Textile mills in Pakistan urge tax authority to offset super tax with refunds

Pakistan’s textile industry has urged the Federal Board of Revenue to allow super tax liabilities to be adjusted against long-pending tax refunds, warning that aggressive recovery following a recent court ruling could deepen liquidity pressures and disrupt export activity.

In a statement issued Monday, the All Pakistan Textile Mills Association said manufacturers and exporters are not in a position to make large tax payments in a single tranche, particularly amid a slowdown in export orders and what it described as a weak business environment.

APTMA Chairman Kamran Arshad said the export-oriented textile sector has faced mounting liquidity constraints in recent months due to high energy costs, double-digit interest rates, heavy taxation and large-scale imports of raw materials and intermediate goods that have displaced domestic upstream industries.

He said immediate recovery of super tax running into hundreds of billions of rupees would drain working capital, disrupt cash flows and make it difficult for businesses to meet routine obligations such as salaries, utility bills and debt servicing.

“The demand for payment of super tax in one tranche is neither practical nor workable,” Arshad said, adding that such a move could further weaken the national economy.

APTMA urged the tax authority to offset super tax liabilities against outstanding income tax, sales tax and other refund claims pending for years, including under schemes such as the Textile Upgradation Fund and Duty Drawback of Local Taxes and Levies. Any remaining liability, it said, should be converted into business-friendly instalments spread over a reasonable period.

The association also raised concerns over the calculation of super tax under Section 4C of the Income Tax Ordinance for exporters, noting that exporters remained under the Final Tax Regime through tax year 2024.

Arshad said super tax for exporters should be computed on the basis of “imputable income”, derived by reverse-calculating income corresponding to tax already paid under the Final Tax Regime to arrive at an equivalent liability under the normal tax regime.

He called on the FBR to engage with APTMA and other stakeholders to develop a clear and uniform methodology for determining imputable income, warning that differing interpretations could expose exporters to inconsistent tax treatment.

APTMA also urged the tax authority to suspend recovery proceedings until these issues are resolved.

Arshad warned that failure to provide relief could lead to widespread closures of small and medium-sized enterprises and export-oriented textile mills, reduce foreign exchange earnings, shrink the tax base and result in large-scale job losses.

“Without a workable mechanism, recovery of super tax will hurt the very sectors that generate exports and revenue,” he said.