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News Clips 07 September, 2013

[ FTO to take up issue of zero-rating ]
[ Taxman's access to bank accounts challenged in SHC ]
[ Pakistan eyes export boost through social accountability ]
[ Chinese keen to relocate textile plants for exports ]
[ Bangladesh: Factory safety compliance to push up production cost ]
[ The future of Bangladeshi exports ]
[ ASEAN textile exports to US, EU shrinking ]

FTO to take up issue of zero-rating   [ top ]

DAWN, Parvaiz Ishfaq Rana, September 7, 2013
KARACHI, Sept 6: Federal Tax Ombudsman (FTO) Abdul Rauf Chaudhry said on Friday that the issue of zero rating for five export oriented industries would be taken up with the finance minister and chairman, Federal Board of Revenue (FBR).

The FTO observed that sales tax is imposed on local sales and not exports and if 90 per cent textile industry’s production is exported, there was no reason to impose sales tax which has to be refunded later on.

Similarly, the FTO assured that the issue of non-payment of sales tax refunds on services collected by Sindh Revenue Board (SRB) would be resolved, but it has to be refunded by FBR on making internal adjustments.

It would also be taken up with the chairman FBR Tariq Bajwa.

The FTO was responding to many of the issues raised by exporters belonging to different segments of textile industry, including knitwear, hosiery, bedwear and cotton fashion apparel.

Abdul Rauf Chaudhry admitted that outstanding rebate and refund cases are rapidly increasing with FTO offices and he would be taking up the matter with FBR chairman in a meeting expected next Tuesday.

He agreed with the exporters that even on charging nominal sales tax of two per cent on zero-rated industries, it automatically raises the requirement of submitting full accounts with all necessary details.

The FTO was critical about the working of the revenue departments and said once the FTO decision on any single case pertaining to rebate or refund is made, it should be implemented across the board and there was no need to keep hearing similar cases. After the Refund Payment Order (RPOs) is issued by the FTO office, he said this means that the decision has been made and the department has to make payment immediately.

However, if no payment is made on getting RPOs, this means that exporter is bearing the entire cost for non-payment. The textile being the largest industrial sector and foreign exchange earner should be allowed to work with full strength so that it could compete with Bangladesh, India and other regional countries.

The FTO felt that all irritants facing textile sector should be removed at the earliest so that country’s exports could grow or else the trade gap would further widen and put more burden on foreign exchange reserves.

Chaudhry disclosed that 80 to 90 per cent cases handled by the FTO are decided in favour of textile industry.

However, he admitted that there was an urgent need to strengthen the implementation process so that cases decided by the FTO are award at the earliest by the concerned government departments.

Since there is a big rise in cases pertaining to taxes, the FTO offices would be opened up in Peshawar and Faisalabad and if the budget allows, another office would be set up in Multan.

Similarly, he said the number of advisors in Karachi and Lahore are being doubled so that cases are processed at a faster pace. Heads of trade bodies who attended by the meeting included Cotton and Fashion Apparels, Pakistan Sweater and Knitwear Association, Pakistan Bedwear and Pakistan Hosiery Manufacturers.

Taxman's access to bank accounts challenged in SHC   [ top ]

BUSINESS RECORDER, Recorder Report, September 7, 2013
NIB Bank has challenged before Sindh High Court (SHC) the vires of the amendment brought into the Income Tax Ordinance 2001 through the Finance Act 2013. NIB Bank Ltd, through its counsel Nafees A Siddiqi, filed a Constitution Petition in SHC urging the court to declare these amendments ultra vires to the Constitution.

It was contended by the petitioner that the amendments effected in the Income Tax Ordinance by virtue of an explanation inserted after Section 165 (1) of the Ordinance and the insertion of new Section 165(A) were violative of the Constitutional Provisions insofar as the said amendments have been made by way of Money Bill through the Finance Act 2013. They further contended that aforesaid amendments to meet the criteria of Article 73 (2) of the Constitution of Pakistan which do not qualify as a Money Bill and could not have been undertaken through the Finance Act, 2013. The petitioner argued that through this amendment FBR would have the unrestricted access to all accounts in a bank because Banks and financial institutions are asked to submit monthly reports of all transactions, all details of accounts, including those related to credit cards.

