ISLAMABAD: The All Pakistan Textile Mills Association (Aptma) urgently called on the government to create a level playing field for local raw materials and intermediate inputs for export manufacturing, as inaction on the Export Facilitation Scheme (EFS) has pushed the country’s spinning industry to the brink of collapse.
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 remaining mills are barely operational, running at less than 50% capacity.
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The situation is rapidly deteriorating, with yarn imports surging to an unprecedented 32 million KG in January 2024.
The Aptma contended that at this rate, yarn imports for FY25 are expected to triple compared to FY24, effectively decimating the domestic industry.
The consequences will not be confined to spinning alone — the entire textile value chain is at risk, with weaving and other downstream sectors already experiencing similar distress. If the reckless sales tax regime — imposing 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. Importantly, this is a non-revenue measure that achieves nothing except facilitating imports at the expense of local industry.
The Aptma asserted 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, with no choice but to shut down. Exporters face a strong incentive to switch to imports.
When procuring domestic inputs, exporters must first pay 18% sales tax and file for a return after a 6-10-month production cycle. They then face an additional 6-month wait for the refund, and even then, only around 70% of the due amount is refunded, with the rest indefinitely deferred for manual processing, on which no progress has been made for the last 4-5 years. This process strangles cash flow, pushing businesses toward using imported inputs.
The consequences of this irrational policy are already visible in the collapse of the spinning industry, which was already struggling due to 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 have 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, alongside billions invested under the Temporary Economic Refinancing Facility (TERF).
Moreover, the unchecked surge in imports is distorting the country’s trade balance, with foreign exchange spent on importing raw materials and intermediate goods that should be sourced locally, eroding Pakistan’s economic resilience instead of strengthening it.
The destruction of the spinning industry also puts the cotton economy at imminent risk. The spinning sector consumes over 16 million bales of cotton annually, and without it, there will be no demand for Pakistani cotton. This will devastate rural communities, especially in marginalized regions like South Punjab and Balochistan, where cotton farming supports millions.
Women working in cotton picking — already among the most vulnerable — will bear the heaviest burden, as their incomes are diverted to foreign farmers by the current policy regime.
The government’s policies prioritize subsidizing foreign agriculture, industry, and employment while systematically dismantling Pakistan’s own industries. Through the sales tax disparity, Pakistan is funding employment in countries like China, Brazil, the United States, and Uzbekistan at the cost of its own farmers and workers.
The large-scale cotton cultivation and revival efforts led by the Special Investment Facilitation Council (SIFC) are also at severe risk. Expanding cotton production is futile when the primary industry consuming it is being dismantled. This 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 export due to quality issues and is primarily consumed domestically, where it is blended with imported cotton.
With the spinning industry in decline, cotton farmers face uncertainty about who will buy their crop, making them less likely to plant cotton this year, further jeopardizing Pakistan’s already fragile cotton economy.
The Aptma has demanded immediate government action 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, the government must, at the very least, apply the same sales tax regime to both local and imported inputs for export manufacturing to create a level playing field. In any case, the discriminatory sales tax regime must end.
Furthermore, the upcoming budget 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. This would enhance compliance, reduce fraud, and improve the competitiveness of domestic manufacturers.
The Aptma has stated that Pakistan’s textile industry is in a fight for survival, and the government is actively pushing it toward 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 continue subsidizing foreign competitors at the cost of Pakistan’s future? The choice is clear. The time for action is now.
Copyright Business Recorder, 2025
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