KARACHI: Pakistan’s value-added textile industry is grappled with severe crises, which are attributed to financial mismanagement and government policies that are stifling exports.

Karachi Chamber of Commerce and Industry (KCCI), along with numerous apparel and textile exporter associations, have voiced grave concerns over the big delays in sales tax refunds.

These delays are inflicting immense financial stress on the entire industry that is already reeling from unprecedented production costs. The continued withholding of refunds is not only stifling cash flow but also threatening the survival of businesses and pushing many to the brink of collapse.

Industry leaders warn that if an immediate action is not taken, the resulting financial crisis could decimate the sector, leading to widespread closures and job losses across Pakistan. Exporters are growing increasingly frustrated by the prolonged and unjustified delays in the release of Sales Tax Refunds, which, by law, are mandated to be disbursed within 72 hours of the approval of Export Rebate Payment Orders (ERPOs).

The government dealt a severe blow to the export sector by shifting from the Fixed Tax Regime to the Normal Tax Regime, exacerbating the financial burdens faced by export-oriented industries. Adding to the challenges, key provisions under the Apparel & Textile Policy have been violated, including the discontinuation of Regionally Competitive Energy Tariffs and the suspension of the Duty Drawback on Local Taxes and Levies (DLTL) scheme.

These measures have severely damaged the viability and global competitiveness of Pakistan’s value-added textile exporters, leaving the industry struggling to stay afloat.

Rising energy costs have doubled the financial strain on exporters by significantly inflating sales tax amounts in utility bills. This surge in costs has compounded the problem of delayed Sales Tax Refunds, as higher tax amounts and withheld refund claims further strain the industry’s finances. The skyrocketing costs of energy and industrial inputs have pushed export industries to the edge of disaster, significantly impacting national foreign exchange earnings. The financial strain is jeopardizing the sector’s stability and its critical contribution to the country’s economy.

The industry is currently operating at only 40 percent capacity, with a severe liquidity crunch threatening not only its future but also the livelihoods of its workforce. Unwarranted delays and the misallocation of funds generated through Sales Tax contributions by export industries to other areas have excessively postponed refunds to exporters.

As reported in the press today, the Federal Board of Revenue (FBR) has suspended Sales Tax Refunds to meet September targets. It has also come to light that the government is using exporters’ refundable tax monies to cover its own liabilities. This practice not only appears unfair and unethical but also threatens the financial stability and survival of the export industries. The government should immediately honor its commitments and release all pending genuine Sales Tax Refunds and other refund claims for textile exporters in one swift action.

This joint statement was given by Iftikhar A. Sheikh, President, Karachi Chamber of Commerce & Industry (KCCI); the Valued Added Textile Associations: Muhammad Jawed Bilwani, Chief Coordinator, Value-Added Textile Forum & Chairman, Pakistan Apparel Forum; Abdul Jabbar Gajiani, Zonal Chairman, Pakistan Hosiery Manufacturers & Exporters Association (PHMA); Shaikh Muhammad Shafiq, Chief Coordinator, Pakistan Readymade Garments Manufacturers & Exporters Association; Khawaja Usman, Chairman, Pakistan Cotton Fashion Manufacturers & Exporters Association; Rafiq Godil, Pakistan Knitwear & Sweater Manufacturers & Exporters Association; Syed Asim Shah, Chairman, All Pakistan Bedsheets & Upholstery Manufacturers Association (APUBUMA); Syed Usman Ali, Chairman, Towel Manufacturers Association; Danish Jawed, former Chairman and Pakistan Bedwear Exporters Association.

To rescue the struggling value-added textile industry and its exports, industry leaders insist that the government must honor its previous commitments. They urge the government to fulfill promises made by the Prime Minister and the Finance Minister, including those outlined in the Federal Budget speech.

Copyright Business Recorder, 2024