Businessmen demand EFS restoration in original form

Karachi Chamber of Commerce and Industry (KCCI) President Jawed Bilwani, while highlighting the crucial role played by the Export Finance Scheme (EFS) in sustaining Pakistan's exports, emphasised that the scheme must continue in its original status and position, which was before the presentation of federal budget for fiscal year 2024-25.

In a statement, he called for allowing local purchases under Section 880 (1)(b) of SRO 957(I)/2021 (local input goods liable to sales tax to be supplied against zero-rated invoices) to ensure liquidity, competitiveness and formalisation across the entire value chain, as recommended by the Inter-Ministerial Committee.

"The EFS is critical to ensuring continued export-led growth and trade balance improvement," he said. "Despite facing the highest regional costs of electricity, gas, water and interest rates, Pakistan's exports have shown remarkable resilience, a feat largely attributable to the support provided by the EFS. Preserving and expanding this scheme is essential for maintaining export competitiveness."

Bilwani highlighted that the EFS was strategically developed by consolidating all previous schemes under one umbrella, which minimised documentation requirements and facilitated ease of doing business through a fully automated system integrated with Web-based One Customs (WeBOC) and the Pakistan Single Window (PSW).

"Much of the quality yarn and fabric used by Pakistan's apparel exporters is not produced domestically and the local alternatives, where available, are often of lower quality and higher cost," he pointed out. "The imported yarn used by garment manufacturers is of superior quality, giving exporters a competitive edge in global markets." The value-added apparel sector makes up to 70% value addition to export goods and requires uninterrupted access to high-quality raw material.

"Countries like Bangladesh and Vietnam are completely reliant on imported raw material for their export-oriented textile sectors and their success is a proof of effectiveness of such models when supported by robust facilitation mechanisms," he said. Bilwani warned that policy changes announced in the last federal budget, particularly the removal of zero-rating for local supplies, disrupted the balance between imported and local raw material.

"Currently, while the imported raw material is exempt from taxes, local inputs are subject to 18% sales tax with delayed and costly refunds," he said. "This creates a structural imbalance, discouraging local sourcing and impacting SMEs across the value chain."

In view of the IMF's reservations about fully restoring the zero-rating facility, he proposed a pragmatic middle path such as adopting a negative list to restrict high-risk imports under the EFS while preserving the broader scheme's facilitative framework.