The federal government is considering abolishing the 1 percent advance tax on exporters in the upcoming federal budget, a move that could provide relief worth nearly Rs100 billion to the export sector. The proposal is currently under discussion as part of limited support measures aimed at helping exporters, particularly the textile industry, which has been demanding broader reforms.
According to officials involved in the budget-making process, the government is reviewing the possibility of removing the advance tax charged on export proceeds. Exporters have long argued that the tax places unnecessary pressure on their cash flow by reducing working capital, especially at a time when profit margins are already under strain and tax refund payments remain delayed.
Industry estimates suggest that exporters paid almost Rs200 billion in excess under the 1 percent advance income tax during fiscal years 2025 and 2026. Representatives of the export sector believe that removing the tax would only return a portion of the funds that have already been collected, while many other financial challenges remain unresolved.
Pakistan’s textile sector, which contributes the largest share of the country’s exports, had submitted a detailed set of recommendations before the budget. These included the restoration of the Final Tax Regime (FTR), lower energy tariffs, the release of more than Rs327 billion in pending refunds, and the revival of export incentive schemes. However, sources indicate that most of these proposals are unlikely to be included in the upcoming budget due to revenue constraints and the government’s ongoing economic stabilization commitments.
Industry leaders continue to express concern over Pakistan’s high taxation levels compared to regional competitors. According to available data, exporters in Pakistan face an effective tax burden of more than 68.27 percent. In comparison, Vietnam maintains a corporate tax rate of around 20 percent, Bangladesh applies rates between 22.5 and 27.5 percent, while India follows a tax structure ranging from 26 to 34 percent.
Business representatives argue that the lower and more predictable tax systems in competing countries allow exporters to retain higher profits, invest in expansion, and remain competitive in international markets. They warn that without broader reforms, Pakistan’s export sector may continue to struggle despite the proposed tax relief.
