APTMA warns of financial impact of withdrawal of sales tax exemption

Islamabad:

The All Pakistan Textile Mills Association (APTMA) has expressed serious concerns over the recent withdrawal of sales tax exemption on local procurement for export production in the textile sector. The union warns that regressive tax policies are driving factory closings and mass unemployment across the industry.

Despite multiple pleas from industry bodies, clear commitments from the finance minister and instructions from the prime minister to suspend SRO 350(I)/2024 till 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 disruption to the textile sector, which is a cornerstone of Pakistan’s economy.

APTMA urged the government to immediately amend SRO 350(I)/2024 with the input of those most affected. The industry, already reeling from operational challenges, cannot afford further delays in rectifying the situation. The requirement to link the entire supply chain to the filing of 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 removal of the option to delink invoices from returns has further complicated matters, leaving buyers unable to claim input tax despite paying the entire amount, including sales tax.

APTMA maintains that the withdrawal of zero rating for local procurement, introduced under the Finance Act 2024, was not driven by revenue needs but was a reaction to FBR audits that revealed misuse by a small fraction of companies. Instead of tightening controls, the government imposed a blanket withdrawal of the entire plan, punishing the entire industry.

This withdrawal undermines the Export Facilitation Scheme (EFS), which was designed to promote indirect exports by allowing domestic sourcing of raw materials without advance sales tax. The removal of the exemption disproportionately affected small and medium enterprises, reducing domestic value added to exports and leading to a significant increase in cotton yarn imports. According to APTMA, 40% of spindles in the industry are now idle, highlighting the serious impact on production capacity.