ministry of Commerce withdraws its 2020-25 textile and clothing policy?

ISLAMABAD: The strict conditions imposed by the Ministry of Finance on the new tax incentives would have forced the Ministry of Commerce to withdraw its 2020-25 policy on textiles and clothing despite the fact that the ECC has already approved it and the The latter’s decision has been ratified by Cabinet, sources close to the Commerce Secretary said. Business recorder.

According to the Ministry of Finance, the government systematically supports the export sector. Over the past three years, an estimated Rs 115.5 billion under DLTL programs to textile exporters and over Rs 100 billion in electricity and gas subsidies have been paid to the sectors. at zero rate. Other concessions included taxes and duty-free importation of raw materials and machinery, and a market-determined exchange rate and subsidized financing by the State Bank of Pakistan (SBP) were provided.

However, exports of five zero-rate sectors registered negative growth in 2019-2020 compared to 2018-19, and the cumulative annual growth rate has remained at 6% for the past three years.

The Finance Division argues that it is imperative for the Ministry of Commerce to take a holistic picture of its support and unprecedented results for informed decision making by the ECC / Cabinet.

Gas shutdown weighs heavily on textile exports

The Finance Division, in its comments, said it will continue to provide support in the form of grants under the budget space subject to the following conditions: $ 9 per MMBTU shall be applicable with immediate effect until June 30, 2022 and to revise the energy supply tariffs in July-August of each fiscal year during the policy period; (ii) since the DLTL policy is considered separately, its duplicate numbers and references may be deleted; (iii) the Ministry of Commerce should inform the ECC on a quarterly basis of the export performance of the sectors covered by the proposed policy; (iv) comments from the Federal Board of Revenue (FBR) and SBP may be solicited and incorporated into the proposal; (v) annual review of exports against targets to provide sufficient justification for continued incentives; (vi) subsidized gas supply to captive power plants can be examined with time limits; and (vii) comments from the Finance Division can be incorporated into the policy document.

The Federal Minister of Energy has argued that cogeneration plants that pose no problem should be immediately transferred to the national grid.

“There will be a very good electricity package and that would save around 40 to 50 MMCFD of gas, after the shutdown of the spinning industry,” he said.

A follow-up meeting of the committee chaired by the Prime Minister’s Advisor for Trade and Investment was held on October 28, 2021. The committee recommended incorporating the following points into the draft policy: Electricity and RLNG will be provided to export oriented units / textile industry sectors at regionally competitive rates throughout insurance years without any disparities between provinces. In fiscal year 2021-2022, electricity will be supplied at 9 cents per KWh all inclusive and RNLG at $ 6.5 per MMBTU all inclusive. However, an exercise will be carried out jointly with the Ministry of Energy (Electricity and Petroleum Divisions) during the annual pre-budget consultative sessions to revise energy tariffs. In the event of abnormal fluctuations in regional energy prices, the approved tariffs may be revised to an average of energy prices for industrial consumers for regional competitors (Vietnam, Bangladesh, etc.) and announced in the federal budget. as well as budgetary allocations by the finance department as required by the Ministry of Energy so that the energy regime remains fully funded throughout the insurance years.

Ministry of Commerce to submit new textile and clothing policy to ECC

The committee further recommended that the Ministry of Commerce and the Ministry of Energy jointly design a mechanism in 2-3 months on targeting the energy regime to the true beneficiaries so that industry sectors / units Export-oriented textiles remain competitive internationally.

The committee maintained that duty drawback (DLTL) will be maintained for value-added products only (ie technical textiles, clothing, made-up articles and carpets); however, it will be decoupled from the increase in exports. In addition, diversification within products and markets will be offered an additional incentive. The Ministry of Commerce will pursue the SBP and the RBF to automate the process of disbursing the duty drawback schemes on the lines of the duty drawback mechanism where payments are made directly to the exporters’ accounts by the SBP on foreign currency receipts for notified products exported subject to the allocation of funds by the Ministry of Finance.

On December 16, 2021, the ECC discussed the revised draft Textiles and Clothing Policy 2020-25 and approved it with the following changes: (i) the electricity and RLNG tariffs, shown for the 2021-22 fiscal year, will be replaced, with competitive energy prices; (ii) regionally competitive RLNG tariffs will be applicable to the processing industry; (iii) for captive units and cogeneration units, a separate policy formulated by the Ministry of Energy, in consultation with the Ministry of Commerce, which will cover the benefits; and (iv) comments from the Finance Division should be incorporated into the proposed Textiles and Clothing Policy 2020-25.

According to the sources, the Federal Cabinet also ratified the decision on December 21, 2021. However, the Prime Minister’s Trade and Investment Advisor Abdul Razak Dawood claimed he had asked the Cabinet that he wished to withdraw Cabinet policy, but his point of view was not accurately recorded.

Now the Ministry of Commerce has written a letter to the Cabinet Division, asking for the withdrawal of the 2020-25 Textile and Clothing Policy.

Commercial copyright recorder, 2022

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