The government is reportedly considering abolishing the 1pc advance tax imposed on exporters in the upcoming federal budget, a move that could provide around Rs100 billion in relief to the export sector.

However, officials indicate that this relief is likely to be limited and targeted, with no major structural reforms currently expected for the struggling export industry.

The textile sector, which forms the backbone of Pakistan’s exports, has strongly pushed for broader changes, including restoration of the Final Tax Regime (FTR), clearance of over Rs327 billion in pending refunds, reduction in energy tariffs, and revival of export incentives.Despite these demands, sources suggest most of them may not be accommodated due to fiscal constraints and ongoing stabilisation commitments.

Exporters argue that the existing tax structure is highly burdensome, with an estimated effective tax load exceeding 68pc, significantly higher than regional competitors such as India, Vietnam, and Bangladesh.

They also highlight that advance tax deductions severely impact liquidity as it is charged regardless of profitability, while delayed refunds further restrict working capital.Industry stakeholders note that exporters have already paid nearly Rs200 billion in excess under the 1pc advance income tax during FY25 and FY26.Energy costs remain another major concern, with Pakistan’s industrial electricity and gas tariffs significantly higher than competing economies.Additionally, inefficiencies in the GST and refund system further trap liquidity for months or even years.

Exporters and industry representatives have also proposed reforms such as phased removal of super tax, abolition of minimum turnover tax, and a progressive GST structure to reduce pressure on manufacturing inputs.Overall, while the proposed tax removal offers partial relief, the sector continues to demand comprehensive reforms to restore competitiveness.