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News Clips 27 July, 2013

[ Leather, textile made-ups: five percent reduced rate of ST notified ]
[ TDAP sets up ‘China Focus Cell’ in Karachi ]
[ Year of the yarn: Nishat Chunian acquires Taj Textile for Rs350 million ]
[ Indian govt to soon unveil modified TUFS: Textile Minister ]
[ China: Cotton textile companies struggle to boost sales ]

Leather, textile made-ups: five percent reduced rate of ST notified   [ top ]

BUSINESS RECORDER, Recorder Report, July 27, 2013
The Federal Board of Revenue has announced 5 percent reduced rate of sales tax on local supply of finished leather and textile made-ups with retrospective effect from June 13, 2013. In this regard, the FBR has issued two notifications here on Friday. The FBR has issued a notification for application of 5 percent reduced rate on domestic supplies of leather and textile products.

Earlier, in budget (2013-14) leather and textile article and made ups were brought into the Third Schedule of the Sales Tax Act 1990, hence 17 percent sales tax on retail price was made applicable. Now this 17 percent sales tax on retail price basis has been brought down to lower rate of 5 percent. Through the same notification, sales tax rate on supplies of intermediary product/industrial raw material to other then five zero-rated sectors (export oriented industries) has been increased from 5 percent to 17 percent. The FBR is of the view that facility of reduced rate is only applicable to export oriented sector hence if these goods sold outside the five zero rated sector sales tax be levied on standard rate, sources explained.

Under the notification, an equal treatment of sales tax rate has been given to commercial importers and manufactures at the import stage. The commercial importers and manufacturers would now be subjected to a uniform rate of 5 percent sales tax at the import stage. Similarly, the notification for exclusion of serial number 22 and serial number 36 from Third Schedule of the Sales Tax Act 1990 related to finished textile goods and any other item sold in retail packing. A separate notification has been issued for omitting these entries from Third Schedule of the Sales Tax Act, 1990.

Following is the text of the first notification issued on Friday: In exercise of the powers conferred by clause (c) of section 4 read with clause (b) of sub-section (2) and sub-section (6) of section 3, clause (b) of sub-section (1) of section 8 and section 71 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that the following further amendments shall be made in its Notification No S.R.O.1125(1)/2011 dated the 31st December, 2011, namely:-

In the aforesaid Notification,- in the preamble, for the expression "notify the goods specified in column (2) of the Table below under the PCT heading numbers mentioned in column (3) of the said Table, including the goods or class of goods mentioned in the conditions stated in this notification, to be the goods on which sales tax shall, subject to the said conditions be charged at the rate of two per cent or, as the case may be, at the rate of five per cent, wherever applicable" the expression "direct that sales tax shall be charged, levied and paid at the rate of two per cent of the value of the goods mentioned in column (2) of Table-I below, at the rate of five per cent of the value of the goods mentioned in column (2) of Table-II below, falling under PCT heading numbers specified in column (3) of the said respective tables, and at the rates of two, five or seventeen per cent, as the case may be, on the goods or class of goods mentioned in the conditions stated in this notification" shall be substituted; the existing 'Table" shall be re-named as Table-I": after Table-I, re-named as above, the following new Table shall be added, namely;-

01. Finished articles of leather and artificial leather, respective headings. 02. Finished articles of textiles and textile made-ups excluding used and worn clothing, respective headings. ;and in the Conditions,-in clause (iv), for the words "five per cent" the words "seventeen percent" shall be substituted; in clause (v), for the word "two", appearing for the first time, the word "five" shall be substituted; in clause (vi), for the words "five per cent" the words "seventeen percent" shall be substituted; in clauses (vii) and (viii) for the word "two", wherever occurring, the word "five" shall be substituted; and after clause (ix), the following new clause shall be inserted, namely:-"(ix-a) goods specified in Table-I, imported or supplied to registered manufacturers, whether or not of the five sectors, for manufacture of goods specified in Table-I or Table-II, shall be charged sales tax at the rate of two per cent on their import or supply;"

Following is the text of the second notification issued on Friday: S.R.O. (1)/2013 - In exercise of the powers conferred by clause (a) of sub-section (2) of section 3 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that the following amendments shall be made in the Third Schedule to the said Act, namely: In the aforesaid Schedule, serial numbers 22 and 36 in column (1) and the entries relating thereto in columns (2) and (3) shall be omitted.

TDAP sets up ‘China Focus Cell’ in Karachi   [ top ]

THE NEWS, Correspondent Report, July 27, 2013
KARACHI: The Trade Development Authority of Pakistan (TDAP) has established a dedicated ‘China Focus Cell’ in Karachi, an official said on Friday.

