40% spinning mills shut down over EFS anomaly

KARACHI:

The All Pakistan Textile Mills Association (Aptma) has called on the government to create a level playing field for local raw material and intermediate input supplies for export goods manufacturing vis-a-vis imports as the lack of action on removing the Export Facilitation Scheme (EFS) anomaly has pushed the spinning industry to the verge of collapse.

“It is only a matter of time before the entire textile value chain is wiped out,” Aptma Chairman Kamran Arshad warned. Over 100 spinning mills, representing nearly 40% of the total production capacity, have already shut down, while the rest are barely operational, running at less than 50% capacity. The situation was deteriorating at an alarming pace, with yarn imports surging to an unprecedented 32 million kg in January 2025, he said.

At this rate, yarn imports for FY25 are expected to triple compared to FY24, effectively wiping out the domestic industry. The consequences would not remain confined to spinning alone; the entire textile value chain “is now at risk as weaving and further downstream sectors are already experiencing similar distress,” the Aptma chairman said.

If this reckless sales tax regime, which imposes 18% sales tax on local supplies for export manufacturing while keeping imports sales tax-free, is not immediately reversed, Pakistan’s textile manufacturing base will soon be replaced entirely by imports, leading to an industrial and economic disaster. It is important to note that this is a non-revenue measure that achieves nothing except for facilitating imports at the expense of local industry.

By allowing duty-free and tax-free imports while imposing 18% sales tax on local inputs for export manufacturing, the government has left domestic producers, especially thousands of small and medium enterprises (SMEs) across the value chain, with no choice but to shut down as exporters face a huge incentive to switch to imports.

While procuring domestic inputs, the exporters are required to first pay 18% sales tax and file for return after a six to ten-month production cycle. Then they should wait for an additional six months for the refund to be issued, and even then, only around 70% of the due amount is refunded with the rest indefinitely deferred for manual processing.