This constitutes an unlawful intermission in the secrecy of accounts which is guaranteed under the Protection of Economic Reforms Act, 1992. The Banking Recovery Ordinance, 1962, regulations made under the SBP of Pakistan Act 1956 and the Foreign Exchange Act 1947 and also the fundamental rights of a citizen.

The petitioner contended that through this amendment provision of Special Law had over-ridden other general laws, which militates against the principle of law on the subject. Banks are protected regarding the disclosure of accounts information according to Section 3 and 9 of the Protection of Economic Reforms. Such protection cannot be taken away by FBR; they cannot be given unbridled powers through the amendment in question. The Petitioner further said that this amendment would encourage people to stay away from the banking system and contribute towards a parallel economy, which is already destroying the economy. It will also have dire consequences for savings and investment, which are already very low.

Pakistan eyes export boost through social accountability   [ top ]

JUST-STYLE, Ahmed Abdullah, September 3, 2013
A strategy that could contribute to targets to double Pakistan's textile and clothing exports over the next three years by making the industry socially accountable has been unveiled.

The initiative by the All Pakistan Textile Mills Association (APTMA) will focus on the Triple Bottom Line (TBL) of people, planet and profit.

It is set to come into effect from 1 January 2014, and will focus on making the textile supply chain environmentally friendly and socially responsible.

It could help the country meet its goal of doubling exports to US$26bn, up from the US$13.06bn in exports booked in the most recent fiscal year from July to June. The target is set out in the Strategic Trade Policy Framework (STPF) for the next five years. APTMA chairman Ahsan Bashir believes Pakistan's textile industry is poised to benefit from the country's expected duty-free access to the European Union (EU) under the GSP+ scheme next year.

The country is also attracting Chinese investors seeking to set up joint ventures with Pakistani textile producers and relocate their facilities to Pakistan, he added.

Chinese investors are to set up woven and knitted garment factories in Punjab, Pakistan's largest textile-producing province, following an agreement signed with the China National Textile & Apparel Council (CNTAC).

Pakistan has been investing heavily in its textile industry to raise its share in the global textile and clothing market to 3%, up from the present level of 1.5%.

Chinese keen to relocate textile plants for exports    [ top ]

DAWN, Nasir Jamal, September 2, 2013
Massive opportunities are about to open up for Pakistan to at least double its share in the global textile and clothing trade of $800 billion, from slightly above 1.5 per cent to three per cent over the next two to three years.

But, unfortunately, the country is not fully geared up to grab the upcoming opportunities.

China’s dwindling share in the global textile and clothing business, because of surging cost of production there, and Pakistan’s expected duty-free access to the European Union (EU) from next year, are being viewed by the textile industry as a ‘once-in-a-lifetime’ kind of opportunity for the country.

“Pakistan is in a unique position today to double its present share of just over $13 billion in the international textile and clothing trade in the short to medium-term,” Amir Fayyaz, a leading Lahore-based producer of processed fabric for the world’s major brands, told Dawn.

“China’s textile industry is losing its share in the world market and it is very much interested in relocating production facilities to Pakistan to export from here,” he said.

China’s share in the global textile and clothing trade has dropped from $300 billion to almost $270 billion in the last one year. “Imagine where will our textile exports reach even if we succeed in grabbing half of the market share China has lost,” he said. Many Chinese textile companies had shown keen interest in setting up joint ventures with Pakistani textile producers, added Fayyaz. The reduction in China’s share in the global textile trade is only one part of the story. Another major window of opportunity for Pakistan’s textiles is likely to open up from January 1 — only four months from now — in the shape of duty-free access to the EU market. However, many textile producers doing business with buyers from EU member countries say the chances of Pakistan increasing its share in the European market immediately are not very bright because of the energy crisis at home.

