PTEA terms new tax structure on textile sector deeply disruptive

FAISALABAD: Sohail Pasha, Chairman of the Pakistan Textile Exporters Association (PTEA), has expressed concerns over the recent issuance of SRO 1359(I)/2025, which brings raw cotton, cotton yarn and grey fabric under the scope of 18 percent sales tax and related import duties, excluding them from the Export Facilitation Scheme (EFS).

He said the textile sector, which contributed over 60 percent to Pakistan’s export earnings, viewed this move as a deeply disruptive policy shift. The new tax structure will raise the cost of production, strain liquidity and diminish the global competitiveness of exporters, particularly small and mid-tier enterprises already struggling under financial pressure.

Pasha pointed out that the earlier system allowed zero-rated or tax-exempt import of essential raw materials for registered exporters under EFS, which ensured cost stability, liquidity, and consistent supply chains. He warned that the abrupt reversal of this policy without stakeholders consultation risked destabilizing the entire export ecosystem. Exporters are now required to pay full sales tax and customs duties up front, even for 100% export-bound inputs, which significantly diverts working capital and threatens the viability of ongoing export contracts.

He said while refund claims might be legally admissible, the current refund regime was plagued by delays, inefficiency and audit-related hurdles, making it practically impossible for exporters to reclaim taxes within a reasonable timeframe. This not only impacts operational capacity but also increases compliance burdens. Highlighting the international competitive landscape, Pasha said that countries like Bangladesh, India, and Vietnam provided tax exemptions or incentives to their export sectors, and imposing such taxes in Pakistan would only lead to higher production costs and eventual loss of export orders. He noted that exporters would either have to absorb these costs, reducing their margins or lose orders altogether, which would erode the country’s export base. He urged the government to suspend SRO 1359(I)/2025 immediately and to reinstate zero-rating for raw cotton, cotton yarn, and grey fabric under EFS.