Delay in Refunds Puts Strain on Finances, Impacts Growth of Textile Exports
Exporters have criticized the government for withholding Rs329 billion in dues, including Rs285 billion in tax refunds, exacerbating their liquidity issues amidst low economic growth.
The Pakistan Textile Exporters Association (PTEA), representing major exporters, voiced serious concern over the prolonged and indefinite delay in disbursing outstanding refunds under various categories, according to a statement issued on Tuesday.
Despite repeated assurances, exporters are still awaiting their rightful refunds, which is straining business finances and adversely affecting the growth potential of textile exports, the statement added.
Official data showed that the Federal Board of Revenue (FBR) released only Rs22.5 billion in refunds in October, 25% less than the amount paid during the same period last year. The total refunds released by the FBR in the first four months of the current fiscal year amounted to Rs169 billion, only 6.3% higher than the previous year.
The FBR has been withholding the refunds due to a massive revenue shortfall caused by an unrealistic target agreed upon with the International Monetary Fund (IMF).
The FBR received Rs3.27 trillion till Tuesday and needs to collect another Rs362 billion in two days to meet the four-month revenue target.
Textile exporters, being one of the most compliant sectors, have continued to fulfill their tax obligations and contribute significantly to Pakistan’s economy, said the PTEA. The excessive delay in refunds – related to sales tax, duty drawback, income tax, and mark-up subsidy – has created a severe liquidity crunch.
According to the PTEA, the government owes exporters about Rs329 billion, including Rs285 billion in sales tax and income tax refunds.
Prime Minister Shehbaz Sharif had promised to settle exporters’ refund claims within 24 hours after imposing a standard 29% income tax on exporters in the last budget.
The PTEA reported that the FBR has withheld Rs55 billion in sales tax refunds while deferring refunds of Rs105 billion. Sales tax refunds in September 2024 were paid only against refund payment orders till August 11, 2024, while in October, refunds were paid against orders till August 25.
Non-faster refunds have been paid till September 30, 2024, whereas faster refunds have been provided till August 25, 2024.
A budgetary allocation of only Rs10 billion has been made for duty drawback against the approved payment liability of Rs38 billion, which does not cover the refund claims of December 2022.
The PTEA stated that Rs100 billion in income tax refunds have also been held back by the FBR. This lack of liquidity hinders business operations, stifles growth, and adds a significant financial burden due to accumulated interest costs.
The withdrawal of the Export Financing Scheme on domestic trade has further burdened exporters, who are the driving force of the entire value chain.
Sales tax refunds, which have the highest slab of 18%, are supposed to be paid within 72 hours as per Rule 39F of the Sales Tax Act 2006. However, the refund process is far from swift, often taking over 200 days, according to the PTEA.
These delays, combined with the high financial costs of pending payments, severely restrict exporters’ capacity to reinvest and expand operations.
With textile exports being the backbone of Pakistan’s foreign exchange earnings, these unresolved issues threaten not only the viability of individual businesses but also the overall stability of the country’s trade balance.
Despite these challenges, textile exports have grown by 15% month-on-month since August 2024. “We have an export surplus of $7-8 billion,” said the PTEA.
The PTEA urged the government to immediately expedite the refund process across all categories and demanded urgent action from the relevant authorities to disburse all outstanding refunds and ensure timely processing in the future.
