About 70 per cent of the textile production of Pakistan is exported. This is further complicated by the structure of the industry which is fragmented with few vertically integrated companies leading to multiple taxation of the same goods. The bulk of the textile output is from indirect exporters such as spinners, weavers, finishers etc whose products after finishing are finally exported.

Withdrawal of zero rating has impacted the system badly. Only 90 per cent of the input tax will be allowed to be set off against output and 10 per cent is refunded 14 months later. Coupled with the four per cent withholding tax, and the additional funds required to pay the 17 per cent GST in the first place, there appears to be no chance of the industry’s surviving the additional working capital requirement or the wiping out of the slim margins and the already low profitability. This will necessarily turn into a loss for the great majority of the registered and compliant units in the sector leading to their imminent closure. About 70 per cent of the revenue comes from withholding taxes. These are extremely regressive in nature as they are applied to turnover and not on margins or profitability of the company.