Pakistan’s textile industry has warned the government that an effective tax burden of up to 113% is severely damaging exports and creating a deep financial crisis ahead of the FY2026-27 budget. The Pakistan Textile Council told Prime Minister Shehbaz Sharif that exporters are struggling to survive because excessive taxes, delayed refunds, and blocked working capital continue weakening the country’s largest export sector. Industry leaders argued that current policies are making export growth financially unsustainable despite rising international demand for Pakistani textile products.
In its supplementary budget proposal, PTC Chairman Fawad Anwar highlighted that exporters are operating on profit margins of only 3% to 4%, while taxes and regulatory deductions often consume most of those earnings. According to the council, nearly Rs20 billion is blocked through GST deductions and advance income tax for every Rs100 billion in exports. Consequently, exporters are facing severe liquidity shortages, making it increasingly difficult to maintain operations, invest in expansion, and remain competitive in global textile markets.
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Furthermore, the council revealed that approximately Rs828 billion of exporters’ capital remains trapped within the taxation and refund system, creating enormous financing pressures across the industry. This amount includes Rs327 billion in pending refunds, some delayed since 2011, Rs200.9 billion blocked through advance taxes, and nearly Rs300 billion tied up in GST on inventory. The council estimated that the annual financing cost linked to this frozen capital has now climbed to nearly Rs99 billion, worsening the sector’s financial instability significantly.
The submission also compared Pakistan’s export taxation system with competing regional economies, warning that local exporters face far heavier burdens than rival countries in South Asia. According to PTC estimates, exporters in Pakistan face an effective tax rate reaching 113%, compared with 35% in India, 28% in Bangladesh, and nearly 20% in Vietnam. Additionally, the council criticized the existing 2% advance tax on gross turnover, arguing that it unfairly targets low-margin exporters even during financially difficult or loss-making periods.
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To address the crisis, the council proposed restoring the Final Tax Regime at 1% of export turnover while demanding immediate release of Rs327 billion in pending refunds. It also urged the government to guarantee refund payments within 60 days and impose penalties for unnecessary delays. Moreover, the textile sector called for abolition of the super tax on exporters and reduction of the corporate tax rate from 29% to 26% to improve competitiveness and attract fresh industrial investment.
Meanwhile, the council recommended reducing employer contributions to the Employees’ Old-Age Benefits Institution from 5% to 2%, arguing that the pension fund remains financially stable for decades ahead. According to actuarial projections shared in the proposal, the EOBI fund could grow to Rs754.74 billion by FY2026 while remaining solvent until at least 2038. The council estimated this reduction alone could save the textile industry around Rs28.8 billion annually without affecting employee benefits, helping exporters manage rising operational costs more effectively.