Prime Minister Nawaz Sharif’s recent visit to China has given a new impetus to Pakistan-China economic cooperation, which will usher in a new era of bilateral trade between the two brotherly countries, the official said.

Islamabad and Beijing signed memoranda of understanding (MoUs), which will reinvigorate trade relationship between the two countries.

TDAP envisages outstanding trade opportunities in the offing of this epoch making visit and to capitalise on trade prospects, has established a dedicated ‘China Focus Cell’ at the TDAP’s headquarters, Karachi on the directives of the TDAP secretary, the official said.

Over the years, China has become key trading partner of Pakistan, resulting in increase in exports to China that reached $2.620 billion in 2012 from $436 million in 2005.

This increase is predominantly attributed to Pakistan’s engagement in the free trade agreement with China that came into effect in July 2007 and whose second phase has started this year. Pakistan’s imports from China stood at $6.687 billion in 2012, indicating a hefty trade gap, which needs to be tilted in favour of Pakistan through proactive participation of all stakeholders.

The Chinese market is attractive for a number of Pakistani products, especially textiles and textile products, leather and leather garments, fresh fruits, seafood, cutlery, cement, ores, marble and handicrafts, the official said.

Development of Kashgar-Gwadar economic corridor will be extremely helpful in bridging gap between Gwadar-Baltistan and Northwest Region of China by bringing tremendous trade opportunities in the region.

Year of the yarn: Nishat Chunian acquires Taj Textile for Rs350 million    [ top ]

EXPRESS TRIBUNE, Correspondent Report, July 26, 2013
KARACHI: Nishat Chunian Limited (NCL) has acquired Taj Textile Mills Limited (TTML) at a reserve price of Rs350.1 million, according to a notice issued to the Karachi Stock Exchange on Thursday.

The acquisition is likely to add 40,000 spindles to NCL’s existing capacity of 150,000 spindles for the production of yarn. According to investment group JS Global, the new additions will formally come online by early 2014. NCL is expected to spend up to Rs1 billion to refurbish the spindles.

The move comes at a time when demand for yarn has been on the rise. Pakistan’s yarn exports increased by 30% during 2013. Most of the increase was fuelled by China, the world’s largest cotton importer. According to research group Elixir Securities, in 2011 the Chinese government began to support high cotton prices in China to help rural incomes increase, which made it very difficult for the Chinese spinning industry to continue manufacturing yarn. An increase in Chinese yarn imports resulted in a boom in the spinning sector in Pakistan, with profits in the yarn industry increasing by 20% in 2013. “Pakistan imported 300,000 spindles last year in view of China’s yarn demand,” says Ujala Adnan, analyst at Elixir Securities. “We expect Pakistan’s yarn exports to remain strong during 2014.”

This is why according to JS Global, NCL’s profits are expected to increase, provided the extra spindles run at NCL’s current efficiency and Chinese demand continues. The acquisition is predicted to have a positive earnings impact of Rs2.2-2.4 per share for NCL.

Still, there is a slight worry that the spinning euphoria many not last. China may be making slight changes to its policy, considering that its own spinning sector was hit badly. “There are talks of the change coming in form of giving away direct subsidies to farmers rather than high support prices,” says Bilal Qamar, analyst at JS Global. If that leads to reduced cotton prices in China, then according to Bilal: “Chinese cotton yarn import from Pakistan may decline resulting in a down side risk for NCL”.

However, this is just speculation. China has yet to make any changes, and has so far continued its cotton support policy for 2013-14. As for NCL, even if China does discontinue its cotton policy, its management remains confident that it will not be exposed to a higher sales risk. In fact, JS Global predicts that NCL will earn almost RS 2.3 billion by the end of 2013, an increase of almost 234% from the corresponding previous year.

Indian govt to soon unveil modified TUFS: Textile Minister    [ top ]

FIBRE2FASHION, July 27, 2013
The Government of India would soon unveil a modified Technology Upgradation Fund Scheme (TUFS) with a provision to increase the interest subsidy on power looms from the present 5 percent to 6 percent, Textiles Minister K Sambasiva Rao has said.

The focus of the modified TUFS would be on the powerloom sector, which can help boost the country’s textile competitiveness, the Minister said after releasing a study on “Benchmarking of the textile production cost in India vis-à-vis Bangladesh, China, Egypt, Indonesia, Pakistan &Turkey’’ undertaken by Zurich-based consulting firm GHERZI and Cotton Textiles Export Promotion Council of India (Texprocil).

The Minister said, “We are now proposing to increase the interest subsidy on power looms to 6 percent.” He added that the modified TUFS would be soon rolled out.

