Giriraj Singh, the Minister of Textiles, met with representatives from MODIFI to discuss trade financing solutions aimed at supporting Indian textile exporters. The meeting focused on addressing challenges in global trade and exploring ways to improve financial access for businesses, particularly small and medium enterprises (SMEs).
The MODIFI delegation, led by Annie Yadav, Commercial Head and Tushar Doara, Marketing Director, outlined the company’s trade finance platform. The tools presented are designed to help exporters optimise cash flow, streamline operations and reduce risks in international trade.
Giriraj Singh stated the importance of building a competitive ecosystem to strengthen the Indian textile industry’s position in global markets. He spoke about the sector’s potential to meet international demand, provided exporters are equipped with adequate financial resources and support mechanisms. The discussion also addressed challenges posed by shifting global supply chains and geopolitical uncertainties. The adoption of advanced trade financing tools was recognised as essential for maintaining the competitiveness of Indian exporters in such an environment. The textile sector, a key contributor to India’s economy, relies heavily on SMEs for production and exports. Efforts to improve access to trade finance aim to strengthen the sector. India’s textile industry is expanding rapidly, with textile exports projected to reach USD 65 billion by the financial year 2025-26, according to Invest India. The country’s textiles production for domestic and export markets is expected to grow at a compound annual growth rate (CAGR) of 10 per cent, reaching USD 350 billion by 2030. This growth is based on the Indian textile and apparel market size of USD 165 billion in 2022, comprising a USD 125 billion domestic market and USD 40 billion in exports.
Source: Business World
Industrialists from Ludhiana want the World Trade Organisation (WTO) to immediately remove Bangladesh’s status as a least developed country. They claim that the neighbouring country has already benefited from the WTO’s provisions, which have increased exports to Europe and other nations and drawn sourcing for global brands.
However, the benefits to the bordering countries have had a significant influence on Indian industry, especially the clothing, garment, and hosiery sector in Ludhiana, which has caused many to close and many more to nearly collapse.
In 2006, the WTO granted Bangladesh Least Developed Country (LDC) status for 20 years, providing key benefits like zero import duties on garments to markets such as the UK and Europe. This included duty-free and quota-free (DFQF) access, boosting Bangladesh’s textile sector. Additionally, the country gained flexibility in tariff adjustments and the ability to maintain higher import duties, further supporting its growing manufacturing industry. The Ludhiana industry had hoped that the LDC subsidies to Bangladesh would stop, but the World Trade Organisation extended them by a “three-year additional transition period,” meaning that the benefits will last until 2029. As a result of the cost savings and tariff benefits, some international brands moved their sourcing from Ludhiana to Bangladesh. Many variables, including cheaper labour costs, contribute to Bangladesh’s lower production costs. However, the industry in Ludhiana has suffered greatly as a result of all these problems. Badish Jindal, president of the World MSME Forum, stated that while Bangladesh has benefited from its LDC status, the decline of the Ludhiana industry due to competition from Bangladesh and similar advantages given to Pakistan is severely impacting profitability. He argued that the WTO should revoke Bangladesh’s LDC provisions, as the country’s economy is performing well now.
Source: Apparel Resource
India’s Finance Minister, Nirmala Sitharaman, will introduce the Union Budget 2025–26 on 1 February in Parliament in New Delhi. The retail sector, which is a core driver of the Indian textile industry, expects that the government will take steps to boost disposable income in consumers’ pockets by providing more tax exemptions and reliefs. The industry also expects simplified compliance processes, incentives for sustainable and digital initiatives, and enhanced support for MSMEs and startups.
Deepak Bansal, Whole-time Director, Cantabil Retail India, commented, “The retail fashion industry eagerly anticipates the 2025 Union Budget, with key expectations including simplified compliance processes and incentives for sustainable and digital initiatives. The sector seeks enhanced support for MSMEs and startups to boost domestic production and exports. As consumer sentiment remains pivotal, tax reliefs to increase disposable income would drive demand. Overall, a progressive budget addressing these priorities can empower the industry and contribute significantly to economic growth.”
