KARACHI: The All Pakistan Textile Mills Association (APTMA) has demanded the federal government for immediate restoration of Export Finance Scheme (EFS) to its pre-Finance Act 2024 form that allowed the sales tax exemption and zero-rating on all local supplies used for export manufacturing.
The APTMA Southern Region has said that the spinning mills are facing tremendous losses and closure due to misuse of the EFS, under which import of cotton and blended yarns are exempted from sales tax and duties.
The closure of local spinning mills is leading to massive losses to the national exchequer and unemployment, it added.
APTMA steps up pressure on govt to restore EFS
According to Naveed Ahmad, Chairman APTMA Southern Region, as there is no duty and sales tax under the yarn imports under EFS, import of yarn increased by 254 percent during the November 2024 compared to January 2024, under the pretext of being used in the export of textile products.
However, a large portion of these yarns are being sold in the domestic market as a result of which the domestic yarn manufacturing industries are faced with losses and closures which in turn has caused loss of hundreds of thousands of textile workers their jobs and livelihood, he mentioned.
While appreciating genuine exporters, he said that some elements are misusing this scheme to evade sales tax and custom duties, thus causing loss of millions of rupees to the national exchequer and also crippling the domestic industry.
The APTMA has raised this issue at all levels of the government and called for an immediate review of the scheme and to create a level playing field, he informed.
“Unfortunately, our pleas have remained without any tangible action and the domestic industry continues to close down,” he added.
Naveed mentioned that the withdrawal of zero-rating on local supplies for export manufacturing under the Finance Act 2024 was posed as a revenue-enhancing measure; rather, it is having the opposite impact by forcing a decline in business activity and thus the government’s revenue collection.
Local manufacturers, suppliers of exporters, are now rapidly shutting down as exporters are purchasing duty-free and sales-tax free inputs from abroad while, domestically manufactured ones that are subject to an 18 percent sales tax, he said and added “the sales tax is refundable, however, the FBR continues to delay sales tax refunds to exporters.”
In addition, imports of yarn and other inputs imported under EFS are also increasingly and illegally flooding the domestic market to further detriment of the local industry.
Imported duty-free and sales tax-free yarn is being sold in the domestic market at rates that the domestic industry cannot compete with due to higher production costs, which in and of themselves are a result of callous policymaking that has caused energy prices to skyrocket, and domestic cotton production to plummet, the chairman APTMA Southern Zone revealed.
He warned that over 40 of spinning mills have been forced to shut down and if the government does not immediately address this issue other sectors such as weaving and processing, and the entire upstream textile industry will also be hurt directly.
Pakistan was once home to a full textile and apparel value chain, a rare asset in the global market. Apart from India and China, no other country has this capability. But it’s better to speak of this in the past tense because these sectors are now on life support thanks to blundersome policies, he added.
“We urgently call on the government to strengthen checks and balances on firms misusing the EFS to protect Pakistan’s domestic industry and implement credible penalties for those facilitating and engaging in fraudulent activities,” the APTMA demanded.
Moreover, a rigorous reappraisal of all EFS holders should be conducted for improved transparency and accountability, and EFS licenses should be limited to only those firms that are engaged in manufacturing, he added.
Copyright Business Recorder, 2024