APTMA warns of textile industry collapse as over 100 spinning mills shut

February 11, 2025 (MLN): The All Pakistan Textile Mills Association (APTMA) has sounded the alarm, warning that the ongoing crisis exacerbated by issues in the Export Facilitation Scheme (EFS) is pushing the spinning industry toward collapse.

Over 100 spinning mills, representing nearly 40% of Pakistan’s total production capacity, have already shut down, while the remaining mills are operating at less than 50% capacity.

APTMA has urgently called on the government to ensure a level playing field for local raw materials and intermediate inputs for export manufacturing.

The association cautioned that without immediate policy reforms, the entire textile value chain faces the risk of being wiped out.

The crisis continues to escalate, with yarn imports soaring to a record 32 million kilograms in January 2024.

APTMA warned that if this trend persists, yarn imports for FY25 could triple compared to FY24, severely crippling the domestic industry.

The impact is not limited to spinning alone Pakistan’s entire textile value chain is at risk, as weaving and other downstream sectors are already experiencing similar hardships.

APTMA stressed that if the current sales tax policy, which imposes an 18% sales tax on local supplies for export manufacturing while keeping imported inputs tax-free, is not immediately reversed, Pakistan’s textile manufacturing base will be entirely replaced by imports.

This, they cautioned, would lead to an industrial and economic catastrophe.

Notably, this sales tax measure generates no revenue and serves only to benefit imports at the expense of local industry.

APTMA criticized the government for allowing duty-free and tax-free imports while imposing an 18% sales tax on local inputs for export manufacturing, leaving domestic producers especially thousands of SMEs with no choice but to shut down.

Exporters now have a strong incentive to switch to imported inputs, according to the APTMA.

Currently, when procuring domestic inputs, exporters must first pay 18% sales tax and then wait 6-10 months for the production cycle to complete before filing for a refund.

Even then, they face an additional six-month wait to receive the refund only 70% of which is reimbursed, while the remaining amount is indefinitely deferred for manual processing.

No progress has been made on these manual refunds for the past four to five years.

This cash flow crisis is forcing businesses to opt for imported inputs, which are tax-free.

The damaging effects of this flawed policy are already evident in the collapse of the spinning industry, which was already struggling due to high energy costs, excessive taxation, and an uncompetitive business environment.

Pakistan’s textile sector is more than just a manufacturing hub it is a key driver of employment, foreign exchange earnings, and rural economic activity.

The mass shutdown of spinning mills has already resulted in thousands of job losses, creating a ripple effect that has impacted millions of livelihoods.

Additionally, an estimated $15bn in investment, including billions secured under the Temporary Economic Refinancing Facility (TERF), is now at risk.

The unchecked surge in imports is further distorting Pakistan’s trade balance, with valuable foreign exchange being spent on importing raw materials and intermediate goods that could otherwise be sourced domestically.

Rather than strengthening Pakistan’s economic resilience, this policy is eroding it.

The crisis also threatens the cotton economy, as the spinning industry consumes over 16 million bales of cotton annually.

Without demand from local mills, cotton farmers face severe financial hardship, especially in rural regions like South Punjab and Balochistan, where cotton farming supports millions of livelihoods.

Women working in cotton picking already among the most vulnerable will bear the heaviest burden, as their incomes are effectively diverted to foreign farmers under the current policy regime.

APTMA has strongly criticized the government for prioritizing foreign agriculture, industry, and employment over Pakistan’s own textile sector.

Through the sales tax disparity, Pakistan is effectively subsidizing jobs in China, Brazil, the United States, and Uzbekistan at the cost of its own farmers and workers.

Even large-scale cotton cultivation and revival efforts led by the Special Investment Facilitation Council (SIFC) are now at risk.

Expanding cotton production is pointless if the primary industry consuming it is being dismantled.

The situation is further aggravated by Pakistan’s IMF agreement, which prohibits the government from implementing a cotton support price, leaving farmers without any mechanism to ensure profitability.

Unlike other major cotton-producing countries, Pakistan’s cotton is not suitable for export due to quality issues and is primarily consumed domestically, where it is blended with imported cotton.

With the spinning industry in decline, cotton farmers now face uncertainty over who will buy their crop, making them less likely to plant cotton this year a situation that further endangers Pakistan’s already fragile cotton economy.

APTMA has urged the government to take immediate action to prevent a complete industrial collapse.

The most urgent step is to restore the Export Facilitation Scheme (EFS) to its June 2024 framework, including the zero-rating/sales tax exemption on local supplies for export manufacturing.

If full restoration is not possible, APTMA insists that the government must at least apply the same sales tax regime to both local and imported inputs to ensure a level playing field.

Ending the current discriminatory tax structure is essential.

Additionally, the upcoming budget must adopt a graduated sales tax regime, similar to India’s, where inputs along the value chain are taxed at lower rates than final goods.

This approach would enhance compliance, reduce fraud, and improve the competitiveness of domestic manufacturers.

APTMA has emphasized that Pakistan’s textile industry is fighting for survival, and government policies are accelerating its collapse.

Without urgent intervention, the consequences will be irreversible.

The downfall of the spinning sector will devastate cotton farmers, wipe out billions in investment, leave millions jobless, and further weaken Pakistan’s struggling economy.

The government now faces a critical decision support the domestic industry and workforce or continue favoring foreign competitors at Pakistan’s expense.

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