LAHORE: The government has decided against withdrawing or replacing the Export Facilitation Scheme (EFS) in the upcoming federal budget for 2025-26, a decision maintained despite leading export associations and manufacturers-cum-exporters raising significant concerns against the scheme during a Senate Standing Committee meeting held on Monday.
Responding to a query regarding the scheme’s future, a senior government official told that there is “no chance of abolition of the EFS” in the budget.
Senate Committee Convenes for Budget Consultations
The Senate Standing Committee on Finance and Revenue, chaired by Senator Saleem Mandviwalla, convened Monday at the Parliament House to initiate crucial consultations with associations from across the country in preparation for the upcoming fiscal year’s budget. The meeting centered on hearing the challenges faced by various major sectors and gathering their recommendations. Representatives from key industries, including textiles, poultry, dairy, steel, property development, and consumer goods, presented their cases.
FBR Challenges Associations on Revenue Gap
During the session, Chairman Federal Board of Revenue (FBR) Rashid Mahmood addressed the business community representatives seeking tax concessions or reductions in tax rates. He conveyed that associations requesting such relief must also come forward with alternate proposals for overcoming the resulting revenue shortfall. The FBR Chairman explicitly asked associations seeking concessions to submit taxation proposals for generating additional revenue from alternate heads.
“How the tax gap would be filled after granting any concession or reduction in tax rates in budget. How, this gap be narrowed down?”, the FBR Chairman questioned, emphasizing the need for tangible solutions to maintain revenue collection.
Sector-Specific Tax and Policy Demands
Various sectors presented their specific demands for the budget:
Dairy Association: Requested a reduction in sales tax on dairy products, especially milk, from the current 18% to 5%. They argued that milk is typically not taxed worldwide and urged alignment with international best practices. The FBR Chairman requested concrete proposals to offset the potential revenue shortfall from such a tax cut.
Fruit Juices Council: Advocated for a reduction in Federal Excise Duty (FED) from 20% to 15%, citing a significant 40% decline in sales over the past two years, which they attribute to the current tax structure.
Exporters Demand Changes to EFS and Tax Rates
A number of business associations and trade bodies, particularly from the export sector, submitted their budget proposals focusing heavily on the EFS:
All Pakistan Textile Mills Association (APTMA): Proposed that yarn and fabrics should be excluded from the EFS and placed on the negative list. They argued that the scheme imposes restrictions on the domestic supply chain and is detrimental to the local industry, suggesting these items be brought back into the normal tax regime. APTMA also proposed reducing the advance tax rate from the existing 2.25 percent to one percent in the budget.
Towel Manufacturers Association of Pakistan: Proposed the restoration of the rescinded SRO.1125 as a replacement for the EFS. The association claimed the EFS has been misused and has serious financial implications on the industry, urging for the restoration of the local zero-rating facility for exporters. The association also proposed the withdrawal of Section 8A of the Sales Tax Act 1990, which deals with joint and several liabilities of registered persons in the supply chain where tax is unpaid.
Textile Sector Woes Detailed
Chairman of APTMA, Kamran Arshad, provided a detailed account of the challenges facing the textile sector. He warned that textile exports have remained stagnant for two years and strongly criticized the EFS scheme for pushing the industry towards collapse. Mr. Arshad highlighted issues such as the imposition of an 18% sales tax on local cotton contrasted with the duty-free import of foreign cotton. In addition to excluding yarn and fabric from the EFS, APTMA recommended fixing electricity rates for the industry at 9 cents per unit and reducing the advance tax rate from 2.5% to 1%. The association reported that the difficult operating environment has led to the closure of 120 spinning mills and 800 ginning factories, while textile exports have remained stagnant at 16.5% and 16.7% over the past two years.
Towel Exporters Highlight Refund Delays
Representatives from the towel manufacturing sector noted that their exports are nearing $2 billion annually, contributing 18% to the country’s total towel exports. However, they expressed serious concerns over significant delays in sales tax refunds, which they reported are often processed only after six months, creating financial burdens on the industry.
