ISLAMABAD: The All Pakistan Textile Mills Association (APTMA) has urged the federal government to remove yarn and fabric from the ambit of the Export Facilitation Scheme (EFS), proposing a strategic policy shift aimed at restoring competitiveness to the domestic textile sector without breaching Pakistan’s commitments under the International Monetary Fund’s (IMF) Extended Fund Facility (EFF).
This recommendation, submitted to the Prime Minister’s Committee for Review of the Export Facilitation Scheme, emerged in the wake of the government’s decision to withdraw zero-rating on local supplies under the EFS in the fiscal year 2024–25 (FY25) budget. The move was part of broader fiscal consolidation efforts aligned with IMF directives, aimed at eliminating tax exemptions and streamlining revenue collection.
The FY25 budget, passed on June 28, 2024, marked a pivotal step in Pakistan’s economic reform program, with the government targeting a primary surplus of Rs 1.177 trillion (1.0 percent of GDP). The Memorandum of Economic and Financial Policies (MEFP) submitted to the IMF on September 11, 2024, underscores the significance of revenue mobilization through tax reforms—particularly the general sales tax (GST)—which is expected to yield an additional Rs 286 billion.
APTMA seeks ban on import of yarn, cloth under EFS
To meet these targets, the government announced the termination of the EFS’s zero-rating regime for local supplies. Exporters are now expected to use the credit tax regime to claim VAT refunds on locally purchased inputs. The rationale, grounded in the IMF’s emphasis on fairness and transparency, was to eliminate distortions, broaden the tax base, and curb leakages through preferential treatments.
The IMF explicitly outlined in its October 2024 Staff Report that fiscal discipline, particularly through elimination of tax privileges, is essential for Pakistan’s macroeconomic stability. The very first structural benchmark under the EFF prohibits any new tax amnesties or preferential tax treatments—including zero-rating, tax credits, or exemptions.
These commitments were reaffirmed in the first review of the program, submitted on April 24, 2025. The IMF warned against potential “policy slippages” and external pressures to reinstate concessions, which could derail reform efforts. As such, the reintroduction of zero-rating for local supplies under EFS is highly unlikely.
APTMA argues that the current state of the EFS—with zero-rating withdrawn from local supplies but retained on imports—is creating a significant economic distortion. This disparity, they assert, undermines the domestic value chain and dis-incentivizes local sourcing of inputs. Furthermore, the continuation of import zero-rating under EFS is inconsistent with the broader fiscal reform agenda and leaves room for misuse in a historically leakage-prone scheme.
APTMA’s policy paper suggests that if restoring local zero-rating is politically and diplomatically unfeasible, the alternative should be the elimination of zero-rating on imports under the EFS. This, they argue, would help level the playing field for local manufacturers, align with IMF requirements, and reinforce domestic industrial growth.
While APTMA initially advocated for a complete restoration of the EFS to its pre-June 2024 structure—including zero-rating on both local and imported inputs—its subsequent legal and policy analysis concedes that such a reversal is nearly impossible under the current IMF programme structure.
Copyright Business Recorder, 2025
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