Pakistan’s spinners in danger if tax remains, says APTMA
Pakistan’s textile industry is calling for a level playing field and a review of the Export Finance Scheme (EFS).
The All Pakistan Textile Mills Association (APTMA), along with 17 local textile stakeholders, has made appeals in local media, emphasising their rejection of any scheme that imposes 0% goods and services tax (GST) on imports while maintaining an 18% GST on local materials for the industry. They warn that the textile industry is suffering due to an ineffective export facilitation scheme (EFS).
APTMA points out that the 18% sales tax on cotton, cottonseed and cottonseed cake is an excessive burden on the country’s poorest farmers. They are advocating for the removal of yarn and fabric from the 18% GST in the upcoming federal budget for 2025-26, arguing that this change is crucial to prevent the collapse of the textile industry. The EFS, introduced in the last fiscal year, was reportedly designed to align with guidelines from the IMF aimed at eliminating subsidies and boosting exports; however, it has had negative repercussions for the textile sector.
Furthermore, APTMA has raised concerns about the significant surge in imports of raw cotton, cotton yarn, and artificial yarns due to the EFS. This situation harms the local industry and hampers government revenue by facilitating the evasion of duties and taxes. Key figures, including Kamran Arshad, central chairman of APTMA; Naveed Ahmed, chairman of APTMA Southern Zone; Khawaja Muhammad Zubair, chairman of the Karachi Cotton Association (KCA); and Dr Jassu Mal, chairman of the Pakistan Cotton Ginners Association, held a joint press conference in Karachi to discuss these issues.
During the press conference, they announced that they would take a legal route if their concerns were not addressed. A statement from APTMA highlights that the FY25 budget removed the sales tax exemption on local inputs under the EFS, while imports remain exempt from both sales tax and duty. Although the 18% sales tax on local inputs is refundable, the process of obtaining these refunds is often delayed, incomplete and costly, putting small and medium-sized enterprises (SMEs) at a disadvantage.
Key points include:
- Only 60-70% of refund requests are processed, leaving many stuck in a manual processing system that has seen little progress in the last 4-5 years.
- Exporters are increasingly choosing imported inputs, putting local suppliers at a disadvantage.
- In FY25, imports of cotton, yarn and greige cloth increased by $1.5 billion, from $2.19 billion in FY24 to $3.64 billion, while export growth was only $1.4 billion. Net textile exports are projected to decline from $14.0 billion to $13.6 billion during this period.
- Over 120 spinning mills and 800 ginning factories have closed, leading to protests by loom workers in Faisalabad. SMEs face additional challenges as they have fewer channels for importing and must pay sales taxes at every stage, while integrated units are less affected.
Spinning mills are the primary consumers of local cotton, and without a support price and with declining demand, farmers are shifting to water-intensive crops, further straining the country’s water resources. Local cotton production is already at a historic low of 5 million bales and is likely to decrease further, they added.
The cotton economy supports $2-3 billion in rural incomes, significantly impacting women’s employment in cotton picking. The imposition of an 18% sales tax on cottonseed and cottonseed cakes is unique to Pakistan, pushing farmers’ incomes below service costs and placing the highest burden on the poorest.
Additionally, the United States has hinted at imposing a 29% tariff on all Pakistani exports if the current trade imbalances aren’t addressed. Cotton remains Pakistan’s primary import from the US, and there is potential for expansion, as Washington has indicated the availability of up to 1.5 million bales for export to Pakistan. President Trump has also invited a trade delegation from Pakistan, suggesting that they will discuss plans to double or triple Pakistan’s cotton imports from the United States. To absorb this volume, Pakistan must have a viable operational spinning industry. Without restoring competitiveness for domestic spinners, additional cotton imports will not materialise.
APTMA has emphasised its efforts to restore the EFS to its June 2024 status, which includes zero-rating local supplies for sales tax. They have held discussions with the finance minister, the chairman and members of the Federal Board of Revenue (FBR), as well as representatives of the International Monetary Fund (IMF).
