APTMA warns of economic fallout from sales tax exemption withdrawal

Textile sector faces shutdowns, job losses as tax policy threatens industry stability

ISLAMABAD:

The All Pakistan Textile Mills Association (APTMA) has voiced serious concerns over the recent withdrawal of the sales tax exemption on local supplies for export manufacturing in the textile sector. The association warns that regressive taxation policies are driving factory closures and mass unemployment across the industry.

Despite multiple appeals from industrial stakeholders, clear commitments from the finance minister, and directives from the prime minister to suspend SRO 350(I)/2024 until it is revised, the Federal Board of Revenue (FBR) continues to enforce the policy. APTMA claims that the current provisions of SRO 350 are causing widespread disruptions in the textile sector, which is a cornerstone of Pakistan's economy.

APTMA has urged the government to immediately amend SRO 350(I)/2024 with input from those most affected. The industry, already reeling from operational challenges, cannot withstand further delays in rectifying the situation. The requirement for linking the entire supply chain to file sales tax returns has made it nearly impossible for many APTMA members to meet deadlines, as their upstream suppliers have not filed their returns. Moreover, the FBR's elimination of the option to delink invoices from returns has further complicated matters, leaving buyers unable to claim input tax despite paying the full amount, including sales tax.

APTMA argues that the withdrawal of the zero-rating on local supplies, enacted under the Finance Act 2024, was not driven by revenue needs but was a reaction to FBR audits revealing misuse by a small fraction of firms. Instead of tightening controls, the government has imposed a blanket withdrawal of the entire scheme, punishing the entire sector.

This withdrawal undermines the Export Facilitation Scheme (EFS), which was designed to promote indirect exports by allowing domestic procurement of raw materials without upfront sales tax. The exemption's removal has disproportionately impacted small and medium enterprises, reducing domestic value addition in exports and leading to a significant increase in cotton yarn imports. According to APTMA, 40% of spindles in the industry are now inactive, highlighting the severe impact on production capacity.