“At least one-third of our woven and knitwear garment manufacturing factories are already closed because of various reasons. The remaining are operating at less than their installed capacity, not least because of gas and electricity shortages,” said M I Khurram, a major exporter of knitwear garments to the United States and Europe from Lahore.

“Even if we are able to revive our closed capacity by prioritising supply of gas and electricity to the industry, we can increase our textile and clothing exports to Europe by two to three billion dollars in one year.”

The EU’s textile and clothing imports from Pakistan stand at $5 billion at present, which is just two per cent of its total textile and clothing imports of $244 billion. Compared with Pakistan, China’s share in the EU textile and clothing market is 20 per cent; India’s is four per cent, and Bangladesh’s is five per cent.

M I Khurram pointed out that Bangladesh, which imports yarn and fabric for its garments industry, has successfully increased its value-added textile exports from $5 billion to around $23 billion in eight years because of duty-free access to the EU and the United States, and is projected to boost them to $40 billion in the next two years.

“Bangladesh is fast capturing greater market share by converting yarn and fabric imported from us into garments. Just imagine what we can do when a similar facility becomes available to Pakistan, the fourth largest cotton producer country in the world?” Amir Fayyaz claimed that Pakistan’s textile industry has the potential to raise exports to $36 billion, provided all the three million tonnes of yarn produced in the country is converted into value-added textile products — garments, home textiles, towels, etc. The projected potential is based on estimates that yarn constitutes a quarter of the price of a garment.

“This will require a huge investment of $20 billion in the entire supply chain, from spinning to finished products, and create almost eight million new jobs, if not more,” he said.

Currently, Pakistan exports 0.735 million tonnes of yarn, worth $2.24 billion, and two billion square metres of cloth, worth $2.6 billion. “Even the conversion of this yarn and cloth is into basic garments can fetch an addition $2 billion,” Amir said. The exporters say that India has been investing heavily in its textile industry to raise its share in the global textile and clothing market, with a view to replacing China. “If we want to benefit from the opportunities coming our way, we would have to start planning and investing now. Indeed, the government recognises the significance of the textile industry and is making a strategy to attract Chinese investment in this sector,” said Khurram.

“The Punjab government, for example, is planning to build a garment city near Lahore, where local and foreign investors will be provided modern infrastructure to set up their production facilities for exports,” he added.

Yet, the first job for the government is to provide gas and electricity to the factories so that the closed capacity could be revived, said Khurram.

Bangladesh: Factory safety compliance to push up production cost    [ top ]

DHAKA TRIBUNE, Kayes Sohel, September 6, 2013
Apparel manufacturers expect the cost of clothing production to increase sharply in the days to come, because of setting high the factory safety standards and wage hikes in the wake of the Rana Plaza building collapse.

Stakeholders, however, have assured that Bangladesh’s garment industry would still remain competitive in the global market. Rising labour cost is going to be the main factor in the increasing cost of production, they said. Compliance costs, which involve the need to reduce factory subcontracting and commit to action plans, including the EU’s Accord on Fire and Building Safety in Bangladesh, is another factor.

“Manufacturing costs will be higher in the days to come,” said Rubana Huq, managing director of Mohammadi Group, a large manufacturer that supplies retailers such as H&M, Zara, Wal-Mart and Esprit.

“Prices of garment items may increase by some 15-20 cents after the implementation of a new workers’ wage board and factory safety plan,” she said. “Despite the increase, Bangladesh will remain competitive in the world market.”

Workers’ leaders have proposed a minimum monthly wage of over Tk8,000 while the factory owners indicated that the minimum wage board would be between Tk4,500 and Tk5,000 per month, more or less 50% higher than the existing minimum wage Tk3,000. The government will soon set a minimum wage for the workers, who are the lowest-paid workers in the industry in the world, with a legal minimum wage fixed in 2010.

