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Business Recorder
20-05-2025
- Business
- Business Recorder
Pakistan's textile industry deterioration: Govt has failed to address ‘fatal' anomaly in EFS
LAHORE: Pakistan's textile industry is rapidly deteriorating as, for over 10 months now, the government has failed to address the fatal anomaly in the Export Facilitation Scheme (EFS). The result is a deeply distorted tax regime that has rendered domestic manufacturing uncompetitive, gutted local supply chains, and handed Pakistan's textile value chain over to foreign suppliers. The Export Facilitation Scheme allows exporters to import raw materials and inputs at 0% sales tax but imposes 18% tax on the same inputs if they are made in Pakistan. It's an irrational, self-destructive policy that punishes domestic production and rewards imports. While the sales tax is refundable, there are high time, administrative and liquidity costs associated with refunds. Sales tax is paid when an input is procured, and the claim for refunds can only be filed once the product has been manufactured and exported — a 6 to 10 month cycle at least. Add to that administrative costs associated with filing, follow-ups, and regular harassment by the FBR. According to the data shared by All Pakistan Textile Mills Association there is a huge liquidity cost as capital becomes stuck in the sales tax regime during the 6-10 month production cycle. Once claims are filed, even though Sales Tax Rules mandate refund issuance within 72 hours, only partial refunds of 60-70% are issued once a month. The remaining amount is deferred for manual processing where there is already a backlog of over Rs 110 billion, and no progress on clearing it over the last 4-5 years. As a result, exporters have switched to imported inputs. Monthly yarn imports are over twice the historic peak (figure 1), expected to hit 300 million kg in FY25—nearly triple the 108 million kg in FY24. In total, imports of just three key raw materials— cotton, yarn, and greige fabric — are expected to be $1.5 billion higher than last year (figure 2). Meanwhile, exports are only projected to increase by $1.14 billion. More dollars are flowing out of Pakistan than coming in. The headline export figure is a facade; underneath, the industry is hollowing out. Over 800 ginning factories and 120 spinning mills have shut down, and millions of livelihoods lost. The crisis has reached the weaving sector, with looms shutting down and workers protesting on the streets. While the government chases headline numbers, it ignores that the value added in exports is increasingly foreign, and Pakistan is effectively exporting imported goods while local industry, jobs, and investment vanish. The crisis is not just limited to industry. Cotton season begins next month. Who will buy 10 million bales from farmers without a functional spinning industry? Cotton output has already fallen from 15 million bales in the mid-2010s to around 5–10 million today. While commendable steps have been taken — such as lifting the cotton seed import ban and introducing modern farming techniques under the Green Pakistan Initiative — the single biggest obstacle to cotton revival remains the current sales tax regime. Pakistani cotton is taxed at 18%, while imported cotton enjoys a sales tax-free path through EFS. Even cottonseed and cottonseed cake—basic agricultural byproducts — face an 18% sales tax, a practice unheard of globally. Given elastic demand, farmers must absorb the high tax burdens, pushing their incomes below cost of production. As the spinning sector — the primary consumer of cotton — has largely been deindustrialized by the EFS anomaly, demand for cotton has severely plummeted. With uncertain demand and no support price, there is high uncertainty regarding profitability of cotton, and farmers are shifting towards alternate, water intensive crops with severe implications for Pakistan's already scarce water resources. Destruction of the cotton sector will put millions more livelihoods at risk, especially women in cotton picking, etc. who have very few alternative sources of employment. The government has stood by — unmoved and indifferent — as the textile and cotton value chains bleed to their final demise. For nearly a year, it has failed to restore the EFS to its June 2024 form with zero-rating on local inputs. Despite repeated appeals, no action has been taken. We repeat, clearly and unequivocally: The government must immediately remove yarn and fabric from the EFS import scheme. This is the only way to halt the destruction of Pakistan's textile industry. Pakistan's export economy cannot be built on imported yarn and fabric. No country has industrialized by destroying its own supply chains, replacing them with imports. Uraan Pakistan will not happen on the grave of local industry. Copyright Business Recorder, 2025
Business Recorder
20-05-2025
- Business
- Business Recorder
Textile industry deterioration: Govt has failed to address ‘fatal' anomaly in EFS
