Budget strains textile exporters: PTEA

FAISALABAD: The anti-export budgetary measures will have devastating effects on exports and the economy, halting industrialisation and opening the floodgates of joblessness.

The budget makers have failed to provide the necessary direction for industrial progress and export promotion.

Voicing severe concern about the budget measures, Patron-in-Chief of the Pakistan Textile Exporters Association Khurram Mukhtar said on Friday that the textile sector, a crucial segment of the economy, is already in a severe crisis, and industrial production is not aligning with the built-up manufacturing capacity. Due to this underutilisation, the country is not reaching its full potential for foreign exchange earnings.

Contrary to expectations, no attention has been paid to this vital sector. Expressing disappointment over the shift of exporters from the one percent Final Tax Regime (FTR) to the staggering Minimum Tax Regime (MTR), he said that this change is unacceptable as exporters are now paying income tax on turnover regardless of profit or loss.

In addition to the one percent income tax, exporters also pay a 0.25% Export Development Fund (EDF) levy, which cannot be transferred to foreign buyers. With such moves, the government has undermined its principle of export-led growth by exponentially increasing costs for the export sector.

Mukhtar pointed out that the high-growth-oriented textile industry is facing an acute shortage of finances, as a significant portion of exporters’ working capital—approximately PKR700 billion—is stuck in the refund regime, resulting in the burden of paying 24% interest on outstanding refunds. This puts a substantial financial burden on exporters. Moreover, PKR38 billion are also pending in old refunds. The budget has further strained the industry’s liquidity without any measures to release the liquidity stuck in sales tax and other refund regimes.

Criticising the elimination of zero-rating on local supplies under the Export Facilitation Scheme (EFS), Mukhtar said that the move will lead to a surge in intermediate input imports. Additionally, the 18% sales tax plus turnover tax will further hit local manufacturers, already struggling with high energy costs.

However, the budgetary measures proposed for FY2024-25 are entirely against the interests of industry and exports. They will erode the competitiveness of Pakistani exporters in the global market, potentially leading to a decline in export revenue and foreign exchange earnings.

He urged the government to reconsider the budgetary measures and restore the confidence of exporters by reinstating the one percent FTR regime for exporters, restoring the zero-rating on local supplies under EFS, and allocating appropriate funds for the payment of exporters’ outstanding refunds to achieve economic growth and put the economy into high gear.