Islamabad: The federal government is considering abolishing the 1% advance tax on export proceeds in the upcoming FY2026-27 budget, a move that could hand exporters nearly Rs100 billion in liquidity relief at a time when Pakistan’s export sector is complaining of rising costs, stuck refunds and shrinking competitiveness.
Officials have not yet announced a final decision, but the proposal is being reviewed as part of budget preparations. The measure, if approved, would remove one layer of taxation on export receipts, though exporters say the sector needs a much broader package to regain momentum. Dawn reported that no wider fiscal support for exporters is currently on the table.
The demand has been building for weeks. The Pakistan Business Council has urged the government to withdraw the 1% advance income tax withholding on export realisation, arguing that it diverts working capital away from exporters and works against the prime minister’s export-led growth agenda.
Textile exporters, Pakistan’s biggest foreign-exchange earning manufacturing segment, are pressing even harder. The Pakistan Textile Council has called for reinstating the Final Tax Regime at 1% of export turnover, clearing Rs327 billion in outstanding refunds, abolishing super tax on exporters, and ensuring refund payments within 60 days.
For many exporters, the issue is not just the tax rate. It’s cash flow. Industry representatives say billions of rupees are trapped in advance taxes, sales tax refunds and other pending claims, forcing businesses to borrow at high cost just to keep production lines running. Profit reported this week that textile-sector estimates put stuck capital in refunds, advance taxes and GST inventory at several hundred billion rupees.
The government, meanwhile, is trying to balance industry demands with tight fiscal space. Pakistan’s upcoming budget is being prepared under pressure from debt servicing, weak investment, and IMF-linked fiscal discipline, leaving limited room for large tax cuts. That makes the proposed withdrawal of the 1% export tax politically useful, but financially sensitive.
Budget activity is now entering its final stretch. President Asif Ali Zardari has summoned the National Assembly and Senate sessions for June 5, 2026, with the NA set to meet at 5pm and the Senate at 6pm. Reports suggest the actual budget presentation could move into the second week of June, depending on the government’s internal schedule.
Exporters will be watching closely. Removing the advance tax would offer immediate breathing room, especially for firms squeezed by energy prices and delayed refunds. But, frankly, the sector is unlikely to treat it as a breakthrough unless the budget also tackles deeper problems: refund delays, audit pressure, high borrowing costs and policy uncertainty.
For now, the proposal signals that Islamabad understands the pain in the export sector. Whether it is ready to do enough about it — that answer will come when the finance bill lands in parliament.
