Budget proposals to be shared with IMF, govt assures textile sector

ISLAMABAD: The government has assured the country’s textile sector that its budget proposals will be shared with the visiting International Monetary Fund (IMF) mission for consideration; however, no firm commitment has been made regarding their inclusion in the Budget 2026–27, well-informed sources told Business Recorder.

A joint delegation of the textile sector held two back-to-back meetings with the government’s economic team, including the Petroleum Minister, to deliberate on the proposed budget measures.

Pakistan’s textile industry has urged the government to introduce sweeping fiscal, taxation and energy reforms in the upcoming budget, warning that the sector is rapidly losing competitiveness due to high taxes, elevated energy costs and severe liquidity constraints.

READ MORE: Textile sector urges restoration of Export Facilitation Scheme, final tax regime

In a joint set of recommendations submitted by leading industry bodies — including APTMA, PTEA and PHMA — the sector highlighted that exporters in Pakistan are facing an effective tax burden exceeding 68 percent, the highest in the region, compared to around 20 percent in Vietnam and 22–27 percent in Bangladesh.

The industry called for the reinstatement of the Final Tax Regime (FTR) at one percent for exporters or, alternatively, allowing a choice between FTR and the Normal Tax Regime (NTR) with reduced income tax rates. It also demanded the abolition of super tax, minimum turnover tax and advance tax on exporters to ease liquidity pressures and restore profitability.

A major concern flagged by the sector is the accumulation of over Rs327 billion in pending refunds, locking up nearly 35–40 percent of exporters’ working capital. The industry has urged immediate clearance of all outstanding refunds — including sales tax, income tax and duty drawbacks — some of which have been pending for over a decade.

On indirect taxation, the textile sector proposed structural reforms in the General Sales Tax (GST) regime, including reducing the rate to five percent on raw materials and 10 percent on finished goods, along with increasing the refund threshold for exporters from 12 percent to 14 percent. It also stressed that automated refunds should be processed within 72 hours to ensure stable cash flows.

Energy costs remain another critical issue, with industrial electricity tariffs in Pakistan at around 11.5 cents per kWh — significantly higher than regional competitors such as India (6.3 cents) and Vietnam (8 cents). The industry has proposed a uniform, all-inclusive tariff of 8 cents per kWh, abolition of peak-hour charges and removal of surcharges. It has also called for a reduction in gas tariffs to $7 per MMBtu and elimination of levies on captive power.

The textile sector further demanded restoration of key export incentive schemes, including the Drawback of Local Taxes and Levies (DLTL) at five percent, the Technology Upgradation Fund (TUF) and the Regional Competitiveness Enhancement of Textile (RCET) programme, to support value-added exports and modernisation.

Highlighting structural challenges, the industry noted that Pakistan is the only country among its regional competitors to have withdrawn major export incentives without providing viable alternatives, placing exporters at a disadvantage in global markets.

Stakeholders also called for restoration of the Export Facilitation Scheme (EFS) to its original 2021 framework, revision of SME definitions in line with inflation, and extension of the export proceeds realisation period from 120 to 180 days to accommodate global payment delays.

The industry further pointed to tariff barriers on polyester staple fibre (PSF), stating that cumulative duties exceeding 20 percent are hindering Pakistan’s transition towards higher-value man-made fibre exports. It recommended removal of anti-dumping duties and reduction in customs tariffs to enable diversification.

The joint submission warned that Pakistan ranks behind regional competitors — including Bangladesh, India, Vietnam and China — on key indicators such as taxation, energy costs, GST structure, export incentives and labour costs.

“The sector’s competitiveness can only be restored through coordinated and consistent policy reforms,” the industry bodies emphasised, urging the government to adopt a stable three-to-five-year policy framework to support long-term investment and export growth.

“The government team assured us that the proposals will be considered and discussed with the Fund, but no firm commitment was made regarding their acceptance,” said one of the participants.

Copyright Business Recorder, 2026