IN the proposed federal budget for the new fiscal year, it is imperative to identify and address critical priorities to rescue the national economy from its current turmoil and achieve robust, sustainable growth. Central to this strategy is the creation and stringent implementation of aggressive export-oriented policies. The textile sector is undeniably pivotal in this endeavour, as Pakistan’s exports have historically hinged on this industry. Additionally, the textile sector is the largest source of employment in the country, supporting millions of workers and driving substantial business activities across various segments within the textile value chain.
Under the interim government’s tenure, the International Monetary Fund (IMF) program’s stringent financial targets have led to steep hikes in electricity and gas prices, exacerbating an already dire situation. Numerous textile mills are now only partially operational and those still functioning are far from optimal. Coupled with escalating external debt, a sharp decline in large-scale manufacturing and other critical issues, the industrial sector is on the brink. Therefore, prioritizing the textile industry is not just necessary but urgent to boost exports, mitigate economic woes and significantly increase employment opportunities.
Encouraging investment in the textile sector through substantial export incentives and enhancing market access for Pakistani exporters is crucial to expanding export volumes and reducing the trade deficit. Essential measures must be incorporated into the upcoming fiscal year’s budget to provide the export industry with a tangible beacon of hope and enable it to actively contribute to the government’s ambitious export growth targets.
First and foremost, the “zero-rating” regime for the export industry must be reinstated immediately. This will alleviate financial constraints for exporters, ensuring they do not face capital shortages and can fully commit to driving economic growth. The previous government’s withdrawal of zero-rating has severely hampered exporters, tying up substantial portions of their working capital in refunds, causing delays and forcing them to incur additional interest costs. Moreover, the “FASTER” system for sales tax refund payments, established under Rule 39F of the Sales Tax Act 2006 to ensure refunds within 72 hours, must be genuinely operationalized to eliminate unnecessary delays.
Moreover, the government must provide a definitive roadmap for paying income tax, income tax credit and customs rebate refunds to exporters in the new fiscal year’s budget. Accountability for delays is critical. Presently, a staggering 145 billion rupees in sales tax, 25 billion in duty drawback and 40 billion in income tax and income tax credit have been outstanding for several years. Additionally, 40 billion rupees are overdue under the textile policy for duty drawback taxes, technology upgradation fund and markup support. Consequently, at least 250 billion rupees should be allocated in the new budget to settle these payments. Furthermore, maintaining the final tax regime is essential to ensure exporters retain this critical facility.
Beyond these measures, commercial banks must be compelled to introduce innovative and favourable financing schemes for exporters to address the persistent capital shortage faced by textile exporters. Presently, most financing from commercial banks is directed towards the government, relegating private sector financing to a lower priority. This requires an urgent policy shift from the government and a mandate that commercial banks ensure easy capital availability for exporters. Additionally, energy tariffs must be rationalized based on the actual cost of services, ensuring that textile exporters do not bear the burden of subsidies provided to other sectors.
Furthermore, enhancing competitiveness and sustainability for exporters necessitates reducing short-term and long-term financial costs for manufacturing sectors. This will not only improve Pakistan’s competitive edge against regional rivals but also revive shuttered industries. Alongside these efforts, creating a business-friendly environment is crucial to attract both local and foreign investment. Reducing bureaucratic hurdles, simplifying regulatory procedures and ensuring transparency and accountability in decision-making processes will foster entrepreneurship, bolster economic growth and generate employment opportunities.
The new federal budget must prioritize the textile sector through comprehensive and targeted measures. By addressing the financial constraints faced by exporters, ensuring timely refunds and facilitating investment, the government can lay the foundation for sustainable economic growth, reduce the trade deficit and create employment opportunities. The textile sector, with its significant contribution to exports and employment, holds the key to revitalizing Pakistan’s economy and steering it towards a prosperous future.
—The writer is contributing columnist, based in Turbat, Balochistan.
