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Pakistan and India Take Divergent Paths on Duty Drawbacks, but Prices to be Impacted

A month after neighbor and rival India slashed duty drawback rates, causing disruption for exporters, Pakistan has raised incentives to promote exports.

Pakistan’s Economic Coordination Committee (ECC) approved a proposal that 50 percent of the export package incentive for eligible textile and non-textile sectors, announced in the Prime Minister’s Export Package, be provided on the same terms as for the period January to June, according to Pakistani news reports.

Drawback is the refund of certain duties, internal revenue taxes and certain fees collected upon the importation of goods when they are then used for export.

A meeting of ECC of the cabinet chaired by Prime Minister Shahid Khaqan Abbasi also gave approval for a stipulation that the remaining 50 percent of the rate of incentive would be provided if the exporter achieves an increase of 10 percent or more in exports compared to the corresponding period of the last year.

It was also approved that an additional 2 percent drawback would be provided for export to non-traditional markets. In addition, expeditious settlement of payments claims by the State Bank of Pakistan was also included in the incentive package.

[Read more about Pakistan: Pakistan University Invents Disease-Resistant GM Cotton]

In late September, the India government cut duty drawback rates effective Oct. 1, drawing the ire of apparel exporters.

The cut back of the drawback rates result would likely lead exporters to raise prices to balance the loss of revenue from the refund. The rates were lowered in 2016 as a boost to the apparel and textile industry, but the government decided to end the incentive program.

The new All Industry Rates for cotton garments was dropped to 2 percent from 7.7%, while the duty drawback rate on garments containing cotton and man-made fiber blends is now 2.5% compared to the existing 9.5%, and the rate on garments made of man-made fibers is 2.5% compared to 9.8% previously.

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Clothing items made of silk are now subject to a rate of 4.8% compared to the earlier 7.6%, while the rate on wool apparel also came down to 3.5% from 8.7%.

“The apparel industry needs to book orders in advance for the next season,” said Ashok G. Rajani, chairman of the Apparel Export Promotion Council. “I think the present new rates are unacceptable and the ministry of textiles should immediately consider AEPC’s recommendation for extending the current transition rates till March 31, 2018, to instill confidence in the sector and…for sustaining employment in the sector. In the absence of an encouraging drawback rates, the exports will further witness a sharp decline just ahead of the peak festival season when the industry was expecting recovery.”