Since 1947, Pakistan has made considerable progress on many fronts. However, the pace of progress has not been commensurate with the promises and potential.
There is a general misconception that faster means no or less planning and more action. The reality is that the quality of planning is one of the key determinants of the speed of action and desired outcomes. Over time, the nature and role of planning have undergone a major transformation. Today the national planning process is more participatory, collaborative, people and market oriented.
Plans succeed when they manifest the aspirations of a nation, empower the citizens, and especially the private sector, to play their respective roles, provide equal opportunities to all and assign a very well-defined role to government as a supporter, facilitator, regulator and performance driven service provider.
Pakistan’s economic challenges necessitate a strategic shift towards export-led growth to boost foreign exchange reserves, enhance industrial productivity, and create sustainable employment opportunities. The federal budget for 2025-26 presents an opportunity for policymakers to introduce comprehensive reforms that facilitate export expansion.
This article outlines key policies that can be integrated into the budget to promote an export-oriented economic framework. Following are the proposal for the upcoming budget 2025-26 aims to stimulate economic growth in Pakistan by prioritising key sectors, ensuring fiscal discipline, and fostering investment.
The focus is on infrastructure, industry, technology, and social development while maintaining macroeconomic stability.
Rationalisation of advance tax on exports: Proceeds of exports have been made simultaneously subjected to deduction under section 154 and Section 147. Advance tax @1% collected by the bank against export proceeds is declared as minimum tax instead of final tax. Simultaneously an advance tax @1% has been levied through insertion of sub-section (6C) in section 147.
However, in terms of clause (45A) of Part-IV of the Second Schedule of the Income Tax Ordinance, 2001 local supplies are liable to payment of 1% advance tax on local supplies of textile goods and 0.5% for traders of yarn.
Treatment meted out to the exporters is discriminatory and against the principles of equity and natural justice. The current advance tax deduction of 2% under section 153 & 147 makes the effective tax rate to 72.1%, plus exporters of certain tiers have to bear additional super tax up to 10%. Advance tax on export proceeds should be reduced to 1% to ease the financial burden on exporters. Final Tax Regime should be restored, and Super Tax should be abolished for the exporters.
Continuity of Export Facilitation Scheme (EFS): The duty-free import of raw materials under the Export Facilitation Scheme (EFS), a real-time, end-to-end digitalised solution aimed at fully documenting the textile supply chain, has been instrumental in maintain the growth trend. Any reversal of this scheme will severely disrupt export pace and hinder industry’s progress. Imposing sales tax on raw materials imported under EFS will block substantial capital in the refund regime for at least 120 days, critically affecting exporters’ liquidity and operational capacity.
Highest sales tax rate of 18% is promoting tax evasion in the textile supply chain as around 1.5 million bales of cotton are being transacted through grey transactions leading to significant revenue losses. Rationalisation of sales tax rates in textile supply chain will help to curb tax evasion and restrict the transactions to sales tax registered manufacturers only to eliminate grey trade.
EFS scheme should be restored for domestic trade, with the consumption period reduced to 1 year and enterprises or commercial importers that do not contribute to exports should be excluded from this scheme. Utility bills, both electricity and gas, should be zero-rated under this scheme, as exporters generating energy from thermal fuels and coal are already zero-rated.
Sustainable Energy Tariff: A sustainable energy tariff for Pakistan’s export growth is crucial to enhance competitiveness, reduce production costs, and ensure long-term energy security. A 5-year sustainable tariff policy and rationalisation of UFG (0.5%) and T&D charges for dedicated feeders/grid stations will enhance cost efficiency. Benchmarking energy consumption across industries will drive best practices.
Rationalise charging of UFG on industrial consumers to 0.5% as actual instead of excessive UFG up to 8% being charged. Remove T&D losses from B3 & B4 tariff having dedicated feeders/grid stations as technically all the units are billed to both tariffs. This is huge anomaly in current tariff structure.
Cross-subsidy in electricity tariffs by the industrial sector, amounting to PKR125 billion, should be eliminated. Cross-subsidy in gas tariffs by the industrial sector, amounting to PKR100 billion, should be eliminated. Implementation of WACOG across the country should be prioritised, which will bring the overall gas tariff to PKR2,400/MMBTU.
Easy access to liquidity: Unwarranted delays in refund payments are straining the highest growth-oriented and employment-generating textile industry. A substantial portion of exporters’ working capital is trapped, forcing exporters to bear heavy financial burdens due to interest on outstanding refunds. The delay in refunds causes severe financial hardship, disrupting export production. Under Rule 39F of the Sales Tax Act 2006, sales tax refunds are to be issued within 72 hours.
