ISLAMABAD: The textile industry is teetering on the brink of collapse due to the government’s continued failure over the past ten months to rectify a critical flaw in the Export Facilitation Scheme (EFS), warned the All Pakistan Textile Mills Association (Aptma) in a press release on Monday.
According to Aptma, the policy has created a severely distorted tax regime that undermines domestic manufacturing, dismantles local supply chains, and places Pakistan’s textile value chain at the mercy of foreign suppliers.
Aptma Chairperson Kamran Arshad urged the government to immediately remove yarn and fabric from the EFS import list. “This is the only way to prevent further devastation of Pakistan’s textile industry,” he said. “No country can industrialise by destroying its own supply chains and replacing them with imports. The dream of achieving $60 billion in exports through initiatives like Uraan Pakistan cannot be realised if it comes at the cost of the domestic industry.”
Under the current scheme, exporters can import raw materials and inputs at zero per cent sales tax, whereas the same inputs produced domestically are subject to 18 per cent sales tax. While technically refundable, this tax creates substantial financial and administrative burdens.
“The refund process takes six to 10 months, during which capital remains tied up,” the press release said. “Despite rules mandating refunds within 72 hours, only 60-70 per cent of claims are paid monthly, with the rest delayed indefinitely for manual processing. A backlog of over Rs110 billion remains uncleared for the past four to five years.”
As a result, many exporters now prefer imported inputs. Yarn imports, for instance, are already more than double historic peaks and are projected to reach 300 million kg in FY25 -- nearly triple the 108 million kg recorded in FY24.
Total imports of just three key raw materials -- cotton, yarn, and greige fabric -- are expected to exceed last year’s levels by $1.5 billion, while exports are projected to increase by only $1.14 billion. “This means more dollars are flowing out than coming in,” said Aptma. “The headline export figures are misleading -- the industry is hollowing out.”
Over 800 ginning factories and 120 spinning mills have already shut down, resulting in the loss of millions of jobs. The crisis has now reached the weaving sector, with looms closing and workers protesting in the streets.
Aptma warned that the country is effectively exporting imported goods while local industry, employment, and investment are eroding. The cotton sector faces further devastation, with the next season looming and no clarity on who will purchase the expected 10 million bales. Cotton production has already dropped from 15 million bales in the mid-2010s to between 5 million and 10 million today.
While recent reforms -- such as lifting the ban on cotton seed imports and adopting modern farming techniques under the Green Pakistan Initiative -- are commendable, Aptma stressed that the single biggest obstacle to a cotton revival is the current sales tax regime.
Domestic cotton is taxed at 18 per cent, whereas imported cotton enters tax-free under EFS. Even cottonseed and cottonseed cake face an 18 per cent tax -- an unprecedented practice globally. As farmers bear the cost of this tax, their incomes fall below production costs. With the spinning industry in decline, demand for cotton has collapsed, and without price guarantees, many farmers are switching to water-intensive alternatives, worsening the country’s water crisis.“The destruction of the cotton sector will threaten millions more livelihoods,” Aptma concluded, calling for urgent corrective measures before irreversible damage is done.