Textile value-added sector of Pakistan has proposed to the government to restore zero-rating of sales tax, reduce withholding tax and impose regulatory duty on cotton yarn export to create job opportunities, and boost country's exports. In its budget proposals for 2020-21 submitted to Razak Dawood, Advisor to the Prime minister on Commerce and Textile, Pakistan Hosiery Manufacturers and Exporters Association (PHMA) stated that the current global slowdown due to the coronavirus pandemic and fast changing worldwide geo-strategic dynamics and unprecedented economic challenges are being faced by Pakistan in all segments of the economy.

It is dire need of the time that the budgetary and policy measures for fiscal year 2020-21 must hold the key to economic prosperity to confront challenges and create conducive and enabling environment for investment and growth for industry and trade, through major structural changes in tax regime, policy revision focusing to incentivise commerce and industry to generate more employment and overcome the fiscal, current accounts and trade deficit. The PHMA proposed that it is imperative to revive SRO 1125 in its true spirit and reintroduce system of no payment and no refund of sales tax for the five export-oriented sectors. In the budget 2019-20, the government rescinded SRO 1125 and imposed 17 percent sales tax on erstwhile five zero-rated export sectors and exporters are required to apply for refund after export of consignment.

Exporters, who have filed their refund claims up to date, have received 35 percent of claims payment only, while 65 percent of the refund claims are stuck up with the government, which cumulate 12 percent amount of exporters' running capital. However, the profit margin of exporters is around five percent to eight percent. Due to availability of liquidity and smooth cash flow, the confidence of exporters will be boosted to enhance their exports and cement their business ties with the foreign counterparts to capture true business potential. Currently, the WHT is charged at various levels and items such as import of raw material, registration of new vehicles etc, which is adjusted or refunded later. Exporters fall under final tax regime u/s 143(b) and should be exempted from payment of the WHT and be given exemption certificates. This will greatly benefit them and also lower workload on the Federal Board of Revenue (FBR) who is busy in a futile exercise.

For exporters fall under final tax regime withholding tax should be reduced from one percent to 0.50 percent. This would help exporters in using the cash liquidity for enhancement of the exports. Currently there is 11 percent customs duty, five percent regulatory duty, and two percent additional duty on import of the cotton yarn. This has created artificial shortage of availability of yarn, rendering the value-added textile exporters uncompetitive in the global market against regional competing countries. This will lead to decline in exports as local industries are hurting and closing down. Further, garment stitching units are not allowed to import yarn under Duty and Tax Remission for Exporters (DTRE). The PHMA proposed that whenever government desires to impose regulatory duty on import of cotton yarn, the government should also impose regulatory duty on export of cotton yarn, and there should be time limit/duration of imposition of duty.

The government should look into the ways of reducing cost of doing business/energy cost for the spinners and bring them at par with cotton producing countries. Yarn is essential raw material to manufacture value-added textile products for export, and the same is required to be made available at reasonable prices. Further, the Export Oriented Units (EOU) under SRO 327 was introduced on the pattern of Export Processing Zone, where there is no taxes on buying of locally-procured input goods and no taxes on utilities.

Industries registered in the EOU are liable to export 80 percent of their annual production. The PHMA proposed that the FBR should withdraw its SRO 747(I)/2019, so that exporters operating under the EOU can procure input goods without taxes. Further, it is also proposed that industries, registered in the EOU, and export 80 percent of their annual production, should be supplied utilities – gas and electricity without sales tax at zero rates.