Pakistan’s textile industry has long been a major contributor to exports, employment, and value addition.

However, the withdrawal of zero-rating/sales tax exemption on local supplies for export manufacturing while imports remain duty-free and sales tax-free under the Export Facilitation Scheme (EFS) has created structural distortions that are eroding the competitiveness of domestic industry and leading to widespread closure of domestic spinning, with further downstream segments of the textile value chain soon to follow.

No country, let alone one aspiring for industrial and export growth, affords such preferential treatment to imports at the cost of its domestic industries and livelihoods of its people. Already grappling with economic instability driven by structural distortions, the government must urgently address this issue and create a level playing field for its local manufacturers.

The EFS anomaly incentivizes exporters to rely on imports, even when equivalent inputs are available locally, because doing so eliminates significant tax-related costs. Exporters using local inputs first must pay 18% sales tax, then face protracted delays in sales tax refunds, often waiting over six months.

Even then, only 70 percent of the tax is refunded, with the remaining deferred for manual processing on which there hasn’t been any progress over the last 4-5 years.

This results in a strong financial disincentive to purchase local supplies when the entire process can be avoided by importing the same under EFS. The disparity not only distorts the market but also disrupts the natural economic linkages that should bind domestic industries together.

The cascading consequences of this policy are significant. The spinning and weaving sectors have witnessed a sharp decline in demand for their products. These industries are already grappling with high costs of production, especially driven by prohibitive energy pricing compared to regional competitors.

The added burden of unfavourable tax policies has pushed many manufacturers to insolvency. 40% of spinning units have been forced to shut down. Weaving mills face similar challenges. The result is billions of dollars in sunk investments, declining industrial output, and the loss of hundreds of thousands of jobs.

This also has severe implications for Pakistan’s cotton economy, which is deeply intertwined with the spinning industry as its primary consumer. Cotton farming injects USD 2–3 billion annually into the rural economy, serving as a lifeline for some of the most vulnerable communities, particularly in marginalized regions like southern Punjab and Balochistan.

The collapse of the spinning sector would effectively decimate........

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