LAHORE: Pakistan's textile industry is rapidly deteriorating as, for over 10 months now, the government has failed to address the fatal anomaly in the Export Facilitation Scheme (EFS). The result is a deeply distorted tax regime that has rendered domestic manufacturing uncompetitive, gutted local supply chains, and handed Pakistan's textile value chain over to foreign suppliers. The Export Facilitation Scheme allows exporters to import raw materials and inputs at 0% sales tax but imposes 18% tax on the same inputs if they are made in Pakistan. It's an irrational, self-destructive policy that punishes domestic production and rewards imports. While the sales tax is refundable, there are high time, administrative and liquidity costs associated with refunds. Sales tax is paid when an input is procured, and the claim for refunds can only be filed once the product has been manufactured and exported — a 6 to 10 month cycle at least. Add to that administrative costs associated with filing, follow-ups, and regular harassment by the FBR. According to the data shared by All Pakistan Textile Mills Association there is a huge liquidity cost as capital becomes stuck in the sales tax regime during the 6-10 month production cycle. Once claims are filed, even though Sales Tax Rules mandate refund issuance within 72 hours, only partial refunds of 60-70% are issued once a month. The remaining amount is deferred for manual processing where there is already a backlog of over Rs 110 billion, and no progress on clearing it over the last 4-5 years. As a result, exporters have switched to imported inputs. Monthly yarn imports are over twice the historic peak (figure 1), expected to hit 300 million kg in FY25—nearly triple the 108 million kg in FY24. In total, imports of just three key raw materials— cotton, yarn, and greige fabric — are expected to be $1.5 billion higher than last year (figure 2). Meanwhile, exports are only projected to increase by $1.14 billion. More dollars are flowing out of Pakistan than coming in. The headline export figure is a facade; underneath, the industry is hollowing out. Over 800 ginning factories and 120 spinning mills have shut down, and millions of livelihoods lost. The crisis has reached the weaving sector, with looms shutting down and workers protesting on the streets. While the government chases headline numbers, it ignores that the value added in exports is increasingly foreign, and Pakistan is effectively exporting imported goods while local industry, jobs, and investment vanish. The crisis is not just limited to industry. Cotton season begins next month. Who will buy 10 million bales from farmers without a functional spinning industry? Cotton output has already fallen from 15 million bales in the mid-2010s to around 5–10 million today. While commendable steps have been taken — such as lifting the cotton seed import ban and introducing modern farming techniques under the Green Pakistan Initiative — the single biggest obstacle to cotton revival remains the current sales tax regime. Pakistani cotton is taxed at 18%, while imported cotton enjoys a sales tax-free path through EFS. Even cottonseed and cottonseed cake—basic agricultural byproducts — face an 18% sales tax, a practice unheard of globally. Given elastic demand, farmers must absorb the high tax burdens, pushing their incomes below cost of production. As the spinning sector — the primary consumer of cotton — has largely been deindustrialized by the EFS anomaly, demand for cotton has severely plummeted. With uncertain demand and no support price, there is high uncertainty regarding profitability of cotton, and farmers are shifting towards alternate, water intensive crops with severe implications for Pakistan's already scarce water resources. Destruction of the cotton sector will put millions more livelihoods at risk, especially women in cotton picking, etc. who have very few alternative sources of employment. The government has stood by — unmoved and indifferent — as the textile and cotton value chains bleed to their final demise. For nearly a year, it has failed to restore the EFS to its June 2024 form with zero-rating on local inputs. Despite repeated appeals, no action has been taken. We repeat, clearly and unequivocally: The government must immediately remove yarn and fabric from the EFS import scheme. This is the only way to halt the destruction of Pakistan's textile industry. Pakistan's export economy cannot be built on imported yarn and fabric. No country has industrialized by destroying its own supply chains, replacing them with imports. Uraan Pakistan will not happen on the grave of local industry. Copyright Business Recorder, 2025
Express Tribune
29-04-2025
- Politics
- Express Tribune
In abeyance
Listen to article That a major project had been given a go-ahead without a consensus among the various stakeholders was bound to come back haunting. The six-canal project - the lifeline for the Green Pakistan Initiative that is meant to ensure food security in the country through corporate farming, besides earning much-needed foreign exchange via export of surplus food - has been paused in line with the decision taken at a meeting of the Council of Common Interest held on Monday. As agreed at the constitutional forum, tasked with resolving power-sharing disputes between the provinces, the project will remain halted till the time "mutual understanding is evolved among the provinces". A committee, with representation from the federation and all federating units, will also be constituted to pursue a consensus by allaying the concerns of all provinces alongside ensuring the country's food and ecological security. The decisions taken by the CCI means clam in Sindh where civil society, political parties and nationalist groups were up in arms against the decision to construct six canals to irrigate the barren lands of Cholistan in Punjab as part of the Green Pakistan Initiative, calling it infringement on the rights of low riparian segments of the populace. Divisive though it is, the high-profile project with global reach promises a roadmap to genuine development and significant foreign exchange inflow for a country long mired in a serious balance of payments crisis. But with a major collation partner, the PPP, in aversion, it's a catch-22 situation for the PML-led ruling dispensation. So while a good initiative — currently held in abeyance — risks becoming another Kalabagh dam project, the decisions to be taken at the next round of debate should reflect the supreme national interest.