Shriti Malhotra, Group CEO, Quest Retail, stated, “We look forward to policies that will uplift the retail sector, especially by fostering youth employment, sustainable practices, and inclusivity in hiring. Private consumption is the cornerstone of retail growth, and we look forward to government policies that open up the purse strings of consumers. Higher tax exemption slabs and reducing GST on essential personal care products could provide much-needed relief to the middle class. This would not only boost disposable incomes but also enhance consumers’ ability to purchase high-quality, ethical products that align with their growing preference for quality and sustainable choices.” He said that the government should also prioritise incentives for green initiatives, such as providing incentives to retailers for adopting sustainable packaging and energy-efficient retail operations. Furthermore, expediting the implementation of a National Retail Policy is critical. Simplifying compliance processes, improving logistics in Tier 2 and Tier 3 cities, driving ease of doing business, and providing targeted incentives for small retailers can create a more level playing field. Investments in retail skill development programmes, especially in adopting digital marketing and technology, are also essential to building a future-ready retail sector capable of meeting evolving consumer expectations. A progressive budget that addresses these priorities can stimulate private consumption, strengthen retail, and create a resilient ecosystem that balances economic growth with environmental and social responsibility.
Ramesh Agarwal, Whole-time Director, Rupa & Co., said, “We eagerly anticipate the upcoming Union Budget, recognising the crucial role the textile industry plays in driving India’s economic growth. As one of the leading exporters in the sector, we expect the government to focus on measures that enhance both domestic and global competitiveness. We hope for the extension of the duty-free import facility for trimmings and enhancements to include made-ups, alleviating cost pressures and aligning us better with international market expectations.”
He added that the Government of India has set an ambitious target of achieving a $350 billion textile market size, including exports of $100 billion, by 2030. To reach this target, the country will need a boost in cotton and other types of fibres. Over the past decade, cotton production has declined by 18 per cent. In this context, we strongly support the launch of Technology Mission on Cotton II (TMC II), which will revitalise cotton production through investments in advanced seed technology and clean cotton initiatives. Additionally, we anticipate a phased implementation of Section 43B(h) of the Income Tax Act, which could disrupt the textile value chain due to rigid timelines. We also hope the government revives the Scheme for Integrated Textile Parks (SITP) and extends the PLI scheme to drive manufacturing and exports. We are confident these measures will support sustained growth and strengthen India’s global competitiveness in textiles.
According to Jaiwant Singh Dhingra, Director of Marketing and Business Development, Numero Uno, "For the textile and retail industries, Budget 2025 offers a crucial opportunity to encourage expansion and innovation. As a leading denim brand in India, we look forward to policies that prioritise lowering GST rates on clothing, as this will increase affordability and stimulate demand from consumers. We also hope for the government to implement policies that encourage domestic manufacturing through incentives and subsidies, especially for sustainable production methods. This would not only strengthen India's standing as a world leader in the textile sector but also increase exports.”
“Building infrastructure, simplifying e-commerce laws, and investing more in textile workforce skill development initiatives would enable firms to better satisfy changing consumer demands. We anticipate a budget that supports the goal of India becoming a centre for premium, eco-friendly fashion,” says Dhingra.
Source: Fibre2fashion
To address the high number of pending applications, a standing committee reviewing the implementation of public-procurement orders, chaired by the secretary to the Department for Promotion of Industry and Internal Trade (DPIIT), has asked nodal ministries to submit their recommendations on registration of bidders from countries sharing land borders with India within 30 days of receiving the application.
This was the view after it emerged that India had granted registration to only 17 entities of the 269 applications, with 148 applications rejected while 104 applications are waiting for comments from nodal ministries or the National Security Council Secretariat.
Source: Business Standard
BENGALURU: Following reports suggesting a possible revision of Goods and Services Tax (GST) rates for the garment and textile sector, the Karnataka Hosiery and Garment Association (KHAGA) has written to Union Finance Minister Nirmala Sitharaman, urging her to drop the proposal.
KHAGA, which represents the domestic garment and textile industry, highlighted what it called the economic and social impact the revision could have on manufacturing, pricing, and consumer demand.
The association raised concerns over the potential job losses the sector could face if GST rates are increased. The garment and textile industry, which employs a significant number of unskilled and semi-skilled workers, many of them women, is already under financial strain, KHAGA said, stating that any tax hike would worsen this situation, putting many livelihoods at risk.
The association also warned that revising GST rates could push consumers and businesses toward informal markets. This shift would harm legitimate retailers while benefiting illegal merchants, it said. KHAGA also emphasised the impact the proposed hike could have on the handloom industry, which employs over 2 million weavers.
