The federal government has formally assured the domestic textile manufacturing sector that its comprehensive fiscal and structural budget proposals will be presented to the visiting International Monetary Fund mission for official evaluation. However, state authorities have stopped short of making any concrete or binding commitment regarding the definitive inclusion of these industry demands into the upcoming Budget 2026-27. This development surfaced following two successive high-level consultation meetings between a joint industrial delegation and the government’s core economic team, which included the federal petroleum minister, convened to deliberate on pressing fiscal adjustments.
During these intensive negotiations, representatives from the country’s textile industry pressed the state to initiate sweeping fiscal, taxation, and energy pricing reforms in the forthcoming federal budget. Industry leaders issued a stark warning that the country’s primary export engine is rapidly losing its global market competitiveness due to a combination of punitive taxation, elevated power tariffs, and debilitating liquidity constraints. In a unified set of recommendations submitted by apex industry bodies, including the All Pakistan Textile Mills Association, the Pakistan Textile Exporters Association, and the Pakistan Hosiery Manufacturers and Exporters Association, the sector revealed that local exporters face an effective total tax burden surpassing 68 percent. This rate stands as the highest in the region, especially when compared against the 20 percent total tax rate in Vietnam and the 22 to 27 percent range maintained in Bangladesh.
To correct these regional operational disparities, the joint industrial bodies urged the immediate reinstatement of the Final Tax Regime at a fixed one percent rate for all exporting enterprises. Alternatively, they proposed a mechanism allowing companies to choose between the simplified final tax model and the normal tax regime with significantly moderated corporate income tax rates. The sector also demanded the complete abolition of the super tax, minimum turnover tax, and advance tax collections currently levied on exporters, arguing that removing these layers is crucial to easing cash flow pressures and restoring baseline operational profitability across processing units.
A primary operational grievance highlighted by the manufacturing groups is the critical accumulation of over 327 billion rupees in unresolved tax and duty refunds, a backlog that currently freezes an estimated 35 to 40 percent of exporters’ total working capital. The industry has demanded the immediate, unconditional clearance of all outstanding refunds, encompassing sales tax, income tax, and duty drawbacks, noting that certain claims have remained stuck within bureaucratic channels for more than a decade. Regarding indirect taxation, the sector proposed structural changes to the General Sales Tax framework, advising a reduction in the tax rate to 5 percent on primary raw materials and 10 percent on finished textile items. They also recommended raising the export refund ceiling from 12 percent to 14 percent while ensuring that automated refund clearances are processed electronically within 72 hours to stabilize weekly factory cash flows.
Industrial energy pricing remains another deep structural obstacle for the sector. Industrial power tariffs in Pakistan currently hover around 11.5 cents per kilowatt-hour, a rate that significantly outpaces regional rivals such as India at 6.3 cents and Vietnam at 8 cents. To level the playing field, the textile groups have proposed a uniform, all-inclusive power tariff locked at 8 cents per kilowatt-hour, alongside the complete abolition of peak-hour pricing surcharges and auxiliary levies. Furthermore, they called for a reduction in natural gas tariffs to 7 dollars per Million British Thermal Units and the elimination of all fiscal levies currently imposed on captive power generation units.
The joint submission also emphasized the urgent need to revive key suspended export incentive frameworks, including the Drawback of Local Taxes and Levies at a 5 percent rate, the Technology Upgradation Fund, and the Regional Competitiveness Enhancement of Textile program to back modernization drives. Industry stakeholders noted with concern that Pakistan has become the only regional exporter to systematically withdraw its primary export incentives without introducing functional alternatives, leaving local operators at a severe disadvantage in international marketplaces. Additional structural demands included reverting the Export Facilitation Scheme back to its original 2021 operational framework, adjusting legal small and medium enterprise definitions to account for high inflation, and extending the mandatory export proceeds realization window from 120 days to 180 days to accommodate frequent international payment delays. Finally, the industry called for the removal of anti-dumping duties and a reduction in customs tariffs on polyester staple fiber, pointing out that cumulative import duties exceeding 20 percent are blocking the country’s necessary transition toward high-value man-made fiber exports.
Follow the PakBanker Whatsapp Channel for updates across Pakistan’s banking ecosystem.