https://arab.news/56cd7
- Manufacturers say over 140 factory closures have wiped out about a third of sector capacity
- Industry warns high taxes and energy costs are undermining exports and competitiveness
KARACHI: Pakistan's textile industry, the country's largest exporter and a key source of jobs and foreign exchange, is urging the government to use the next federal budget to restore its competitiveness, warning that high taxes, elevated energy costs and policy uncertainty have already forced the closure of more than 140 factories and wiped out about a third of the sector's capacity.
The call comes as Prime Minister Shehbaz Sharif's government prepares to unveil its budget for fiscal year 2026-27 while balancing pressure from exporters seeking relief and commitments under a $7 billion International Monetary Fund (IMF) program that requires stronger revenue collection.
Representing more than 200 corporate members operating over 400 textile mills, the All Pakistan Textile Mills Association (APTMA) says the industry contributes 8-9 percent of Pakistan's gross domestic product, accounts for roughly half ofindustrial employment and generates more than half of the country's export earnings.
"Our expectation from the soon-to-be-presented national budget of Pakistan is that it must restore competitiveness back to the textile industry of Pakistan and not focus merely on raising revenue," APTMA Chairman Kamran Arshad told Arab News.
Economists estimate Islamabad will need to raise hundreds of billions of rupees in additional taxes in the next fiscal year to meet revenue targets agreed with the IMF.
Arshad said the government should shift its focus from maximizing tax collection to supporting export growth, including by restoring a simplified tax regime for exporters that was replaced last year and eliminating advance and minimum taxpayments that tie up exporters' cash flows.
Pakistan's textile industry generated $18 billion in export earnings last year, according to official data. During the first 10 months of the current fiscal year, exports rose 1.3 percent to $15 billion from $14.8 billion a year earlier.
Arshad said exporters were also seeking the clearance of pending tax refunds, faster automated refund payments and lower energy tariffs, arguing that financing and utility costs in Pakistan remain significantly higher than those faced by regional competitors.
"Over 140 mills have closed [in the last two to three years] or have become non-operational," he said.
"The remaining mills are not running at full capacity," he continued, adding that their survival was in jeopardy.
He was also critical of the Export Facilitation Scheme (EFS), which allows duty-free imports of raw materials for export production.
Industry representatives argue that the scheme has encouraged imports of yarn and fabric that compete with domestically produced inputs, reducing demand for local manufacturers.
Arshad said Pakistan's business environment remained challenging.
"The overall business confidence is weak, cost of doing business is too high, the tax regime is extremely complex and unpredictable," he said, adding that delays in tax refunds were creating liquidity shortages.
'TOUGH REQUIREMENT'
Speaking to Arab News, Shankar Talreja, head of research at Topline Securities, said many of the industry's concerns were rooted in Pakistan's relatively high cost structure.
"The cost of doing business is no doubt relatively higher in Pakistan compared to the region," he said. "We have higher tariff rates and we probably have the highest corporate tax rate in the region."
However, Talreja said the government's ability to offer substantial relief would likely be constrained by commitments made under the IMF program, particularly on tax collection targets.
"That's a tough requirement," he said, referring to industry demands for tax relief.
However, Pakistan Textile Council Chairman Fawad Anwar said rationalizing taxes could help raise textile exports by as much as $4 billion at a time when global supply chains were shifting and buyers were looking to diversify away from China.
"There is a new world order which is emerging with US now trying to divert from China and place its business, especially textiles to some other places [such as] Pakistan, India, Bangladesh and Vietnam," he said.
Anwar said Pakistan had an opportunity to capture a larger share of global textile trade but only if its cost structure remained competitive with regional rivals.
"The market share will be shifting dramatically this year," he said. "India might be the major gainer out of it because of the policies and the support which the Indian government is providing [to its textile exporters]."