Readymade garments sector facing liquidity crunch

LAHORE: Readymade garments industry has been facing a severe liquidity crunch with exporters unable to procure raw materials amidst undue delay in release of sales tax refunds by the Federal Board of Revenue (FBR).

This has adversely impacted the sector’s export growth, as the country’s textile exports have declined by 15.23 percent in October 2022 to $1.35 billion,

The export of readymade garments exhibited an increase of 28.75 percent to $3.9 billion during last fiscal year of 2021-2022, which has now started to decline due to multiple reasons, including liquidity issues. The value-added garments sector is the major taxpayer and largest employment generator in the whole textile chain.

Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) Central Chairman Mubashar Naseer Butt on Monday said that liquidity crisis also started impacting the export volume, as exporters’ liquidity took a strong negative hit from ongoing global recession.

The value-added textile exporters were facing problems regarding sales tax refund payment orders (RPOs) which were issued after October 3, 2022, besides waiting for those deferred amounts, which were processed under the previous FASTER system.

Textile exporters’ sales tax refunds amount has risen to billions of rupees, and was now hampering business activities, reversing the progress in exports made in the last fiscal year. The latest data shows that textile exports have dropped to $1.35 billion in October 2022 from $1.60 billion of the corresponding period of last fiscal year.

PRGMEA lamented that despite commitment made by the government that RPOs would be issued in 24 hours, while the payments would be cleared within 72 hours, the government was not releasing the refunds. The original 72 hours have now extended to several weeks, the association said.

“Despite all the commitments, FBR has failed to pay the sales tax refunds of zero-rated export sector within 72 hours. Consequently, exporters are unable to procure raw materials and other accessories to execute their export orders and this will ultimately affect the country’s foreign exchange reserves, which are constantly declining,” the PRGMEA chairman added.

PRGMEA urged the government to take immediate measures to ease off the financial stress and gear up the export growth. “The sector is also absorbing the inefficiencies of the energy sector and paying the burden of other consumers,” it noted.

The association asked the government to immediately clear the sales tax refunds as any further delay would dent the liquidity of textile exporters, further disturbing the flow of working capital.

The government need to work on a fast-track plan to address refunds issue along with other problems of the industry. Priority should be given to the export-oriented garments sector, which was the highest value-added link in the entire textile value chain, it said.