“Higher tax rates would make handloom products unaffordable, affecting the government’s efforts to support traditional crafts,” the association said, pointing out that the wool industry, which supports around 1.2 million people directly, is already struggling due to cheap imports from China.
Ethnic garments, often purchased for weddings and celebrations, if categorised under luxury tax, will make them unaffordable for many, the forum said.
“This, in turn, would discourage consumption during cultural and festive events, further slowing the economy,” KHAGA president Prakash Bhojani said.
Source: The New Indian Express
NEW DELHI The global spotlight is on India’s textile industry, which skilfully weaves centuries-old traditions with cutting-edge innovation. As one of the largest textile producers globally, India is poised to solidify its leadership amidst growing demand for sustainability, high-performance fabrics, and competitive supply chains. With the industry projected to grow to USD 350 billion by 2030 and expected to add 35 million new jobs, India’s textile sector is at the forefront of shaping a massive economic and employment expansion.
A Dual Economic And Cultural Pillar
India’s textile industry, a cornerstone of the economy, contributes 2.3% to the GDP and employs over 45 million people directly, with an additional 55 million indirectly involved across the value chain.
As the second-largest employment generator after agriculture, it plays a vital role in rural upliftment and women’s empowerment. Enhanced by a robust economic framework, cutting-edge technology, international reach, and strong government support, the sector demonstrates vast potential as a global leader.
The diverse range of products—from heritage handwoven fabrics like khadi and silk to mass-produced garments and technical textiles—have solidified the sector’s global reputation and driven economic growth.
This variety aligns with the 5F vision, covering the entire spectrum from farm to fibre, fabric, fashion, and foreign markets, and fosters a well-developed supply chain that extends from production to retail, all while preserving the cultural legacy embedded in India’s handlooms.
Global Competitiveness: Beyond Cost Leadership
India’s ability to produce various textiles at competitive prices continues to attract global brands and retailers. Yet, as fast fashion and consumer preferences evolve rapidly, staying competitive demands more than just cost efficiency. This is why Indian manufacturers are now enhancing their design capabilities, anticipating global trends, and offering versatile products that meet the needs of discerning consumers.
The move into high-value technical textiles, catering to industries such as healthcare, automotive, and agriculture, signifies a crucial shift from traditional outputs. Moreover, recognizing the need to balance fibre reliance, India is reducing its over-dependence on cotton and scaling up synthetic fibre production—a strategic adjustment that has propelled China to a dominant position in global textile exports. This shift is further supported by the launch of the multi-million-dollar National Technical Textiles Mission (NTTM), aimed at upscaling India’s global leadership in the technical textile space.
Harnessing Government Support
The government has been instrumental in fostering the textile industry’s growth. Key initiatives include:
Sustainability: A Strategic Imperative
As global demand for sustainable sourcing intensifies, Indian manufacturers are leading the way by implementing renewable energy use, ethical labour standards, and waste reduction.
This shift towards sustainable practices not only meets environmental imperatives but also opens strategic avenues for enhancing India’s global reputation. The adoption of solar energy and water-efficient processes is now increasingly becoming standard practice within the industry. Moreover, a national-level task force comprising of key stakeholders is methodically charting a pathway towards sustainable products, solidifying India’s position as a leader in global sustainability efforts.
Bridging The Skill Gap
The industry’s reliance on a vast workforce represents both a strength and a vital opportunity. Traditional skills such as weaving and dyeing continue to be invaluable, while the adoption of automation, CAD, and advanced manufacturing technologies is driving an increasing demand for technical expertise.
Skill development initiatives, especially in rural areas, are essential to building an inclusive and future-ready workforce. Furthermore, tailored training programs targeting women and underrepresented groups enhance gender diversity and inclusivity, fostering a more equitable industry landscape globally.
Driving Global Textile Innovation: India’s Strategic Advancements In The Textile Sector
India’s textile industry stands at the forefront of global innovation, setting new standards in the textile market through strategic growth and technological advancements. The adoption of man-made fibres (MMF) diversifies India’s raw material base and aligns with crucial global trends, enhancing both stability and adaptability in the market.
