The federal government is considering a major tax relief package for exporters in the upcoming Budget 2026-27 by abolishing the 1 percent advance income tax on export proceeds, a move that could provide relief of around Rs. 100 billion to the export sector.
According to officials involved in budget consultations, the proposal is among the key measures being reviewed to support exporters amid rising production costs and increasing regional competition. The textile sector, which accounts for the largest share of Pakistan’s exports, is expected to be the primary beneficiary of the proposed tax relief.
Currently, exporters are required to pay a 1 percent advance income tax at the time of receiving export proceeds, regardless of whether they earn a profit. Business leaders have long argued that the tax creates unnecessary pressure on cash flows and working capital, reducing the competitiveness of Pakistani exporters in global markets.
Industry estimates suggest that exporters paid nearly Rs. 200 billion in advance income tax during FY2024-25 and FY2025-26. The proposed measure would partially offset that burden and improve liquidity for export-oriented businesses.
Ahead of the budget announcement, the textile industry has also submitted a broader set of demands to the government. These include the restoration of the Final Tax Regime (FTR), reduction in energy tariffs, payment of over Rs. 327 billion in pending tax refunds, revival of export incentive schemes, and the phased withdrawal of the super tax.
However, officials indicate that many of these proposals may face challenges due to fiscal constraints and Pakistan’s commitments under its economic reform and stabilization program.
Exporters maintain that Pakistan’s manufacturing sector faces one of the highest effective tax burdens in the region, estimated at more than 68 percent. They argue that competing countries such as Vietnam, Bangladesh, and India offer more favorable tax regimes, faster refund mechanisms, and lower energy costs, enabling their exporters to remain more competitive internationally.
Energy pricing remains a major concern for the business community. Industrial electricity tariffs in Pakistan are significantly higher than those in several competing economies, while gas prices continue to increase production costs for export-oriented industries.
Businesses have also highlighted persistent delays in the processing of GST and other tax refunds, which lock up billions of rupees in working capital. Industry representatives say that while eliminating the 1 percent advance tax would provide welcome relief, broader reforms in taxation, energy pricing, and refund systems are necessary to boost exports and strengthen Pakistan’s global competitiveness.
With the federal budget expected in the coming weeks, exporters are closely watching whether the government adopts the proposed tax relief measures to support economic growth and foreign exchange earnings.
