FY27 budget: PTC urges PM for fiscal, structural reforms

ISLAMABAD: The Pakistan Textile Council (PTC) has urged Prime Minister Shehbaz Sharif to introduce sweeping fiscal and structural reforms in the upcoming Federal Budget 2026-27, warning that the current taxation and regulatory framework has rendered export growth “financially punitive” and unsustainable.

In a detailed supplementary submission to the Prime Minister and other key government authorities Chairman PTC, Fawad Anwar presented quantified evidence showing that Pakistan’s largest export sector is facing a severe liquidity crisis due to excessive taxation, delayed refunds and regulatory inefficiencies.

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The Council argued that exporters operate on extremely thin profit margins of 3–4 percent, yet the tax regime effectively erodes or even exceeds these profits. According to the submission, on every Rs100 billions of exports, nearly Rs20 billion is immediately deducted or blocked through GST and advance income tax, leaving exporters with significantly reduced working capital.

Moreover, delays in GST and tax refunds—often stretching from months to years—further restrict liquidity, pushing actual available capital below Rs80 billion.

The Council highlighted a paradox: instead of benefiting from higher exports, firms face increasing financial strain as exports grow, due to additional taxes and refund blockages.

The document revealed that Pakistan’s exporters face an effective tax rate of up to 113 percent, far exceeding regional competitors such as India (35 percent), Bangladesh (28 percent), and Vietnam (20 percent).

A key concern is the 2 percent advance tax on gross turnover, which disproportionately impacts low-margin exporters. For firms operating at a 3 percent margin, this tax alone consumes nearly 67 percent of annual profits.

The Council termed this structure “structurally inequitable,” noting that while domestic businesses are taxed on profits, exporters are taxed on turnover—even in loss-making years.

The PTC estimated that a staggering Rs828 billion (around USD3 billion) of exporters’ capital is currently trapped within the regulatory system.

This includes: (i) Rs327 billion in outstanding refunds, some pending since 2011 ;(ii) Rs200.9 billion in advance tax blockages; and (iii) Rs300 billion locked in GST on inventory.

The annual financing cost of this trapped capital stands at approximately Rs99 billion, placing an additional burden on exporters and limiting their ability to expand production.

The Council warned that the system is “self-reinforcing,” as every increase in exports results in further capital being frozen instead of freed for reinvestment.

In a separate section, the Council presented an actuarial case for reducing employer contributions to the Employees’ Old-Age Benefits Institution (EOBI). Based on the latest actuarial valuation, the EOBI fund is financially robust, with projections showing it could grow to Rs754.74 billion by FY2026.

The analysis found that: (i) investment income alone exceeds benefit payments ;(ii) the fund remains solvent until at least 2038 (base scenario) and 2074 (extended projection); and (iii) higher minimum wages have further strengthened contributions.

The Council proposed reducing employer contributions from 5 percent to 2 percent, which would generate annual savings of Rs28.8 billion for the textile sector without affecting worker benefits.

The Pakistan Textile Council outlined several key recommendations for the upcoming budget: (i) reinstate Final Tax Regime (FTR) at 1% of export turnover; (ii) ensure refund payments within 60 days with penalties on delays; (iii) release Rs327 billion in outstanding refunds immediately; (iv) abolish super tax on exporters; (iv) reduce corporate tax rate from 29% to 26%; and (v) cut EOBI employer contribution to 2% after a transition period.

The Council emphasized that Pakistan’s textile and apparel sector remains the country’s largest source of foreign exchange and employment, warning that failure to address these issues could stall export growth.

Copyright Business Recorder, 2026