India Today
29-04-2025
- Politics
- India Today
Forget Indus waters, Pakistan Army and govt have huge canal crisis at home
The Indus and its waters have been making headlines after India suspended the Indus Waters Treaty (IWT), a move that rattled Pakistan, which relies on the river basin to irrigate 80% of its farmland and support 90% of its food production. But, it's not the river Indus or India's actions that's causing Pakistan its latest headache. The crisis is homegrown. A controversial army-backed canal project, which would tap into the Indus River System, has resulted in massive protests across Sindh, crippling vehicular movement to Punjab. Even though PM Shahbaz Sharif's government has shelved the canal project, the blockade has continued for 12 days now. It looks far from over, and Islamabad's troubles are only piling up. The economic toll is huge to disperse the protesters have failed, and the blockades continue to choke the flow of goods to and from Karachi Port. Nearly a lakh truck drivers and helpers remain stranded and starved, with no end to the stalemate in sight, according to a report in the is one of the four Pakistani provinces. And the protests against the army-backed project come at a time when the military has become increasingly unpopular and is fighting rebels and insurgents in Balochistan and Khyber-Pakhtunkhwa, respectively. "A historic mobilisation is taking place in Sindh against the six-canal project. People from all walks of life are participating in a strike to save the river Indus. Policy of 'hard state' is leading to more resentment across the country. Time to submit to the will of the people," historian-politician Ammar Ali Jan posted on put on hold the Indus Waters Treaty (IWT) after the dastardly Pahalgam terror attacks that killed 26 people, including 25 tourists. India has blamed Pakistan and its supported terrorists for the massacre in which victims were singled out on the basis of their OF SINDH PROTEST AGAINST INDUS CANALS IN PAKISTANFor the last two weeks, Pakistan's southern province of Sindh has been gripped by widespread protests by some parties, lawyers and civil society groups against the army-backed proposal of five new canals on the Indus, and one on was claimed that the project, part of the $3.3-billion Green Pakistan Initiative (GPI), would irrigate 4.8 million acres of barren land across Punjab, Sindh, and Balochistan. That's roughly eight times the size of 2023, Pakistan PM Shehbaz Sharif and army chief General Asim Munir launched the six-canals project under the Green Pakistan Initiative (GPI).Said to be managed by an army-owned private firm, the GPI was touted as a project that would breathe new life into Pakistan's faltering agriculture by bringing in advanced technologies and developing irrigation the Pakistan Army, like running the country, is also involved in real estate, hospitality, manufacturing, airlines, food and consumer goods, logistics, banking and the project resulted in a massive outrage in Sindh, a lower riparian province heavily dependent on the Indus River. Fears of water diversion to southern Punjab's Cholistan region (part of the greater Thar) ignited mass protests. Sindh, which already receives 20% less water than its allocated share, experts say would face environmental risks. Reduced fresh water flow could cripple Sindh's agriculture by increasing soil salinity, and hasten seawater intrusion into the Indus erupted across the province after the project was inaugurated in February 2025 by the Chief Minister of Pakistan's Punjab, Maryam Nawaz, and General PUNJAB-SINDH RIVALRY FUELLING PROTESTS TOOThen there was the age-old Punjab-Sindh rivalry at play Sindh-based Pakistan Peoples Party (PPP), part of Sharif's ruling coalition Chairman Bilawal Bhutto Zardari earlier this month, threatened to withdraw support from the government."The people of Sindh have rejected the canal projects, yet those in Islamabad remain blind and deaf to our voices," PPP chief Bilawal Bhutto Zardari was quoted as saying by the Karachi-based The Express Tribune on April Sindh Assembly unanimously passed a resolution demanding a halt to the canal plans. Sit-in protests and rallies spread from Karachi to Sukkur (in northern Sindh).advertisementINDUS CANALS PROTESTS BRING PAKISTAN TO GRINDING HALTFollowing the massive pushback, the $3.3-billion project, touted by the army as a solution to Pakistan's food security crisis, was suspended last April 24, a day after India suspended the Indus Waters Treaty, and PM Sharif announced a halt to the canal construction until a consensus could be reached at the Council of Common Interests meeting set for May Bhutto-Zardari played the India card, saying, "India's announcement on the Indus Waters Treaty was not illegal, but against humanity... As long as the PPP exists, not a single drop