Textile Industry Warns Imported Fabric Loopholes Undermine Local Producers

The All Pakistan Textile Mills Association (APTMA) has urged the Federal Board of Revenue (FBR) to immediately plug loopholes in the Export Facilitation Scheme, warning that continued misdeclaration of imported cotton fabric is hurting domestic manufacturers.

In letters sent to the tax authority, the All Pakistan Textile Mills Association said that despite the exclusion of raw cotton, cotton yarn and grey fabric from the Export Facilitation Scheme under SRO 1435(I)/2025, imports of woven cotton fabric under Chapter 52 of the Pakistan Customs Tariff are continuing through alternative descriptions such as “prepared for dyeing”.

APTMA said this practice has allowed imported fabric to remain zero-rated under the scheme, while identical locally produced fabric is subject to 18 percent sales tax, placing domestic spinning and weaving units at a severe disadvantage.

According to the association, the issue was first highlighted in December 2025, when it warned the Federal Board of Revenue that grey cotton fabric was still being imported under different labels despite its exclusion from EFS. However, it said the misuse has continued without interruption.

The association noted that importers have increasingly shifted to semi processed and partially processed grey cotton fabric to bypass restrictions, undermining the intent of the scheme and distorting competition in the local market. It said the abuse has expanded from yarn to fabric imports, threatening the viability of upstream textile units.

APTMA also pointed out that since zero rating on local supplies was withdrawn in the FY2024 budget, misuse of the Export Facilitation Scheme has increased. In several cases, inputs imported under EFS were allegedly diverted for domestic sales, while exports were shown against goods produced using locally sourced inputs, resulting in revenue losses for the exchequer.

In its latest communication, the association has formally asked the FBR to exclude all woven cotton fabric falling under Chapter 52 from the scope of the Export Facilitation Scheme. It has also called for strict enforcement measures to stop misdeclaration and circumvention, and to ensure a level playing field for dthe omestic industry.

The association warned that timely corrective action is critical to protect local manufacturing capacity and prevent large-scale displacement of domestic producers by imported fabric.