Pakistan Textile Exporter Association urges the government to simplify the tax structure in the FY2025-26 budget to enhance exports and global competitiveness.

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Pakistan’s textile sector, a major contributor to the national economy, faces significant hurdles, prompting industry leaders to call for immediate action.

The Pakistan Textile Exporter Association (PTEA) recently proposed comprehensive tax reforms to the government, emphasizing that tax rationalization is crucial for boosting exports and enhancing global competitiveness.

In their detailed submission to the Ministry of Finance ahead of the Budget 2025-26, the PTEA highlighted the negative impact of double taxation and urged policymakers to streamline the system to create a more equitable business environment.

Exporters are increasingly worried about a decline in textile exports, attributing much of the downturn to complex and discriminatory tax structures.

Reducing Tax Burden on Exporters

One key issue raised by the PTEA is the complexity of the existing tax regime.

Currently, banks collect a 1% advance tax against export proceeds, which is treated as a minimum tax instead of a final tax.

Simultaneously, another 1% advance tax has been imposed under sub-section (6C) of Section 147, creating a double taxation scenario.

The PTEA pointed out this practice as discriminatory, highlighting that local textile suppliers pay only 1% advance tax on local textile supplies, with yarn traders paying even less at 0.5%.

According to exporters, this disparity violates principles of fairness and natural justice.

To ease the financial burden, the PTEA strongly advocates reducing the advance tax on export proceeds to 1% and reinstating the final tax regime for exporters.

Additionally, it recommended the complete abolition of the super tax, arguing this would significantly boost the confidence of textile exporters.

Increasing Export Facilitation Scheme Cap

Another critical aspect of PTEA’s proposal concerns the Export Facilitation Scheme (EFS) through the EXIM Bank, which is currently capped at Rs 235 billion.

Exporters argue that this limit is inadequate for meeting the sector’s financing needs.

The association proposes progressively increasing this cap to at least Rs1.2 trillion, which is necessary to raise textile exports to $35 billion by 2030.

Reducing Protectionism to Foster Competitiveness

The textile exporters also highlighted challenges from the excessive protection granted to local polyester fiber manufacturers.

The PTEA argues this protectionism adversely affects the value-added export sector, restricting exporters’ ability to compete internationally, particularly in markets dominated by synthetic garments.

Given the rising global demand for synthetic value-added textiles, the PTEA insists Pakistan must realign its policies.

Lowering duties in line with regional competitors such as Vietnam, China, and Turkiye would considerably enhance Pakistani exporters’ global competitiveness.

Promoting the Digital Economy through Transaction Caps

To modernize financial transactions, the PTEA suggested imposing a 10% limit on cash withdrawals, calculated based on a company’s previous annual turnover.

This measure aims to accelerate digital financial transactions, increase transparency, and reduce financial irregularities.

Facilitating Easier Trade with Back-to-Back LCs

Finally, the association proposed allowing back-to-back Letters of Credit (LCs) against master LCs with a mandatory condition of 35% value addition.

Implementing this measure would enable exporters to increase production and exports without additional financial securities, significantly enhancing the ease of doing business.

In conclusion, the Pakistan Textile Exporter Association emphasizes the urgency of adopting these proposals to boost the nation’s textile exports and create a more equitable, growth-oriented economic landscape.

The government’s upcoming budget decisions will be critical in determining the textile industry’s future and its ability to compete effectively on the global stage.