of Sindh's water will be given away".Bilawal was trying to use the India card and the move to the IWT to sell the six-canal the ploy of "consensus" and the India card failed to work for Islamabad's army-backed regime. But the protests across Sindh grew more intense and widespread. Protesters refused to relent, citing a lack of trust in verbal assurances. They demanded a formal notification of the protesters remained seated on major highways across Sindh on Sunday. It stranded thousands of trucks and brought the country's supply chain to a grinding halt. Efforts to disperse the protesters proved ineffective, reported in Pakistan have been forced to halt production due to a shortage of raw materials; officials at Karachi Port warned of severe congestion. Export cargo could not arrive at the port, and imported goods have been piling up, as they couldn't be transported out of the port, added the Jafry of the All Pakistan Goods Transporters Association told Dawn, that the movement of around 30,000 trucks and oil tankers had been impeded and around 90,000 to 100,000 drivers and their helpers were stranded for over 10 days, facing severe shortages of food and according to the report, also alleged that over 100 sacrificial animals, part of their cargo, had already Sunday, sit-ins across Sindh had entered their 10th day, halting all vehicular movement between Punjab and Sindh, reported Geo highway blockade is costing traders $2 million in daily delay charges, President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Atif Ikram Sheikh, was quoted as saying by the Riyadh-based Arab now, the government and protesters remain at an incurring massive losses and prolonged protests, why are the demonstrators not relenting?advertisementWHY SINDH HAS RISEN UP IN PROTEST AGAINST SHARIF GOVT, PAK ARMYThe answer lies in Shahbaz Sharif's verbal assurance, Sindh's deep mistrust of the Punjabi-dominated leadership of Islamabad and Rawalpindi, and the most pressing water crisis that the province has been of Sindh is arid as it lies in the rain shadow of the Western Himalayas and receives less than 200 mm of annual rainfall, which makes it one of the driest regions in South Asia. Sindh Province, which contributes 23% to Pakistan's agricultural GDP, relies on the Indus River and its canal network for over 77% of its irrigation needs, according to the World Bank Group document from Sindh receives 20% less water than its allocated share under the 1991 Indus Water Accord, noted a research paper by the International Union for Conservation of Nature. Now with the Rabi season nearing its end, Sindh's water shortage for winter crops had already deepened to 45%. Sindh reported an overall 50% water shortfall, with Guddu Barrage facing a 10.3% deficit and Sukkur Barrage experiencing a steep 66.3% shortage, according to a Dawn report from 1991 Indus Water Accord was a pact between the provinces of Pakistan for the equitable distribution of the Indus River System's already parched, Sindh fears that diverting water from the Indus and its tributaries through the proposed canals could further aggravate its water deep-seated mistrust of the Punjabi-dominated leadership in Islamabad and Rawalpindi is now unfolding through the controversy over the six-canal Punjab vs Sindh equation is also at play here in the controversy over the six Indus canal projects."Journalists and columnists in Pakistan who promote the state's narrative on the Indus Water Treaty [1991 Accord] question Sindh's resistance to the construction of six canals. But it was Punjab that sold three rivers without consulting Sindh and since then, Punjab has been stealing Sindh's share of water," Karachi-based journalist Veengas posted on of the proposed canals warn that diverting water from the Indus would carry devastating environmental and human costs, endangering local ecosystems, wildlife, and local communities."This is not a people-centred initiative. It's a for-profit scheme for cash crop irrigation...," environmental activist Zulfikar Ali Bhutto Jr told Dawn, adding that less water in the Indus River would stop fresh water from reaching the Arabian Sea, and break the hydrological fear that the disruption would lead to increased seawater intrusion into the Indus Delta, turning fertile land saline and unfit for agriculture. It would also threaten aquatic life and collapse the livelihoods of fishing and farming communities in lower despite suspending the $3.3-billion canal project and calling for "consensus", the Pakistani government may have delayed the incoming challenge for a bit. But by overlooking the concerns of Sindh it has definitely fanned the fire of now, as Pakistan is engaged in the Indus water tussle with India, it seems to be drowning in its own canal chaos. All eyes are on the May 2 Council of Common Interests meeting now.