Significant technological investments have boosted India’s manufacturing capabilities, establishing it as a formidable competitor against key regional players like Bangladesh and Vietnam. These improvements not only enhance operational efficiencies but also elevate the quality of outputs, reinforcing India’s reputation as a reliable partner in the international textile arena.
A commitment to sustainable practices distinguishes India’s textile industry, appealing to a global network of partners and buyers who prioritize environmental responsibility alongside quality and innovation.
The Road Ahead: Charting the Future of Innovation and Collaboration
India’s textile industry is poised for continued leadership on the global stage, with a focus on:
These initiatives highlight the industry’s proactive strategy to leverage challenges as opportunities for global market leadership.
Bharat Tex 2025: Harnessing Global Opportunities As A Catalyst For Change
Bharat Tex 2025, India’s largest textile event, showcases India’s extensive capabilities within the textile sector. This event offers key stakeholders the opportunity to engage with and experience the cutting-edge innovations India contributes to the global stage, highlighting the country’s pivotal role in shaping the future of global textiles. This catalytic initiative in the transformative journey of India’s textile industry, is poised to thrust the sector into a new era of global prominence and innovation.
Scheduled for February 12-17, 2025, this pivotal event, hosted m in New Delhi, is set to amplify India’s textile prowess on a global scale.
A Convergence Of Global Leaders And Innovators
Spanning an expansive 2.2 million square feet of exhibition space, Bharat Tex will host over 5,000 exhibitors and feature over 20,000 exhibits, attracting 6,000 international buyers and 12,000 domestic business visitors from 110 countries.
Supported by major global and national brands such as Aditya Birla, Reliance Industries, Trident Group, and Welspun, the event underscores the substantial industry support and collaboration. Additional key participants include Mafatlal Industries Ltd, EM Crafts, and Supreme Nonwoven Industries Private Limited, highlighting the diverse industry involvement.
Dynamic Platforms For Innovation And Dialogue
Bharat Tex 2025 will showcase various specialized pavilions, including:
These pavilions are complemented by significant events such as the International Silk Conference, Better Cotton Annual Meet, and the Innovation Hackathon, promoting an environment ripe for networking, collaboration, and growth.
Driving Sustainability: Innovation Meets Responsibility
As the textile industry embraces a pivotal shift towards eco-conscious practices, Bharat Tex 2025 becomes a vital platform for advancing sustainability. Supported by the Ministry of Textiles and organized by 11 Export Promotion Councils, the event showcases collaborative efforts to reduce environmental impact and foster ethical standards.
Key themes include:
Major sessions such as Future of Textiles: ESG & Sustainability and Accelerating Circularity in Indian Textiles delve into strategies for sustainable growth, while hands-on masterclasses tackle challenges like waste management and waterless dyeing. Global leaders including the Better Cotton Initiative, UNEP, Laudes Foundation, and corporates like Aditya Birla Group and Arvind align their expertise to highlight scalable solutions, making sustainability not just a vision but a tangible reality for the textile industry.
Knowledge Sharing And Industry Insights
The event will also host 70 knowledge sessions facilitated by esteemed partners like KPMG, Gherzi, and the National Institute of Fashion Technology (NIFT), offering insights into sustainability, trade, investment, and technological advancements. These sessions are designed to equip attendees with the knowledge to navigate and succeed in the evolving global market landscape.
Engagement With Global And Government Entities
Bharat Tex is also supported by an impressive roster of associate partners, including UN agencies such as UNEP, UNDP, UNESCO, and UNIDO, alongside government entities like the national think tank Niti Aayog and other departments such as industries and commerce. These partnerships enhance the event’s capacity for global dialogue and policy alignment within the textile sector. Through its comprehensive agenda, Bharat Tex 2025 promises not only to showcase India’s vast capabilities across the textile industry but also to set new benchmarks in innovation, sustainability, and global trade relationships. This monumental event is a clarion call to all stakeholders in the textile ecosystem to engage, innovate, and contribute to a future that is both sustainable and prosperous.
Source: Textile World
India has devised a plan to attract the struggling textile industry from Bangladesh, which has been severely impacted by the country's ongoing political turmoil. The Modi government is reportedly considering several incentives for the textile sector, which may be announced in the upcoming budget on February 1. Last year, widespread violence erupted in Bangladesh, leading to Sheikh Hasina's resignation as Prime Minister in August and her departure from the country. Following this, Nobel laureate Muhammad Yunus was appointed as the interim Prime Minister. However, under Yunus's leadership, an anti-India sentiment surged in Bangladesh, which he failed to contain. Instead, Yunus leaned towards Pakistan, further straining relations with India.
