Pakistan: Textile Exporters Oppose Tax Regime Shift, Cite Export Disruption

Value-added textile exporters have vehemently opposed the proposed transition from the one percent turnover-based Final Tax Regime (FTR) to standard taxation at 29 percent of taxable profit. They argue that such a move, if implemented through the Finance Bill 2024, would severely harm exports and exacerbate the trade deficit, putting undue pressure on foreign exchange reserves.

In a hastily convened meeting of the Pakistan Hosiery Manufacturers & Exporters Association (PHMA), industry leaders expressed shock and dismay over the budgetary announcements for the fiscal year 2024-2025. They highlighted that the proposed tax changes could undermine decades of hard-earned efforts to contribute substantially to the country’s foreign exchange earnings and employment generation.

Amanullah Khan, Senior Vice Chairman of PHMA North Zone, emphasized that the FTR has historically provided a transparent mechanism for taxing export proceeds, regardless of whether exporters realize profit or incur losses. He criticized the new tax proposal as imprudent, arguing that it could lead to increased corruption and harassment by tax authorities, rather than boosting revenue. He also noted that exporters currently contribute 0.25% as Export Development Surcharge.

M. I. Khurram from Comfort Knitwear warned that eliminating zero-rating on local supplies under the Export Facilitation Scheme (EFS) would have dire consequences for exports. He pointed out that requiring exporters to claim refunds of Sales Tax from the Federal Board of Revenue (FBR) contradicts the spirit of the EFS and would exacerbate the existing backlog of billions in stuck-up Sales Tax refunds.

Sheikh Zafar Mahmood of Combined Fabrics added that empowering FBR officials with extraordinary investigative audit powers, under the pretext of tackling tax fraud, could lead to widespread corruption and regulatory overreach. He criticized the introduction of investigative audits under Section 25 of the Sales Tax Act, 1990, expressing concerns over potential misuse and coercion by tax authorities.

The PHMA members urged the government to reconsider these anti-export proposals and recommendations, emphasizing the already challenging competitive environment for export-oriented industries. They called for government intervention to remove these harsh measures and restore a conducive business environment that supports export growth and investment.