Business Recorder
28-04-2025
- Business
- Business Recorder
Uniting Pakistan: bridging provincial divides for shared prosperity
Pakistan is grappling with growing interprovincial tensions amid economic challenges. The divides between provinces are widening, particularly during times of general economic distress. Balochistan's longstanding sense of alienation persists, Khyber Pakhtunkhwa (KP) requires careful attention to address its grievances, and Sindh is increasingly anxious about water scarcity due to planned canal diversions to the Cholistan region. The government's Green Pakistan Initiative (GPI) aims to expand agricultural land and boost productivity, a commendable goal for a country classified as water-stressed and vulnerable to climate-induced droughts and floods. However, this year's low water availability has disrupted Sindh's crop cycles, threatening its agricultural economy. Across Sindh, people from diverse backgrounds are protesting, fearing long-term economic hardship. Policymakers must adopt a more inclusive approach to development. Over recent decades, Punjab has received a disproportionate share of resources, widening the infrastructure and development gap with other provinces. Addressing this imbalance, particularly in Sindh, is critical. Sindh is a resource-rich province, contributing significantly to Pakistan's energy sector. It produces the largest share of natural gas, hosts the Thar coal reserves driving increased power generation, and boasts a strong wind corridor with untapped renewable energy potential. Leveraging these strengths could transform Sindh into an economic powerhouse. However, ongoing protests in Sindh have disrupted highways, stalling the movement of goods. This has led to losses for exporters and manufacturers, as raw materials fail to reach factories and finished products are delayed at ports. The Prime Minister's decision to pause the canal project until a consensus is reached is a positive step. Moving forward, a consultative approach that listens to the concerns of smaller provinces is essential for national unity. Punjab and Sindh, deeply interdependent, rely on each other—Punjab as a landlocked province depends on Sindh's ports for its supply chain. To ensure fairness, Sindh should have a meaningful role in the green revolution. The GPI includes barren land in Sindh, and the federal government could prioritize deploying modern farming techniques there while ensuring adequate water availability. Simultaneously, improving law and order and governance in Sindh would foster economic growth and strengthen social ties with the rest of Pakistan. Likewise, KP's concerns regarding the mineral bill deserve attention, with provincial stakeholders engaged in decisions about mining and mineral development. Economic vibrancy depends on inclusive development from Khyber to Karachi. While Punjab benefits from robust road infrastructure and new motorway projects, connectivity from upcountry to Karachi lags behind. Prioritizing these routes could yield significant economic gains and improve livelihoods in Sindh. Pakistan stands at a critical juncture, with its economy struggling to overcome low growth and unemployment. According to the World Bank, 10 million people face acute food insecurity in 2025, and 2 million more have fallen into poverty this year, with low labour engagement exacerbating the crisis. Poverty rates are starkly higher in smaller provinces: 70 percent in Balochistan, 48 percent in KP, 45 percent in Sindh, and 30 percent in Punjab, according to a PIDE study. These disparities underscore the urgent need for equitable development in provinces with higher poverty rates. Without it, frustration and alienation may deepen, further undermining cohesion and deterring investment. By fostering dialogue, prioritizing equitable resource allocation, and investing in underdeveloped regions, Pakistan can build a stronger, more united future. The path forward lies in collaboration and inclusivity, ensuring every province has a stake in the nation's progress. Copyright Business Recorder, 2025