Source: MSN
The National Council of Textile Organizations (NCTO) has welcomed the United States Customs and Border Protection's (CBP) Notice of Proposed Rulemaking (NPRM) that seeks to revise regulations concerning the exemption for shipments of minimal value (de minimis). T News US textile sector supports CBP’s stricter low-value import rules The National Council of Textile Organizations (NCTO) has welcomed the United States Customs and Border Protection's (CBP) Notice of Proposed Rulemaking (NPRM) that seeks to revise regulations concerning the exemption for shipments of minimal value (de minimis). January 20, 2025 NCTO is keen to see President Trump implement the changes to de minimis rules quickly. Credit: DierR/Shutterstock. his exemption currently allows for goods valued at no more than $800 to be imported into the US without being subjected to duties or certain taxes. The proposed adjustments intend to exclude specic merchandise from this exemption, particularly items affected by designated trade or national security measures. The proposal necessitates that shipments leveraging this exemption must provide a detailed classication of the merchandise using the ten-digit Harmonized Tariff Schedule of the United States (HTSUS). The suggested regulatory changes aim to fortify protections around intellectual property, consumer health and safety, and bridge enforcement gaps. These measures are designed to defend US industries and labour against inequitable trade practices. This Notice of Proposed Rulemaking (NPRM) represents one part of a two-pronged initiative announced by the Biden Administration on 13 September 2024, which focuses on safeguarding US consumers, workers, and businesses. Following up on this initiative on 13 January 2025, CBP introduced an NPRM concerning the Entry of Low-Value Shipments (ELVS). Over the past decade, there has been a signicant surge in the number of imports availing themselves of the de minimis exemption. From approximately 139m in scal year (FY) 2015, these imports have escalated by over 600%, reaching beyond 1bn annually by FY23. In FY24, this gure further climbed to upwards of 1.36bn shipments. Such a dramatic rise poses challenges for CBP’s capacity to enforce compliance with US trade laws, as well as regulations pertaining to health and safety, intellectual property rights, and consumer protection. The US textile industry, also vital for military and PPE supplies, is facing signicant demand loss due to 4m daily de minimis shipments of cheap, often illegal imports. This results from an outdated trade provision that allows Chinese e-commerce platforms and importers to bypass tariffs and ood the US market. “Both the volume and combined worth of low-value, or de minimis, shipments to the United States have risen signicantly over the past ten years,” said Homeland Security Secretary Alejandro Mayorkas. “The exemption of these goods from duties or taxes has undermined American businesses and workers and ooded our ports of entry with foreign-made products, making CBP’s vital work screening these goods for security risks more difcult. The actions announced today to tighten this exemption will strengthen America’s economic and national security.”
NCTO welcomes ‘meaningful action’ for domestic
Commending the rulemaking, NCTO’s president and CEO Kim Glas said: “We welcome CBP’s announced notice of proposed rulemaking exempting de minimis tariff-free benets on imports ‘specied as trade and national security actions.” “The administration’s decision to initiate the rulemaking process in its nal days is a signicant and meaningful action for our domestic industry and that of other manufacturing sectors. We urge CBP to expedite the rulemaking process to the fullest extent possible and appreciate the agency’s strong engagement with our industry,” Kim Glas added. The NCTO also called upon the Trump administration to endorse and swiftly implement a comprehensive solution to tackle the escalating de minimis issue beyond the announced action. Glas urged President Donald Trump to take immediate steps to abolish de minimis through an executive order and encouraged Congress to collaborate with the new administration on a permanent resolution to close this loophole decisively. The NCTO, a trade association based in Washington, DC, represents domestic textile manufacturers. In 2023, the US textile supply chain employed 501,755 people and saw shipments worth $64.8bn. That same year, US exports of bre, textiles, and apparel totalled $29.7bn.
Source: Just-style
Pakistan’s textile group exports increased by 9.67% during the first half (July-December) of the fiscal year 2024-25, reaching $9.084 billion compared to $8.283 billion in the same period last year, according to data from the Pakistan Bureau of Statistics (PBS).
