APTMA has urged FBR to plug Export Facilitation Scheme loopholes, warning that tax-free imported fabric is undercutting local textile producers and distorting competition.
Pakistan’s textile sector is once again sounding the alarm over policy loopholes that it says are hurting domestic manufacturers. The All Pakistan Textile Mills Association (APTMA) has written to the Federal Board of Revenue (FBR), warning that the continued misuse of the Export Facilitation Scheme (EFS) is allowing imported cotton fabric to enjoy tax-free status while locally produced material faces an 18 percent sales tax.
Industry representatives argue that this imbalance is squeezing spinning and weaving units already under pressure from high energy costs, tight financing conditions and weak global demand. If left unchecked, they say the current situation could accelerate the shift towards imported fabric and undermine Pakistan’s upstream textile value chain.
How Imported Fabric Exploits Export Scheme Loopholes
APTMA’s key concern is that, despite recent policy changes, importers are still finding ways to bring in woven cotton fabric under the Export Facilitation Scheme. Under SRO 1435(I)/2025, raw cotton, cotton yarn and grey fabric were explicitly excluded from EFS to prevent abuse. However, the association says imports have simply shifted to different descriptions and product codes within Chapter 52 of the Pakistan Customs Tariff.
Instead of declaring goods as grey cotton fabric, importers are reportedly using labels such as “prepared for dyeing” or “semi processed” fabric. On paper, these items appear different, but in practical terms they can compete directly with locally produced grey fabric once they enter the domestic value chain. Because these imports are still treated as zero-rated under EFS, APTMA argues that they receive an unfair cost advantage over local producers.
The association first raised the issue with FBR in December 2025, warning that grey cotton fabric was still entering the country under alternative descriptions despite being removed from the scheme. According to APTMA, the problem has not only persisted but has also widened from yarn to fabric, increasing the pressure on domestic mills.
Tax Imbalance Between Imported and Local Fabric
A central point in APTMA’s complaint is the tax treatment gap between imported and domestically produced fabric. While imported fabric brought in under EFS can effectively enjoy a zero-rated status, identical fabric produced inside Pakistan is subject to an 18 percent sales tax following the withdrawal of zero-rating on local supplies in the FY2024 budget.
This difference, the association says, distorts the market by making imports artificially cheaper than local output. Spinning and weaving units that comply with domestic tax laws find themselves competing with subsidised alternatives that benefit from duty and tax concessions intended to support genuine export production.
APTMA has also highlighted cases where inputs imported under EFS are allegedly diverted for domestic sales, while exports are booked against goods produced using locally sourced inputs. This practice not only erodes the competitiveness of local manufacturers but also leads to revenue losses for the exchequer, as taxes that would otherwise be collected on domestic supplies are effectively avoided.
APTMA’s Demands from FBR and Policymakers
In its latest communication, APTMA has formally requested that the FBR exclude all woven cotton fabric falling under Chapter 52 from the scope of the Export Facilitation Scheme. The association argues that a clear, blanket exclusion is necessary to prevent misdeclaration and stop importers from shifting between slightly altered product descriptions.
Beyond revising the SRO, APTMA is calling for tighter enforcement on the ground. This includes stronger scrutiny of EFS consignments, better post-clearance audits and stronger penalties for firms found to be diverting imported inputs into the local market. The goal, it says, is not to block legitimate exporters but to ensure that facilitation schemes are used for their intended purpose—supporting value-added exports, not replacing local manufacturing.
The association has warned that if loopholes remain open, upstream textile units could face large-scale displacement. Once spinning and weaving capacity is shut down, it is difficult and costly to rebuild, which could weaken Pakistan’s position in global textile and apparel supply chains.
Why Closing Loopholes Matters for Pakistan’s Economy
Textiles are a cornerstone of Pakistan’s export earnings and industrial employment. Protecting the sector’s upstream base is therefore critical, not just for mill owners but for workers, cotton growers and allied industries. When policies favour imported fabric over domestic production, the long-term impact can include factory closures, job losses and reduced demand for local raw cotton.
APTMA argues that a level playing field is essential if the government wants to see growth in value-added exports and investment in modern, energy-efficient machinery. Closing loopholes in the Export Facilitation Scheme, and aligning tax treatment between imported and local inputs, would be a key step in rebuilding confidence among textile investors.
For policymakers, the challenge is to balance export facilitation with fair competition and revenue protection. APTMA’s warning serves as a reminder that poorly designed or weakly enforced incentives can backfire, encouraging short-term arbitrage at the cost of long-term industrial capacity. Timely corrective action, the association says, is vital to prevent imported fabric from quietly displacing Pakistan’s own textile producers.
