THE proposed budgetary measures will have devastating effects on exports and the economy,leading to factory closures and job losses. The budget makers have failed to give the necessary direction to industrial progress and export promotion.

The textile sector, an important segment of the economy, is already in the grip of a severe crisis, and industrial production is not by the built-up manufacturing capacity. Due to this underutilisation, the country is not fetching the full potential of foreign exchange earnings.

But contrary to expectations, no heed has been paid to this most important sector, and the architects of the budget have failed to realise the importance of major irritations besetting the economy and outline a strategy for their solutions.

Income tax regime change from 1pc Final Tax Regime (FTR) to the Minimum Tax Regime (MTR) is unacceptable as exporters are paying income tax on turnover regardless of profit or loss. The move will increase the bureaucratic hurdles and corruption risks.

Around Rs700bn are stuck in the refund regime creating a severe financial crunch, while Rs38bn of old due refunds have not been fully budgeted. Exporters are bearing 24pc interest on the stuck-up refunds. The budget has further strained exporters` liquidity without any measures to release the liquidity stuck in sales tax and other refund regimes.

The withdrawal of the zero rating on local supplies under the Export Facilitation Scheme (EFS) will lead to a surge in intermediate input imports. An 18pc sales tax plus turnover tax will further hit the local manufacturers, who are already struggling with high energy costs.

These changes will erode Pakistani exporters` competitiveness in the global market, potentially leading to a decline in export revenue and foreign exchange earnings.

The government must reconsider the budgetary measures and restore exporters` confidence by reinstating the 1pc FTR regime, restoring the zero-rating on local supplies under EFS, and allocating appropriate funds for payment of exporters` outstanding refunds to achieve economic growth and put the economy into a lower gear. •