Textile exports in December 2024 saw a 5.55% year-on-year increase, reaching $1.477 billion compared to $1.399 billion in December 2023. On a month-on-month basis, textile exports rose by 1.11% from $1.461 billion in November 2024.
Key export commodities in December 2024 included knitwear (Rs108.94 billion), readymade garments (Rs99.33 billion), other rice varieties (Rs86.80 billion), bedwear (Rs71.25 billion), cotton cloth (Rs41.39 billion), sugar (Rs40.57 billion), towels (Rs24.55 billion), pharmaceutical products (Rs17.63 billion), cotton yarn (Rs17.46 billion), and made-up articles excluding towels and bedwear (Rs16.40 billion).
On the other hand, the All Pakistan Textile Mills Association (APTMA) has urged the Federal Board of Revenue (FBR) to address critical issues affecting the textile sector, including restoring a level playing field for local inputs and ensuring timely, complete refunds for exporters.
In a letter to FBR Chairman Rashid Mahmood Langrial, APTMA Secretary General Shahid Sattar highlighted findings from a study by PIDE Chairman Dr. Nadeemul Haque. The study, focused on the impact of withdrawing zero-rating/sales tax exemptions for local supplies, emphasized the urgent need for policy reforms to maintain the sector’s competitiveness and contribution to the national economy.
The study warned that the current tax structure creates an imbalance between domestic and imported inputs, harming local cotton producers, spinning units, and the formal textile sector. It estimated potential economic losses of over PKR 1.7 trillion, equivalent to 2% of GDP, due to rising input costs and subsequent closures, job losses, and declining exports.
The report recommended restoring zero-rating or sales tax exemptions on local inputs for export manufacturing under the Export Facilitation Scheme (EFS). Alternatively, imposing an equal GST on imported inputs was suggested, provided the refund system is overhauled to ensure prompt and full reimbursements.
It also proposed:
Shortening the audit/reconciliation period from five years to six months.
Strengthening monitoring with algorithmic checks on transactions.
Strictly enforcing eligibility criteria for tax benefits and imposing penalties for violations.
Enhancing digitization to streamline the refund process and improve liquidity for exporters.
The study acknowledged inefficiencies in the EFS but noted that misuse, including diversion of inputs to local markets, was limited and could be curbed with targeted adjustments. The withdrawal of zero-rating has strained the textile sector and negatively impacted the agriculture and services industries. Due to delayed refunds, exporters face cash flow challenges, undermining trust between stakeholders and tax authorities. APTMA emphasized that stable tax policies and realistic exchange rates are crucial for sustaining exports and integrating Pakistan’s value chain into global markets. APTMA urged the FBR to act swiftly to address these challenges, restore the viability of the textile sector, and protect millions of livelihoods dependent on the industry. “Immediate reforms are essential to prevent further damage to Pakistan’s textile sector,” Sattar stated.
Source: Profit Pakistan Today
ISLAMABAD: All Pakistan Textile Mills Association (APTMA) has sought intervention of Federal Board of Revenue (FBR) to rescue textile industry by restoring a level playing field for local inputs, ensuring timely and full refunds. In a letter to Chairman, FBR, Rashid Mahmood Langrial, Secretary General, APTMA, Shahid Sattar, has asked him to view the finding of an independent study on impact of withdrawal of zero-rating/sales tax exemption on local supplies for export manufacturing under the Export Facilitation Scheme (EFS), conducted by Chairman PIDE Dr Nadeemul Haque.
The study underscores the urgent need for policy intervention to restore a level playing field for local inputs in export manufacturing, in comparison to imported inputs. Such action is crucial to safeguarding Pakistan’s textile sector and its significant contributions to the national economy.
APTMA, minister discuss issues facing textile industry
The study emphasizes that the current policy not only threatens the viability of the formal textile sector but also incentivizes the informal sector, which operates outside the tax net. This has led to widespread closures, job losses, and a decline in competitiveness, with ripple effects across other sectors, including agriculture and services.
The study estimates that the increased costs of local inputs could result in economic losses equivalent to 2 percent of GDP (over PKR 1.7 trillion).
To address these issues, it strongly recommends restoring the EFS to its pre-Finance Act 2024 form, reinstituting the zero-rating/sales tax exemption on local supplies for export manufacturing. This solution, considered the most effective, would require no adjustments, allowing business operations to continue as before.
