ISLAMABAD: The All Pakistan Textile Mills Association (APTMA) urgently calls on the government to create a level playing field for local raw material and intermediate inputs for export manufacturing vis- a- vis imports as inaction on the Export Facilitation Scheme (EFS) anomaly has pushed the country’s spinning industry to the verge of complete collapse, and it is only a matter of time before the entire textile value chain is wiped out.
Over 100 spinning mills—representing nearly 40% of total production capacity—have already shut down, while the rest are barely operational, running at less than 50% capacity. The situation is deteriorating at an alarming pace, with yarn imports surging to an unprecedented 32 million KG in January 2024.
At this rate, yarn imports for FY25 are expected to triple compared to FY24, effectively wiping out the domestic industry. The consequences will not remain confined to spinning alone—the entire textile value chain is now at risk, with weaving and further downstream sectors already experiencing similar distress. If this reckless sales tax regime—which imposes an 18% sales tax on local supplies for export manufacturing while keeping imports sales tax-free—is not immediately reversed, Pakistan’s textile manufacturing base will soon be replaced entirely by imports, leading to an industrial and economic disaster of unprecedented scale. It is important to note that this is a non-revenue measure that achieves nothing except facilitating imports at the expense of local industry.
APTMA is of the view that by allowing duty-free and tax-free imports while imposing an 18% sales tax on local inputs for export manufacturing, the government has left domestic producers, especially thousands of SMEs across the value chain, with no choice but to shut down as exporters face a huge incentive to switch to imports. When procuring domestic inputs, exporters must first pay 18% sales tax and file for return after a 6-10 month production cycle. Then they must wait an additional 6 months for the refund to be issued, and even then, only around 70% of the due amount is refunded with the rest indefinitely deferred for manual processing on which there has been no progress for the last 4-5 years. This entire process strangles their cash flow and pushes them towards using imported inputs.
The consequences of this irrational policy are dire and visible in the collapse of the spinning industry, which was already struggling under high energy costs, excessive taxation, and an uncompetitive business environment. Pakistan’s textile sector is not just a manufacturing base—it is one of the largest contributors to employment, foreign exchange earnings, and rural economic activity. With spinning mills shutting down en masse, thousands of workers in the spinning industry have already lost their jobs, and the economic ripple effect has resulted in the loss of millions of livelihoods. An estimated $15 billion in investment is at risk of becoming a sunk cost, alongside billions invested under the Temporary Economic Refinancing Facility (TERF). Moreover, the unchecked surge in imports is distorting the country’s trade balance. Foreign exchange spent on importing raw materials and intermediate goods that could and should be sourced locally is simply being wasted, eroding the country’s economic resilience instead of strengthening it.
With the destruction of the spinning industry, the cotton economy is also at imminent risk. The spinning sector has the capacity to consume over 16 million bales of cotton annually, and without it, there will be no demand for Pakistani cotton. The impact on rural communities will be devastating, particularly in marginalized regions like South Punjab and Balochistan, where cotton farming sustains millions. Women engaged in cotton picking—already among the most vulnerable segments of society—will bear the heaviest burden, as their incomes are snatched away from them and handed to foreign farmers by the current policy regime. The government’s policies have made it clear that its priority lies in subsidizing foreign agriculture, industry and employment while systematically dismantling its own. Through the sales tax disparity, Pakistan is actively funding employment in China, Brazil, the United States and Uzbekistan, among others, at the cost of its own farmers and workers.
The large-scale cotton cultivation and revival efforts being led by the Special Investment Facilitation Council (SIFC) are also in severe jeopardy. What is the point of expanding cotton production when the primary industry that consumes it is being dismantled? The situation is further aggravated by the fact that, under the current IMF agreement, the government is prohibited from implementing a cotton support price, leaving farmers without any mechanism to ensure profitability. Unlike other major cotton-producing countries, Pakistan’s cotton is not suitable for exports due to quality issues and is primarily consumed domestically, where it is blended with imported cotton. With the spinning industry—their largest and most reliable buyer—in decline, cotton farmers now face a high level of uncertainty about who will purchase their crop. This uncertainty acts as a major deterrent for cotton growers, making them less likely to plant cotton this year, further jeopardizing Pakistan’s already fragile cotton economy.
APTMA has demanded that the government act immediately to prevent a complete industrial catastrophe. The first and most urgent step must be to restore the Export Facilitation Scheme (EFS) to its June 2024 framework, including the zero-rating/sales tax exemption on local supplies for export manufacturing. If full restoration is not possible, at the very least, the government must apply the same sales tax regime to both local and imported inputs for export manufacturing to create a level playing field.
In any case, this discriminatory sales tax regime must end.
Furthermore, in the upcoming budget, the government must seriously consider a graduated sales tax regime, as implemented in India, where inputs along the value chain are taxed at lower rates than final goods to enhance compliance, reduce gol maal and flying invoices, and improve the competitiveness of domestic manufacturers.
Pakistan’s textile industry is in a fight for survival, and the government is actively pushing it towards collapse. If immediate action is not taken, the consequences will be irreversible. The loss of the spinning sector will devastate cotton farmers, wipe out billions in investment, render millions jobless, and cripple Pakistan’s already fragile economy. The government must decide now—will it support its own industry and workforce, or will it continue to subsidize foreign competitors at the cost of Pakistan’s future? The choice is clear. The time for action is now.
