KARACHI: The All Pakistan Textile Mills Association (APTMA) has called on the government to urgently restore the Export Facilitation Scheme (EFS) to its pre-Finance Act 2024 status, including reinstating zero-rating on local supplies for export manufacturing.
APTMA argues that this step is crucial for ensuring a level playing field for domestic manufacturers who have been disadvantaged compared to tax-exempt imported inputs.
Under the Finance Act 2024, locally produced inputs for export manufacturing are subjected to an 18% sales tax, while imported inputs enjoy sales tax and custom duty exemptions under the EFS. APTMA warns that this disparity undermines the competitiveness of upstream industries such as spinning and weaving, which form the backbone of Pakistan’s textile value chain.
The association has highlighted the dire consequences of this policy, emphasizing that Pakistan’s textile industry, which employs 40% of the industrial workforce, is at risk. The sector supports millions of families and contributes significantly to exports, but rising operational costs and unfair tax policies are driving businesses to closure. According to APTMA, monthly yarn imports have surged over sevenfold, signaling a dangerous reliance on foreign sources.
High energy costs exacerbate the challenges faced by domestic manufacturers. Pakistan’s electricity rates (14-16 cents/kWh) and gas prices (over $12/MMBtu) are nearly double those in competing countries like Uzbekistan and China, where energy costs are as low as 5-7 cents/kWh and $3.8-5/MMBtu. Combined with delayed GST refunds—averaging over six months and partial payments of 60%—the sector’s liquidity constraints further erode its competitiveness.
APTMA has urged the government to:
1. Restore EFS to its pre-Finance Act 2024 form, including zero-rating on local supplies.
2. Ensure stricter compliance by reassessing EFS license holders to eliminate misuse.
3. Improve system efficiency by reducing reconciliation timelines for EFS imports and exports.
The association also proposed adopting alternative tax models, such as India’s progressive sales tax system, which levies higher taxes as goods move up the value chain while fully refunding input taxes. Mandatory traceability across the textile value chain was also suggested to enhance transparency and combat tax evasion.
APTMA warned that without immediate policy reversals, Pakistan risks irreparable damage to its textile industry, which sustains millions and contributes billions to the economy. It urged the government to act decisively to protect this vital sector.
