Value-Added Textile Exporters Reject Proposed Tax Scrutiny

Value-Added Textile Exporters Reject Proposed Tax Scrutiny – In a united front against the proposed tax changes in the upcoming budget for 2024-25, the value-added textile exporters have rejected the introduction of a minimum tax regime that includes extensive scrutiny.

This move, they argue, would replace the existing final tax regime and create unnecessary complications, potentially opening doors for corruption.

At a press conference held at the PHMA House, representatives of the Value-Added Textile Exporters Forum expressed their concerns. “This proposed shift will lead to unnecessary hassle and involve Federal Board of Revenue (FBR) officials, which may increase the risk of corruption,” stated Muhammad Jawed Bilwani, Chief Coordinator of the Value-Added Textile Associations Forum.

Currently, under the Final Tax Regime (FTR), a 1 percent tax is deducted electronically from export remittances, with no human intervention. “From the next fiscal year, it has been proposed that this 1 percent should be treated as a minimum tax, requiring exporters to submit documents justifying their income and expenditures,” Bilwani explained.

Bilwani emphasized that the FTR allows income tax to be deducted directly at the source when remittances are received, regardless of profit or loss. “Corruption within the FBR is a well-known issue, highlighted recently by the ‘speed-money case’ in LTU Lahore. The FBR officials were caught openly battling for their illicit shares,” he pointed out.

The textile exporters urged the government to maintain the current Final Tax Regime without changes. They also requested a reduction in the income tax rate from 1 percent to 0.5 percent. “Exporters file their Sales Tax Refunds electronically through the FASTER system, which ensures no human intervention and efficient claim processing and disbursement,” Bilwani added.

The exporters warned that the proposed changes would be counterproductive, potentially leading to a significant reduction in Pakistan’s export revenue and foreign exchange earnings. “Our competitiveness is already at risk. If these changes go through, we could lose out to countries like India, Bangladesh, Cambodia, and Vietnam,” they cautioned.

Moreover, they criticized the lack of consultation by the Finance Minister, Chairman FBR, and Commerce Minister with the Textile Export Associations for the Federal Budget 2024-2025. They noted that despite forming 14 Tax Reform Commissions over the years, all have failed to bring about effective restructuring and reforms.

The export industry is already burdened with multiple taxes, including those from federal, provincial, and local governments, as well as other surcharges and levies. “We need policy discount rates brought back to single digits and Export Finance Scheme (EFS) rates returned to previous levels. Additionally, allowing exporters back-to-back Letters of Credit (LC) on a model similar to Bangladesh would be beneficial,” Bilwani urged.

The press conference saw participation from key industry figures including Abdul Jabbar Gajiani, Chairman PHMA (SZ), Sheikh Shafiq, Chief Coordinator PRGMEA, and other notable representatives from various textile associations. The Value-Added Textile Associations encompass major groups such as the Pakistan Hosiery Manufacturers & Exporters Association (PHMA), Pakistan Readymade Garment Manufacturers & Exporters Association (PRGMEA), and several others.

The consensus among the exporters is clear: the proposed tax scrutiny is seen as a threat to the industry’s stability and growth, and they are calling on the government to reconsider its stance for the betterment of Pakistan’s economy and export sector.