Alternatively, the study suggests creating a level playing field by imposing an equal GST on imported inputs used in export manufacturing. However, this would require a comprehensive overhaul of the refund system to ensure timely and complete sales tax refunds to exporters, minimizing delays and partial reimbursements.
The study further reveals that misuse of the EFS regime is not widespread and could be controlled through targeted adjustments. These include enforcing eligibility conditions rigorously, imposing strict penalties for malfeasance, and reducing the audit/reconciliation period from five years to six months, with robust online monitoring and algorithmic checks on transactions and exports.
The full recommendations of the study are as follows:
Imposition of GST on Local Inputs: The imposition of an 18% sales tax on local inputs, combined with persistent delays in refund processing, has created a significant imbalance between domestic and imported inputs, negatively affecting local cotton producers and spinning units. This policy threatens the formal textile sector’s viability while incentivizing the informal sector.
The resulting closures, job losses, and decline in competitiveness have broader implications for Pakistan’s economy, including agriculture and services.
Costly Adjustments to the Local Value Chain: The imposition of GST on domestic inputs will force costly adjustments within the local value chain. Our findings suggest that these adjustments could result in an economic loss equivalent to two percent of GDP (over PKR 1.7 trillion).
The recent export gains may be at risk, and the erosion of trust between industry stakeholders and tax authorities further complicates reform efforts. A holistic approach is needed that balances exporters’ needs, supports local industries, and ensures compliance through robust monitoring.
Impact on High-Value Producers: High-value-added producers will likely remain unaffected by the GST extension on domestic products, as imports remain tax-free. However, upstream producers will face competition from GST-free imports that are not subject to tariffs. This shift erodes the terms of trade for upstream sectors, potentially leading to short-term pressure on exports.
EFS and Policy Inefficiencies: The EFS and related fiscal policies affecting Pakistan’s textile industry are characterized by inefficiencies that undermine sector performance. While the EFS aims to promote exports by enabling duty-free access to imported inputs, its misuse, including diversion of inputs to the local market and inclusion of non-exporting entities, has diminished its effectiveness. Our investigation suggests that misuse is not excessive and could be controlled through simple system adjustments.
Strict Enforcement of Eligibility: Ensure rigorous application of eligibility conditions and harsh penalties for malfeasance.
Shortening Audit/Reconcilia-tion Period: Reduce the five-year audit/reconciliation period to six months, with enhanced online monitoring and algorithmic checks on transactions. Policy Intervention in the Value Chain: Economic theory suggests that the value chain must evolve naturally, without policy intervention. The solution is clear.
Withdraw GST on Local Inputs: This would be the ideal solution, as it requires no adjustments and would allow business operations to continue as before.
Impose GST on Imports: From a GST perspective, imposing GST on both local and imported inputs would neutralize the tax’s impact. However, this would require fixing the refund system, which has been a longstanding issue. Delays and incomplete refunds create cash flow problems for producers and need urgent attention.
Delays and Incomplete Refunds: Producers continue to face delays and incomplete refunds. To maintain the credibility and efficiency of the GST system, urgent action is needed to ensure timely and full refunds. International examples and FBR consultants suggest that digitization is key to addressing this issue. Using algorithms to reconcile inputs and outputs, and allowing instant refunds for select transactions, would improve liquidity while ensuring tax compliance.
Export Trends and Policy Stability: Data shows a concerning decline in exports as a percentage of GDP. Policy instability, especially changes in tariffs and taxes, negatively impacts exports. The Haque Tax Commission’s report also emphasizes that stable tax policies are crucial for investment and growth. Policymakers must consider the long-term consequences of volatile policies, especially concerning taxes. Importance of a Realistic Exchange Rate: Econometric results indicate that maintaining a realistic exchange rate is vital for export growth. A stable and competitive exchange rate significantly impacts export performance.
Low Tariffs and Global Integration: Low tariffs and trade openness can help integrate Pakistan’s value chain into the global value chain, benefiting exporters and local industries. “We urge you to carefully review the findings and take immediate steps to address the critical issues outlined. The viability of Pakistan’s textile sector — and the livelihoods of millions — depends on swift and effective action. Restoring a level playing field for local inputs, ensuring timely and full refunds, and implementing the recommended reforms are essential to preventing further damage to the sector,” Sattar added.
Source: B Recorder
