No decision to lift duties on man-made fabric

Islamabad:

Despite holding multiple meetings, Pakistan’s Tariff Policy Council remains undecided on withdrawing the 5% regulatory duty on man-made textile imports due to competing business interests, testing the government’s will to reduce the cost of doing business.

Sources said that headed by commerce minister Jam Kamal, the Tariff Policy Council had held several rounds of discussions on the proposal to withdraw the 5% regulatory duty on import of polyester yarn. Although the majority of board members were in favor of withdrawing the duty, the board is yet to take a final decision, they added.

The commerce minister’s views could not be taken as he was on a visit to China along with Prime Minister Shehbaz Sharif.

The regulatory duty of 5% had been imposed on the import of polyester yarn despite an 80% shortage of raw material in the local market. This raises questions about the use of the regulatory duty.

The Tariff Policy Council is scheduled to meet again on Monday to make a decision. Sources said that during the last meeting, some board members proposed to reach a compromise by halving the regulatory duty to 2.5%.

However, complete abolition of the duty is needed as local manufacturers are unable to produce 460,000 tonnes per year for consumption by local industries.

Pakistan has long provided protection to local industries in various sectors at the expense of consumers.

Polyester yarn is a raw material for knitting and weaving to make polyester fabrics such as clothes, curtains, sheets, ropes, etc. dyeing yarns and garments.

Estimated local demand for the man-made fiber is about 460,000 tonnes per year, of which 370,000 tonnes, or 80%, is imported, the Pakistan Yarn Merchants Association (PYMA) said in a representation to Prime Minister Shehbaz Sharif last month.

Despite the 80% deficit, the government has imposed the regulatory duty of 5%. The additional protection of 5% has been given despite levies of 30.5% on account of customs duty of 11%, sales tax of 18% and additional tax of 3%.

Essentially, importers pay about 13% higher tax compared to locally produced raw material for yarn.

Even if the government withdraws the regulatory duty, local players who have only 20% production capacity compared to demand will still enjoy 8% protection. Overprotection creates efficiency in the system and industrialists are tempted to avoid competition in the international market for exports. The share of natural fibers has decreased to less than 30% worldwide and is being replaced by man-made fibers.

PYMA has long advocated withdrawing the regulatory duty, but competing business interests have prevented the government from making a decision.

PYMA warned that the move would lock up around 800,000 power looms, the lifeline of Pakistan’s textile industry. Importers are working to have the tariffs withdrawn to save small and medium-sized businesses from ruin. However, Gatron Industries, which produces the fabric locally, is seeking continued protection. In its 2023 annual report, Gatron argued for enhanced protection against an influx of cheaper imports from China.

Published in The Express Tribune, June 9^u2024.

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