Tax Policy Impacts on Domestic Producers

APTMA stated that the tax disparity is crippling upstream industries like spinning and weaving, which are vital to the textile value chain. The surge in yarn imports—now over seven times the previous levels—highlights a dangerous shift away from local suppliers, leaving domestic manufacturers at a severe disadvantage.

Additionally, exporters relying on local inputs face significant cash flow challenges due to prolonged delays in GST refunds, which often take over six months and only partially cover claims. This systemic inefficiency imposes additional interest costs of 10-15% on working capital, further eroding competitiveness and driving reliance on imported inputs.

Economic Consequences for Taxpayers and Industry

APTMA warned of far-reaching consequences, including:

• Business Closures: High taxation on local supplies risks shutting down critical textile operations, leading to significant job losses.
• Increased Costs: Local manufacturers struggle with not only tax disparities but also elevated energy costs, which are nearly double those in competing markets.
• Structural Decline: The policy shift threatens the long-term viability of Pakistan’s textile ecosystem, which supports millions of livelihoods and contributes billions to the national economy.

APTMA’s Recommendations

The association urged the government to take immediate corrective measures, including:

1. Reinstating zero-rating for local supplies under the EFS.
2. Streamlining GST refund processes to ease liquidity challenges for exporters.
3. Aligning energy costs and tax policies with those of competing nations to restore competitiveness.

APTMA also called for the adoption of alternative tax models that reduce evasion while expanding the tax base, as well as introducing traceability measures to integrate informal sectors into the formal economy.

Government’s Role Crucial

APTMA Chairman Kamran Arshad stressed the need for urgent government intervention. “The current tax policy not only undermines local manufacturers but also jeopardizes the economic foundation of Pakistan’s textile industry,” he said, urging a reversal of harmful measures to prevent further damage.

The association acknowledged the government’s efforts to curb misuse of the EFS but reiterated that resolving the taxation disparity is vital to preserving Pakistan’s industrial and economic stability.