Value-added textile exporters reject new tax regime proposals

KARACHI: The Value-Added Textile Exporters Forum has jointly rejected the proposed imposition of both the final tax regime (FTR) and the normal tax regime in the 2024-25 budget.

The forum comprises various textile associations including the Pakistan Hosiery Manufacturers & Exporters Association (PHMA), Pakistan Readymade Garment Manufacturers & Exporters Association (PRGMEA), Towel Manufacturers Association of Pakistan (TMA), Pakistan Cloth Merchants’ Association (PCFA), Pakistan Denim Manufacturers & Exporters Association (PDMEA), Pakistan Knitwear & Sweaters Exporters Association (PAKSEA), and Pakistan Bedwear Exporters Association (PBEA).

During a press conference held at the PHMA House in Karachi, the forum called the proposed changes “counterproductive”, saying that they would lead to unnecessary bureaucratic interference and potential corruption.

Chief Coordinator of the Forum Muhammad Jawed Bilwani highlighted that “the current one per cent final income tax on exporters is efficiently deducted at source electronically, without human intervention, when remittances are received on 100 per cent sales proceeds, regardless of profit or loss.”

The proposed change would treat this one percent rate as a minimum tax, requiring exporters to submit extensive documentation to justify their income and expenditures. Bilwani emphasized that this would *expose exporters to corruption within the Federal Board of Revenue (FBR), citing a recent scandal in LTU Lahore where FBR officials were implicated in corrupt practices.The forum warned the government against experimenting with the export sector, urging the continuation of the current FTR without changes. They also called for a reduction in the 1.0 percent income tax to 0.5 per cent. Bilwani noted that exporters’ sales tax refunds are processed electronically via the FASTER system, ensuring efficiency and minimal human involvement.

Representatives from the textile associations stressed that the proposed tax regime changes would be detrimental, leading to a significant reduction in Pakistan’s export revenue and foreign exchange earnings.

They argued that such changes would diminish the competitiveness of Pakistani exports, allowing regional competitors like India, Bangladesh, Cambodia and Vietnam to capture market share. The additional disadvantages would hinder growth and expansion in the export-oriented industry, potentially driving businesses to relocate operations outside Pakistan.

The forum expressed frustration over the lack of consultation from the finance minister, chairperson of the FBR, and commerce minister. It questioned “why the government consistently targets existing taxpayers, particularly value-added textile exporters, who contribute significantly to foreign exchange earnings, government revenue, and urban employment.”The forum pointed out that “50 per cent of industrial units have ceased production, and membership in textile exporters’ associations has declined by 20-25 per cent, indicating a crisis in the industry. They criticised the FBR for failing to broaden the tax base and suggested that the current tax authority be replaced with a new tax and revenue authority to better address these issues.”

Highlighting the industry’s challenges, the forum noted the burden of multiple taxes, delays in sales tax and other refunds, and the highest-ever cost of manufacturing due to exorbitant energy tariffs and expensive industrial inputs. They called for the restoration of regionally competitive energy tariffs (RCET) to prevent further closures of SMEs and layoffs.

The Forum also urged the new government to reduce the policy discount rate to single digits and operationalize the EXIM Bank. They advocated for a model allowing exporters back-to-back letters of credit similar to Bangladesh’s system. The forum concluded by urging the government to focus on tapping the tax potential of non-taxpayers rather than increasing the burden on compliant exporters.

Prominent figures at the press conference included Chairperson of the PHMA (SZ) Abdul Jabbar Gajiani; Chief Coordinator of the PRGMEA Sheikh Shafiq; Ex-Chairperson of the PCMA Abdul Samad; Chairperson of the PCFA Khawaja Usman, Chairperson of the Export Committee (KCCI) Junaid Ur Rehman; Shoaib Majeed and other notable textile exporters.