Terming the newly unveiled federal budget as ‘extremely regressive, All Pakistan Textile Mills Association (APTMA) warns that it may pose a threat to the textile sector and its exports.
Setting ambitious revenue targets for the fiscal year ending June 2025, the budget was presented by Muhammad Aurangzeb, Finance Minister last week. A total outlay of Rs 18.87 trillion ($68 billion) was earmarked in it for the year.
A few of the key objectives outlined in the budget include, reducing the public debt-to-GDP ratio to sustainable levels and improving Pakistan’s balance of payments position, according to the budget document.
The budget also aims to boost non-tax revenue, such as petroleum levies by 64 per cent, while sales tax on textile and leather products, as well as mobile phones, is expected to rise by 18 per cent.
However, the new budget could have ‘dire consequences’ for employment, external sector stability, and overall economic and political stability in Pakistan, warn textile mill owners.
The tax rate on exports has increased from a 1 per cent final tax regime to a staggering 29 per cent on profits, plus a 2 per cent advance tax on export proceeds. This excessive taxation eliminates incentives for export-oriented activities and drains liquidity from the sector as the 2 per cent advance tax will soak up all liquidity from low-margin high-volume industries like textile, adds APTMA.
The 18 per cent sales tax and turnover tax might erode the competitiveness of local manufacturers by reducing domestic value addition in exports and worsening the trade balance, the association further states.
After peaking at $19.3 billion in FY2021-22, Pakistan’s textile exports fell to approximately $16.5 billion in FY2022-23, with a similar downward trend continuing throughout FY2023-24, with monthly exports consistently falling over $600 million below the installed capacity.
This drastic decline highlights the urgent need for governmental intervention to support the sector. No measures have been proposed to resolve the industry-wide energy crisis, APTMA notes.
APTMA points out , rising energy costs, high-interest rates, and a dysfunctional sales tax refund mechanism had pushed many firms to the brink of bankruptcy. The association warns of a severe deterioration in both foreign and domestic investment prospects and destabilisation of the external sector and overall economic growth in the coming years if the government fails to o reconsider the FY25 budget and implement measures to address the prohibitive energy costs, rationalise taxation, and provide a conducive business environment to avert an imminent collapse of the textile sector.
