FPCCI Demands level playing field for Export Finance Scheme for local Industry

Karachi ( ): Mr. Atif Ikram, President of the Federation of Pakistan Chambers of
Commerce & Industry (FPCCI), has called upon the federal government to immediately
provide level playing field in Export Finance Scheme (EFS) to its pre-Finance Act 2024
form. The Act’s amendments, which withdrew sales tax exemptions and zero-rating on
local supplies used for export manufacturing, have adversely impacted the textile industry
and related sectors.

Mr. Ikram expressed grave concerns over the widespread closure of spinning mills and
the significant losses being faced by the industry. He noted that the misuse of
EFS—through the diversion of imported cotton and blended yarns exempted from sales
tax and duties into the domestic market—has resulted in substantial losses to the national
exchequer and undermined the competitiveness of local manufacturers.

"Our appeals have remained unaddressed," he stated, highlighting the dire
consequences of inaction. "The domestic industry is on the brink of collapse, with
over 40 spinning mills already forced to shut down, 60 more on the verge of
collapse." He warned that the ripple effects could devastate upstream sectors such as
weaving and processing.

The President FPCCI emphasized that the withdrawal of zero-rating for local supplies
used in export manufacturing was intended as a revenue-enhancing measure but has
backfired. It has led to a reduction in business activity, further shrinking the government’s
revenue base. He called for a balanced and judicious approach to policymaking that
protects both the industry and the national exchequer.

Key Issues Raised by FPCCI:

1. Misuse of Duty-Free Imports: A significant portion of duty-free imported
yarn under EFS is being sold domestically, causing unfair competition for local
manufacturers.

2. Impact on Employment: The closure of spinning mills has displaced
thousands of textile workers, exacerbating unemployment.

3. Challenges for Domestic Manufacturers: Local manufacturers are
compelled to pay an 18% sales tax on inputs, which is refundable only after
prolonged delays. This creates liquidity issues and hampers production.

4. Lack of Oversight: The current system lacks stringent checks to prevent
fraudulent practices, resulting in revenue losses and distortion of the market.

"Pakistan’s textile sector once held a unique position globally, rivaling major
exporters like India and China," Mr. Ikram said. "However, it is unfortunate that
today, these strengths are being undermined by ill-conceived policies."

Recommendations by FPCCI:

• Enhanced Oversight: A rigorous re-evaluation of all EFS beneficiaries to ensure
  compliance and transparency
• Penalties for Misuse: Strict action against those engaged in fraudulent activities
  or misuse of the scheme.
• Support for Domestic Industry: Immediate restoration of zero-rating and tax
  exemptions for local supplies used in export manufacturing.

Mr. Atif Ikram concluded with a strong appeal to the government to take urgent and
decisive action."We must protect Pakistan’s domestic industries and restore the
level playing field needed for sustainable growth and employment creation," he
urged.