The Accord on Fire and Building Safety in Bangladesh is a five-year legally binding agreement among international labour organisations, NGOs and retailers engaged in the textile industry to maintain minimum safety standards in the Bangladesh textile industry.

“This will add additional costs to the production,” said Anwar-Ul-Alam Chowdhury, former president of Bangladesh Garments Manufacturers and Exporters Association (BGMEA). “I cannot say what the exact increase might be right at this moment but it will be a sharp one.”

The total cost for improving factory may be $1bn, about $500,000 per factory, according to an estimation of global retailers. Vice President (finance) of BGMEA Riaz Bin Mahmud said already the manufacturers had begun to feel the rising costs of production. “Ensure fire and building safety in the factory will be costly in addition, the industry is already feeling the pain of growing transport and electricity costs,” he said.

The government is facing pressure to improve standards in the garment industry following the terrible industrial accident on April 24 in Savar, which left more than 1,100 people dead and hundreds injured. Many of the injured need prolonged and expensive medical support, and many have lost the capacity to work. The country’s garment industry, employing more than 3.6m people in over 4,500 factories, is the second-biggest exporter of clothes in the world after China.

After implementation of the minimum wage board, cloth making costs might rise from 45%-55%, as cutting and manufacturing (CM) cost of a basic pant will rise to $13-$14 from the present $11-$12, said an industry expert.

The expert said the small factories would bear the brunt of the production cost as big factories are already compliant in some of the criteria. Ripon Fakrul Kabir, managing director of HRM Sourcing Ltd, a local sourcing firm, said: “Despite the increase in production costs, Bangladesh will remain competitive than any other countries.”

“It is one of the few places in the world that has low labour cost, high manufacturing capacity and vast experience to provide what retailers demand,” he said.

The future of Bangladeshi exports    [ top ]

DHAKA TRIBUNE, Mamun Rashid, September 5, 2013
Last week saw the Indian rupee fall against the US dollar by 4% in a day to end up trading at its lowest point in history. Analysts have opined that the rupee is not likely to bounce back significantly due to the possible with-drawal of the US government stimulus and many investors and foreign institutions continuously withdrawing from Indian assets. Added to these factors are rising Indian budget deficits, and current ac-count deficits combined with rising inflation and uncertainty about the upcoming Indian election early 2014.

If the rupee stays under pressure, this may add to recent trends that have seen the Bangladesh taka continuously strengthening against the US currency. It is now trading at approximately Tk77 against a unit of Greenback.

Analysts are of the opinion that if the US dollar is not continuously supported by the central bank, then a stable or falling balance of import-export payments and growing inward remittances may see the Bangladeshi taka rise to a new level of 70 against a unit of US currency. Bangladesh Bank bought more than $4.5bn from the market during the 2012-13 fiscal in support of the US dollar and it is reported to be continuing its purchase from the interbank market.

India, in view of the growing disturbances in our apparel plants, is trying it’s best to use the relative increase in the taka to increase its own clothing exports with an eye to reducing the huge difference between its RMG exports and those from Bangladesh. The Indian government is considering further incentives for their relevant exporters who are likely to be boosted by a falling rupee.

The Reserve Bank of India has a track record in coming up with various incentive packages to “pull up” various industry segments or to keep them afloat amidst various global market threats.

Though there has been a long-standing debate about the relative ingenuity of Bangladeshi entrepre-neurs versus policy support of the government – as the reason for the success of Bangladesh’s RMG exports – the government, in recent days, has not been able to come up with any integrated ap-proach for it’s support for the apparel industry.

While “bonded warehouse facility” remains a big time policy support till today, we have seen continuous reduction in cash incentives and increases in tax at source, partly because apparel industries were historically paying low taxes. Thus while Pakistan has come up with special packages for it’s exporters like “exchange rate gap support,” Bangladesh has largely left the industry to market forces. Cash incentives have also declined other than for some “new product, new market” and textile products. Even through the government could not meet its 2013 target for exports, it is eyeing more than 12% growth in Bangladesh’s exports in 2014, from $28bn to more than $30bn.