Mr. Rao also said that he would soon put forward a proposal to link the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) with the textile sector to impart training to about 1.5 million workers over the next three years.

MNREGA, launched in 2006, guarantees 100-day employment in a year for rural poor people.

The Minister said MNREGA type of employment in the textile sector would help minimize the problems of skilled labour.

The study by GHERZI and Texprocil said India has a long way to go in catching up with China, which had over 35 percent share in global textiles trade in 2011. China clocked export figure of US$ 248 billion in 2011, compared to India’s US$ 29.4 billion.

Talking about India’s domestic cotton textile industry, the report said, it has a potential to grow to US$ 140 billion by 2020 from its present level of US$ 60 billion, and in the process generate about 2 million new direct employment opportunities.

To realize this potential, the report identifies three key focus areas—adequate availability of raw materials, particularly cotton, at competitive prices; a predictable policy regime that ensures stable enabling environment; and development of physical infrastructure to ensure quick movement of goods across the country.

China: Cotton textile companies struggle to boost sales   [ top ]

XINHUA, July 25, 2013
FUZHOU, July 25 (Xinhua) -- China's cotton textile industry is facing difficult challenges, as sales have been poor amid the weak recovery of the international market, as well as domestic factors.

The Fujian Hongyuan Group, located in southeast China's Fujian Province, is the largest cotton textile enterprise in the province, with an annual output value of 1 billion yuan (163 million U.S. dollars).

"Cotton textile sales have not been desirable so far this year, especially those of foreign trade enterprises," said Chen Cangsong, vice president of Hongyuan.

Statistics released by the National Bureau of Statistics showed that the added value of the textile industry from January to June was greater than that of the same period last year. However, exports to Europe, Japan and other major overseas markets have plunged.

"Although a rebound in textile product exports has been seen in the past six months, things do not look optimistic for the second half. It may be worse than the first half and could plunge even further in the future," Chen said.

Chen, also the general-secretary of the Fujian Business Association of Textile and Apparel Export Base, said sluggish demand from the global market, soaring cotton prices, high labor costs and the appreciation of the yuan have led to fewer overseas orders. The Chinese government started purchasing cotton for temporary state reserve in 2011 in order to protect cotton farmers' interests. As a result, domestic cotton prices became higher than those of the global market.

Domestic cotton prices stood at about 19,000 yuan per tonne this year, 3,500 to 4,000 yuan higher than the price of imported cotton.

However, imported cotton has been hit with high tariffs and enterprises who want imported cotton must abide by a strict quota system.

"The company took a turn for the better in April and May. The rebound in those two months was due to inventory supplements from the European market, but we don't think orders will keep increasing in the future," said Chen.

Since southeast Asian nations like Vietnam, Bangladesh, India and Cambodia can freely purchase cotton at a price of about 13,000 yuan per tonne and have lower labor costs, those countries are seeing an increasing number of orders from European markets that used to order from China.

Since May, small and medium-sized enterprises (SMEs) have found it hard to raise funds for their businesses due to a liquidity crunch that led Chinese banks to tighten lending, Chen added.

"Although these companies have received orders, their profits are still slim. But they have to keep taking orders so that their business can move on," said Chen.

The industry has also been dealing with a loss of skilled personnel.

"At foreign trade companies, workers are paid in accordance with how much work they have done. They usually earn more income if they do more work than others. But since orders have decreased, workers' earnings have been cut sharply, so they have to find other jobs," said Zhou Yuegui, a Hongyuan employee.

Although it was initially done to protect domestic interests, the government's temporary stockpiling policy has widened the price gap between the domestic and international markets.

The policy will erode the competitiveness of China's textile industry, said Zhu Hongren, chief engineer at the Ministry of Industry and Information Technology.

Some textile companies have tried to fix the problem by replacing cotton with substitute products. Hongyuan, for example, is busy working with newly introduced bamboo fiber.

"Since cotton prices are fluctuating, we've been speeding up the expansion of our bamboo fiber production. Bamboo fiber output is expected to rise from the current 5,000 tonnes to 50,000 tonnes," Chen said, adding that the company has spent 170 million yuan over the last two years to develop bamboo fiber products.

It is believed that enterprises that develop new, environmentally friendly products like bamboo fiber will be able to enjoy greater support from the government, as these products are popular in the international market.

Chen said bamboo fiber production accounts for 10 percent of the company's total output, adding that the company is still making efforts to shift production toward an emphasis on new textile materials.

"We hope we can get rid of the current dilemma by introducing new technology and products, as well as find a creative and technical path to develop the company," Chen said.