However, the current refund cycle has extended to approximately 200 days. Sales tax refunds must be processed and disbursed within 72 hours as per rule 39F of the Sales Tax Rules 2006 to improve liquidity for exporters.
Duty draws back refund should be disbursed in timely manner without any interruption and interval. Mechanism required to process deferred sales tax in 60 days electronically from the generation of monthly RPO. Eliminate manual processing, Safeguards/KPI’s be placed in system to prevent any losses to national exchequer.
For the purpose of transparency, data of all outstanding refunds in both heads i.e. deferred sales & income tax/income tax credit must be tabulated at one place, huge outstanding refunds is in manual processing and does not reflect in the system. Roadmap for disbursement of such refunds be given and data be shared with stakeholders.
Mechanism required to process income tax refunds in 30 days electronically in true spirit from the filling of annual tax return. Eliminate manual processing. Allocate PKR27 billion for the clearance of pending refunds under DDT, TUF, and markup subsidy. IOCO processing of analysis certificates should be fully digitalised end-to-end. Issuance of tradable digital scripts to exporters’ input tax should be allowed for a period of one year, similar to the practice in India. This will help resolve exporters’ capital constraints in scaling up exports.
Removal of unnecessary protection for local polyester fiber manufacturers: The excessive protection provided to local polyester fiber manufacturers has caused significant losses to the value-added export sector and the same must be eliminated to ensure competitiveness & also enable Pakistani exporters to tap synthetic valued-added garments which has highest demand and consumption globally. Reducing duties in line with regional competitors (Vietnam, China, Turkey) would enhance the value-added textile sector’s ability to compete globally and attract synthetic garment exports.
Incentivising growth of value-added exports: A 15% annual growth target should be incentivised, aiming for USD35 billion in textile exports by 2030. Luxury goods tariffs (PKR30 billion) should be reallocated to fund export incentives. DLTL of 6% on increased exports by 15% for value-added products should be introduced to encourage the textile value-added exports. A mechanism to incentivise value added textile growth should be introduced aiming to achieve USD35 billion in textile exports by 2030.
Additional tariffs of PKR30 billion should be imposed on luxury goods, with the proceeds earmarked for incentivising value-added exports or funded from the Export Development Fund (EDF).
Non-Traditional Market Development: Incentivise and allocate funds from the EDF to promote value-added exports to non-traditional markets, including Japan, South Korea, Australia, New Zealand, Canada, and regions such as West, South, and Central Africa. Allocating EDF funds for promoting exports to Japan, South Korea, Australia, Canada, and Africa will expand market reach and reduce dependency on traditional markets.
International Brand Acquisitions and Licensing: The government should adopt a 50% cost-sharing mechanism for acquiring international brand licenses and franchises. This will enhance Pakistan’s global footprint and promote exports under renowned international brands. Introducing policy support for acquiring international brands and securing licensing agreements will enable Pakistani exporters to penetrate premium markets and add value to their product lines.
EDF Suspension: Export Development Surcharge (EDS) is being deducted at 0.25% of the total export proceeds at the time of payment receipts. This has accumulated in huge numbers and remain unutilised. Charging of EDS may be suspended till the current funds are depleted by 75%.
Exemption for exporters from deduction of Infrastructure Development Cess and Stamp Duty by provincial governments: The Punjab government, in terms of Punjab Infrastructure Development Cess Act 2015, has levied Infrastructure Development Cess of 0.9% on the import of raw material to be used in the manufacturing of exportable goods resulting in increase of input cost. Similarly, the Sindh government, in terms of the Sindh Development and Maintenance of Infrastructure Cess Act, 2017, has levied cess of 1.80% to 1.85% on total value of goods (as assessed by the Custom Authorities) of a consignment of goods entering the province from outside the country through Air or Sea and on its movement. The government of Punjab is charging a Stamp Duty of 0.2% on “Bill of Exchange” consigned to foreign buyers, in terms of Sr. No. 13 of the Schedule to the Stamps Act, 1899.
Both levies are an additional cost for exporters increasing the cost of production of export goods. The competitiveness of our export-oriented industry is already suffering.
An exemption should be allowed to the exporters from collection of Infrastructure Development Cess on the import of raw materials and Stamp duty on exporters Bill of Exchange.
The federal budget 2025-26 must prioritise export-driven growth policies to steer Pakistan towards economic stability and sustainable development. By implementing targeted incentives, improving infrastructure, and fostering market diversification, Pakistan can enhance its global trade presence and drive long-term economic prosperity.
Disclaimer: The viewpoints expressed in this piece are the writer’s own and don’t necessarily reflect Geo.tv’s editorial policy.
Originally published in The News
