Pakistan offers incentives to spur dwindling exports

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Pakistan offers incentives to spur dwindling exports
Pakistan's remittances totalled $16 billion in 10 months to April FY-16, and are projected to reach $19 billion by June 30.

Islamabad - $35b export target set to reduce country's independence on foreign loans

By M. Aftab

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Published: Sun 12 Jun 2016, 2:53 PM

Last updated: Sun 12 Jun 2016, 10:31 PM

The persistently low performance of the foreign trade sector, especially exports, have forced the government to offer a wide range of incentives to boost it. The new steps will be effective from July 1 - the start up date for the National Budget for FY-2017.
What outcome of the new tax concessions and incentives is expected? Finance Miniser Ishaq Dar said: "The concessions and incentives aim at achieving the objective of a 25 per cent increase in exports in FY-17." He said: "We want to increase exports to $35 billion to reduce country's dependence on foreign loans."
Explaining the possibility of achieving this target of $35 billion, Dar said: "The exporters, including the textile sector, which is Pakistan's biggest exporter, promised to us 'if these concessions and incentives are given to us, we will give you 25 per cent increase in exports.'"
But that will be quite a high target to achieve. Because the ground reality is that Pakistan's exports which were just $20.5 billion in 10 months, July-April of FY-13, sadly declined to $18.2 billion in the like period of FY-16. Going by these facts, achieving a $35 billion export target in FY-17 will be quite a task.
Imports were $33 billion in July-April FY-13 compared to $32.7 billion in the like period of FY-16.
Savings in the import bill of oil were nearly 40 per cent. These savings were diverted to larger imports of machinery and industrial raw materials. The import of machinery in the last three years has increased by a cumulative 40 per cent - which is an indication of growing interest of foreign and domestic investors in Pakistan.
The government realises the fact that Pakistan's export potential has not been fully achieved due to "depressed international commodity prices and a continuing slowdown in major export market." In order to enlarge export volumes and remove bottlenecks the government has just announced a plan to push exports up to all markets and zones, especially to the UAE, Saudi Arabia and Africa.
The plan includes:
- Approval of the Strategic Medium Term Trade Policy (SMDTP) framework.
- Establishment of Export-Import Bank.
- To Operationalise the trade policy and to push exports the government will spend Rs6 billion.
- Reduction of bank interest rates under Export Re-finance Facility (EFF) and Long-Term Finance Facility (LTFF), to provide cheaper credit to the industry and exporters. The mark up rates on EFF which was 9.5 per cent in June 2013 has been reduced to three per cent effective from July 1.
- A Technology Up-gradation Fund (TUF) will be created, to encourage small and Medium Enterprises to invest in new technologies, especially meant for non-traditional exports.
- Reduction or withdrawal of taxes (zero rating) on purchase of raw materials, energy, electricity, natural gas, furnace oil, and coal for five major export industries - textiles, leather, sports goods, surgical goods, and carpets.
- Textile industry will benefit from the Technology Up-gradation Fund (TUF) for Textiles, and small and medium enterprises (SMEs). These plans will be made effective July 01, 2017. TUF will invest in new technologies to make Pakistan's products globally competitive, and push exports up.
- Textile industry will be allowed throughout in FY-17 duty free import of machinery. It will also be widened to include more garment-specific machinery. It will encourage new investment, alongside the plans to provide cheaper bank credit.
- Concessionary customs duty on man-made fibers, not produced in Pakistan, will continue to help the textile industry exports.
- The price of fertiliser has been cut from Rs2,050 per beg to Rs1,800 to help the farm sector to produce more, and export more.
- The volume of special, low-interest credit for the farm sector has been raised from Rs600 to Rs700 billion. The cost of farm credit has also been reduced by two per cent, to help farmers produce more for export.
- Customs duties on import of machinery for fish farming has been reduced to raise fish export.
All these plans are expected to be fruitful, but still the worrying thought is the declining exports. The government's claims, low export earnings resulted from the crash of international oil and commodity prices. But, Hafiz Pasha, the former Minister for Finance, disagrees. "Smaller quantities were exported, which led to smaller earnings." Export of sugar which was down 47 per cent, cotton yarn 32 per cent, tanned leather 26 per cent and cement 24 per cent."
Export were $20.5 billion during July-April FY-13 and were down to $18.2 billionin the like 10 months of FY-16, showing a decline of 11 per cent. A good deal of imports are being financed by remittances, the oversea Pakistani workers are sending home from the UAE, Saudi Arabia, US and UK. Remittances totalled $16 billion in ten months to April FY-16, and are projected by the Ministry of Finance to reach $19 billion by June 30 when FY-16 ends.
Views expressed by the author are his own and do not reflect the newspaper's policy.
A large number of concessions aim at promoting and enlarging import of capital and consumer goods.
The idea is to expand the domestic industrial base so that it can produce much more, and export more, as well as satisfying the demand of the local population which is enjoying larger per capita income, and has developed taste for modern goods.
The country recorded the industrial growth of 6.8 per cent in FY-16. The Large Scale Manufacturing (LSM) growth was 4.6 per cent in the same year - FY-16. In order to expand the industrial sector, Pakistan plans to import a huge quantity of machinery from US, German, EU, Japan, China and other sources. It will also entail huge quantities of capital goods and raw materials for several years to come. It will help boost imports for which Pakistan is looking towards all markets, and investors especially investors from UAE and Saudi Arabia.
Nine categories of industrial investment, imports and processing have been unveiled just now. These include: enhancing tax credit for establishing new industries, expansion of existing plants, tax credit for import of machinery for balancing, modernisation and replacement, larger tax credit for enhancing industrial base for greater employment, tax credit for employment by registered manufacturers and factory employment.
Investment in green-fields industry will also get reduction in taxes, besides import of a variety of plants, machinery and equipment for the energy sector, solar plants, dumper trucks. Import of laptops will rise as sales tax has been abolished. But, the buyers of imported mobile phones will pay more tax, in the range of Rs300, Rs500 and Rs1,000 according to import/sale price of the set.
Views expressed by the writer are his own and do not reflect the newspaper's policy.


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