KARACHI: Pakistan’s textiles body said this week over 900 factories, including ginning and spinning mills, had been shut down due to a government export scheme that had disrupted operations and strained finances.

The Export Facilitation Scheme was launched in 2021, with the aim of simplifying the import of raw materials, machinery and input goods for exporters by offering minimal duties and taxes. Under the scheme, exporters can import raw materials and inputs at 0 percent sales tax. However, an 18 percent tax on the same inputs has to be paid if they are produced locally in Pakistan.

The textile industry is a major player in the country’s economy, contributing significantly to exports and employment. It’s one of the largest manufacturing sectors, employing about 45 percent of the industrial workforce and accounting for a substantial portion of Pakistan’s total exports. 

The industry is known for its cotton production, spinning capacity, and exports of various textile products. 

“Over 800 ginning factories and 120 spinning mills have shut down and millions of livelihoods lost,” All Pakistan Textile Mills Association Chairman Kamran Arshad said on Monday in a statement, urging the government to amend the Export Facilitation Scheme. 

“The crisis has reached the weaving sector, with looms shutting down and workers protesting on the streets.”

He urged the government to remove yarn and fabric from the exports scheme to halt the textile industry’s downfall. 

“It’s an irrational, self-destructive policy that punishes domestic production and rewards imports,” the statement said.

Pakistani cotton was taxed at 18 percent while imported cotton enjoyed sales tax exemption through the export scheme, the statement said, adding that sales tax refunds could only be filed after a six to 10 months cycle after the product was manufactured and exported.

“Only partial refunds of 60-70 percent are issued once a month,” it added. “The remaining amount is deferred for manual processing where there is already a backlog of over $392 million and no progress on clearing it over the last four to five years.”

As the eighth largest exporter of textile commodities in Asia, the textile industry contributes 8.5 percent to Pakistan’s gross domestic product.