Pakistan’s textile industry is facing a liquidity crunch. Five export-oriented sectors were removed from zero rating from July 2019. This was followed by a 17 per cent sales tax on exports on the assurance that refunds would be paid within 72 hours. However, the software developed for payment of refunds has failed to operate properly, resulting in blocking of significant sums. Exporters say promises of timely payment of refunds never materialise.
Zero rating, which means no collection of sales tax but no refunds, helps exporters fulfill their commitments without facing a liquidity crunch. As of now exporters say they cannot meet their commitments when they have no funds to pay salaries, utility bills or purchase raw materials for new orders. They say such a situation will directly damage the country’s exports.
Pakistan has faced a failure of cotton crop, which is not expected to be more than nine million bales. The target was an estimated production of 15 million bales. The next cotton crop is expected to be even smaller in size because of issues related to quality. Another issue is that of the supply of substandard pesticides to growers. There are some 700 pesticide supplying companies operating in Pakistan.