Govt weighs Rs100 billion relief for exporters by removing 1% advance tax

The federal government is considering withdrawing the 1% advance tax on exporters in the upcoming federal budget, a proposal that may provide around Rs100 billion in relief, although officials say broader fiscal support for the sector is not currently under consideration.

Dawn reported that the proposal was being reviewed as part of limited measures for the export sector, particularly textiles, ahead of the federal budget.

The 1% advance tax is charged on export proceeds and has been criticised by exporters for reducing liquidity, particularly at a time when businesses face thin margins and delays in refunds.

Industry data showed exporters paid nearly Rs200 billion in excess advance income tax during FY25 and FY26.

A leading exporter said the proposed relief would return only part of the amount already collected from the sector, while taxes, energy costs and blocked refunds continued to affect operations.

The textile sector, which contributes the largest share to Pakistan’s exports, has submitted budget proposals seeking restoration of the Final Tax Regime (FTR), lower energy tariffs, clearance of more than Rs327 billion in pending refunds and revival of export incentives.

Industry data showed exporters in Pakistan face an estimated effective tax burden of more than 68.27%, higher than regional competitors. Vietnam has a corporate tax rate of around 20%, Bangladesh’s rate ranges from 22.5% to 27.5%, while India applies a graduated structure from 26% to 34%.

Exporters say Pakistan’s tax system carries a higher burden and greater complexity because of multiple levies.

They said the advance tax was applied at the transaction stage regardless of profitability, increasing the cost of doing business even before final income was determined.

Energy prices have also been identified as a major concern for exporters. Industrial electricity tariffs in Pakistan are around 11.5 cents per kilowatt-hour, compared with 6.3 cents in India, 8 cents in Vietnam and as low as 5 cents in Uzbekistan.

Gas prices in Pakistan are about $13.5 per mmBtu, compared with $6 to $7 in India and Vietnam and around $3 in Uzbekistan.

Sources said most of the demands were unlikely to be accepted in the upcoming budget because of revenue targets and ongoing stabilisation commitments.

Industry representatives also pointed to supply reliability issues in Pakistan, while countries such as China and Vietnam provide a stable supply along with preferential industrial tariffs.

Exporters say higher energy tariffs and supply issues have raised production costs and affected export competitiveness.

Pakistan’s indirect tax structure includes a uniform 18% GST on inputs and finished goods, while exporters say refunds can take months or several years.

By comparison, Bangladesh applies reduced or zero-rated value-added tax on export inputs, India processes GST refunds through a structured system that usually takes two to four weeks, while Vietnam and China offer near-immediate or automated refund mechanisms.