Though our exports increased by more than 11% during the last financial year despite no dramatic up-side in the US economy and a cloudy European picture, increasing exports by more than 12% next year without any specific stimulus may be a daunting task. Especially because India remains very supportive to its ready-made garments industry to do their best to improve against the Bangladesh apparel industry.

Jute and jute goods are likely to do well, along with supposed increases in pharmaceuticals and soft-ware exports, but since the Rana plaza disaster signs are ominous for the apparel export sector.

While the country received more than $19bn in apparel exports during 2012, it missed its target of $23bn in 2013 ending short at $21,4bn. It will possibly miss it’s target for 2014, unless all the stakehold-ers, especially the government do their best. We have not seen anything significant coming from the finance ministry or the government with re-gard to helping out the garment sector to withstand the immediate challenges in the aftermath of the Rana Plaza collapse. We have not seen any extra allocation to pay for the increasing factory inspections, and there is no concrete funding allocated for factory relocations or worker support. Recent newspaper reports have noted a few development partners coming forward to address im-provement needs in the apparel sector while a new wage-board or BGMEA recommended continuous review of the workers wages in view of market price rise or fall, are good ideas, garment owners de-served some policy support from the government too.

A falling rupee and rising taka is going to make their life even tougher. The US dollar is also appreciat-ing against the currencies of many other competing countries like Turkey, Indonesia, Brazil, Thailand and South Africa.

Recently, India’s duty free support to Bangladesh exports has resulted in a 13% year on year rise in Bangladeshi exports to India with Bangladesh exporting goods worth $564m there last year. This included ready-made garment exports to India rising from $55m to $75m.

However with a falling Indian rupee, this growth may go down for our apparel, jute and jute goods, leather and frozen food items which are the dominant players in our export basket to India.

In the same way, Bangladesh is anticipated to face tough competition from India in its exports to the European Union, North America and other RMG importing countries. On the other hand we may see a huge rise in our imports from India, due to consumers taking advantage of a cheap rupee.

Bangladesh Bank is seen continuously buying US dollars from the banks to support our exports and inward remittances which has resulted in a rise in its foreign exchange reserve to $16bn. However, this may not be enough in view of fast falling imports and increasing inward remittances.

We need a few more steps and packages like those tried in competing countries or tax breaks and the seeking of tariff reductions for the major export related imports used by the RMG industry.

Along with these we must develop a dynamic process to immediately react to any policy changes in our competing countries, especially India, with regard to their ready-made garment exports, and in time for other exports as well.

ASEAN textile exports to US, EU shrinking   [ top ]

INVESTINE, Arno Maierbrugger on August 29, 2013
Exports of textiles and garments of ASEAN member countries to the US and European Union markets declined in 2012, the Taiwan Textile Federation (TTF) said on August 28.

The maximum decline in exports was posted by the Philippines, whose textile and apparel exports to the main markets decreased by 17 per cent year-on-year, TTF statistics show.

Although there was significant difference in performance of ASEAN member states, the overall trend showed signs of drop in exports. Textile and garment exports from Malaysia and Thailand to these markets fell 12.4 per cent and 12.2 percent year-on-year, respectively. Textile and clothing exports from Indonesia to these markets also dropped 6.3 per cent year-on-year.

However, exports of other ASEAN member states performed well, especially Cambodia and Vietnam, which posted a year-on-year rise of 8.7 per cent and 8.5 per cent, respectively.

The TTF said Cambodia’s textile and apparel sales to the EU grew by 32.4 per cent due to the EU’s decision to relax the rule of origin criteria under its Generalised System of Preferences. But Cambodia’s exports to the US dropped by 2 per cent.

While Vietnam’s textile and clothing exports to the EU were affected, its sales have grown in several markets, including the US, Japan, China, Russia and South Korea.