It has been a year since the launch of the Uraan Pakistan project, which named exports as a top national priority. Yet, over this period, Pakistan’s export industry has faced a roller-coaster journey, ultimately leading to the declaration of an export emergency.
The emergency is justified. With a gas levy on captive power plants, irrational taxation policies, and uncompetitive energy tariffs, one has to ask: under such measures, which country can realistically compete in exports? The trade numbers provide the answer.
In the first half of FY2026, Pakistan’s trade deficit exceeded USD 19 billion, the highest in four years (see figure below). Exports have steadily declined (month-on-month) over the past three years, while imports continue to rise. If this trend persists, the trade deficit is projected to reach USD 40 billion by year-end.
Policymakers may not appear alarmed, as the widening deficit is being offset by rising remittances, which are now treated as the default current account strategy. In reality, exports were never given top national priority. Had the industry’s concerns been addressed earlier, an export emergency would not have been necessary, nor would exports have lost momentum. If these issues remain unresolved, there will soon be no need for such announcements, because there may be no exports left.
Now that the country is officially in a state of emergency, the government must put the house in order.
The most immediate requirement is regionally competitive energy tariffs. Industry has repeatedly called for tariffs to be reduced to 8 to 9 cents per unit, essential to sustain exports and prevent further industrial erosion. At the current level of around 13 cents per unit, Pakistani exporters remain structurally uncompetitive compared to regional peers operating within a 5 to 9 cent range.
What is urgently needed is the removal of distortions in the energy sector. These include cross-subsidisation of lifeline consumers that inflates industrial tariffs, a punitive time-of-use regime that penalises production during critical hours, and unreliable grid supply that forces firms toward captive power, which is then subject to additional levies. The levy on captive power gas is further inflated due to peak-hour tariffs, outdated operations and maintenance assumptions, and debt servicing surcharges.
The challenge goes beyond energy. Pakistan taxes its exporters more than domestic producers, and with an economy largely reliant on consumption, promoting exports has never been a genuine priority.
Exporters face dual advance taxation, with both fixed and normal tax regimes applied simultaneously. The minimum turnover tax of 1.25 percent disproportionately affects industries operating on thin profit margins. For firms earning 1 to 2 percent margins, this tax can absorb most or even exceed their profits. Loss-making firms remain liable, and SMEs across fragmented value chains face this burden at every stage. In practice, taxation has become a significant barrier for small firms trying to enter or sustain themselves in the export market.
When combined with over 18 federal and provincial taxes and levies, many unrelated to exports, the cumulative burden severely weakens competitiveness. High interest rates, even as inflation eased to around 6 percent in November 2025, further dampen investment and business confidence.
How can export industries survive in such a climate?
The larger concern is that these policies have not only weakened exports but also inflated imports, as the upstream value chain has become increasingly unviable. Pakistan cannot sustainably import USD 4–5 billion worth of cotton annually, particularly when its export base remains heavily concentrated in textiles. Reviving the local cotton industry is therefore unavoidable.
The industry has already laid out a comprehensive, end-to-end roadmap for the cotton sector, which must be implemented as a holistic package to revive Pakistan’s cotton economy. Otherwise, Pakistan risks becoming a permanently import-dependent economy, repeatedly seeking IMF support for temporary relief.
In essence, there is a clear need for reforms in the energy sector, taxation, and broader macroeconomic policies to reverse the export emergency.
And these include:
• Energy sector reforms: Remove cross-subsidies on industrial electricity to bring tariffs down to around 9 cents per kWh; eliminate the punitive time-of-use regime and introduce a single flat industrial tariff; exempt captive users with pending load enhancement applications from CPP levies; reclassify combined heat and power plants under the industrial gas tariff with efficiency benchmarks and annual audits; price RLNG supply at actual cost; recalculate levies using the correct methodology; remove legacy wheeling costs and allow hybrid consumption.
• Tax reforms for exporters: Reduce the minimum turnover tax to 0.5 percent and restore the 5-year loss adjustment period (currently 2 years); abolish the fixed turnover tax and subject exporters only to normal income tax; introduce a DLTL-style rebate to refund non-export-related levies; restore sales tax exemptions under the Export Facilitation Scheme for all indirect exporters; and replace turnover-based taxes with profit-based taxation to reduce cascading costs for SMEs.
• Macroeconomic policy changes: Bring interest rates down to single digits to enable industrial recovery; implement measures to safeguard domestic spinning and weaving sectors from rising imports, particularly from China; and protect the cotton sector from collapse.
The roadmap is clearly laid out. It is high time the government recognises that unless these core issues are addressed, announcing export emergencies will remain a recurring exercise.
Copyright Business Recorder, 2026
The writer is Chairman APTMA— North Zone. The views expressed in this article are not necessarily those of the newspaper