Pakistan government expects exports of textiles, which account for two-thirds of overseas sales, to jump 25% next year as planned lower taxes encourage companies to boost output and expand into new markets.
Taxes on raw materials used by textile producers will be “rationalized” in the government’s 9 June budget, Mushtaq Ali Cheema, minister for the textile industry, said. Russia, Turkey and Central Asian nations will also be approached to buy more, he added.
Pakistan’s textile manufacturers have invested about $6 billion (Rs24,600 crore) in the past five years to boost capacity and take advantage of the end of global quotas, which were eliminated in January 2005. Southeast Asia’s second-largest economy may ship $15 billion of textiles in the year starting 1 July, from an estimated $12 billion in the previous 12 months, Cheema said.
“The kind of investment that we have made in the textile value chain over the last few years gives us the confidence that we can meet our export growth target,” he said.
Textile makers in Pakistan began modernizing factories and expanding capacity in 2001 in preparation for the end of quotas and to compete with rivals such as China, India and Bangladesh for markets in the US and Europe.
Textile shipments rose to $8 billion in the first nine months of this fiscal year, from $7.5 billion a year earlier.
“The potential is there for export growth of 25%, but there are some black holes,” said Shafqat Elahi Shaikh, the chairman of All Pakistan Textiles Mills Association.
Pakistan can tap a market of more than one billion people after signing a free-trade agreement with China, which hasn’t been an export destination so far, he said.
“The environment is favourable, but the government will have to give the textile industry its due right by rationalizing duty drawback and taxes,” Shaikh said. Pakistan signed a free-trade agreement in November with China, which is the nation’s second-biggest trading partner after the US.
A new package of incentives would be offered to the textile exporters in the 9 June budget, Cheema said. Taxes on raw material such as polyester staple fibre and caustic soda used by factories to make apparel will be “rationalized,” he said. The government charges 6.5% and 155% tax on the import of polyester staple and caustic soda, respectively.
The tax cuts “aren’t a good signal for local chemical industry, but they will help textile companies to compete well in international markets and marginally improve the country’s exports,” said Farhan Aziz, a research analyst at JS Global Capital Ltd. in Karachi. The textile export target next year “appears optimistic,” he said.