The Pakistan Textile Council (PTC) has issued a stern warning regarding the sector’s unsustainable tax burden, which it claims has reached an effective rate of 113%, effectively choking export growth.
According to the council, this excessive tax load has trapped a staggering ₨828 billion (approximately $3 billion) in refunds, advanced taxes, and GST blockages. Fawad Anwar, Chairman of the PTC, emphasized the urgent need for comprehensive fiscal and structural reforms in the upcoming FY2026-27 budget to prevent the sector from becoming financially unsustainable.
He highlighted a liquidity crisis within the sector, primarily caused by excessive taxation, delayed refunds, and regulatory inefficiencies. The council further stated that exporters are operating on razor-thin profit margins of 3-4%, with the existing tax regime eroding or even exceeding these earnings.
The submission revealed that nearly ₨20 billion is deducted or blocked through GST and advance income tax on every ₨100 billion of exports, severely impacting exporters’ working capital. Delays in GST and tax refunds, which can stretch from months to years, are exacerbating liquidity pressures and reducing available working capital to below ₨80 billion.
PTC pointed out that exporters are being penalized as higher exports result in more taxes and refund blockages, rather than increased liquidity. The council highlighted a key concern: the 2% advance tax on gross turnover, which disproportionately affects low-margin exporters. The tax consumes nearly 67% of annual profits for firms operating at margins of around 3%.
The council argued that exporters are taxed on turnover instead of profits, even during loss-making periods. They estimated that around ₨828 billion of exporters’ capital remains trapped in the regulatory system, including ₨327 billion in outstanding refunds (some pending since 2011), ₨200.9 billion blocked in advance taxes, and ₨300 billion tied up in GST on inventory. The annual financing cost of this trapped capital is approximately ₨99 billion.
The PTC urged the reinstatement of the Final Tax Regime at 1% of export turnover, with refunds paid within 60 days and penalties for delays. It also recommended the abolition of the super tax on exporters and a reduction in the corporate tax rate from 29% to 26%. Additionally, the council suggested reducing employer contributions to the Employees’ Old-Age Benefits Institution from 5% to 2%. Actuarial analysis indicates that the EOBI fund remains financially stable and could grow to ₨754.74 billion by FY2026.
According to the submission, investment income alone exceeds benefit payments, and the fund is projected to remain solvent until at least 2038 under the base scenario and until 2074 under extended projections. The council noted that reducing employer contributions to 2% would save the textile sector around ₨28.8 billion annually without affecting worker benefits. The PTC warned that failure to address these issues could slow export growth and weaken Pakistan’s largest source of foreign exchange earnings and employment.