The Federation of Pakistan Chambers of Commerce and Industry (FPCCI), the country’s foremost business advocacy body, has sounded a grave warning about the deteriorating health of Pakistan’s textile industry once the backbone of the nation’s economy. The organisation warns that a combination of persistently high energy costs, steep taxation, and expensive credit is pushing manufacturers to the brink of collapse, triggering factory closures and impending job losses that could ravage the broader economy.
The Textile Industry’s Crucial Role in Pakistan’s Economy
The textile sector has long been a cornerstone of Pakistan’s industrial output, accounting for an estimated 60% of export earnings and employing millions of workers across urban and rural areas alike. It is deeply embedded in the country’s economic fabric, providing livelihoods to a vast workforce and fuelling foreign exchange inflows that sustain the balance of payments. Yet despite its historic importance, the industry has been struggling under mounting systemic pressures.
High Energy Tariffs: The Central Drag on Competitiveness
One of the most pressing concerns expressed by the FPCCI is the uncompetitive energy tariff structure facing Pakistani manufacturers. According to FPCCI leadership, industries continue to receive electricity bills as high as Rs. 34 to Rs. 35 per unit, despite previous government assurances that tariffs would be reduced to around Rs. 22 per unit. These elevated rates place Pakistani firms at a disadvantage compared to regional competitors such as Bangladesh, India, and Vietnam, where industrial power costs are significantly lower.
Energy costs are particularly critical for the textile sector, which is highly energy-intensive from running spinning and weaving machinery to dyeing and finishing fabrics. Industry bodies have repeatedly underscored that electricity and gas tariffs in Pakistan have risen far above levels seen in competing nations. For instance, industrial power costs that average around 13 cents per kilowatt-hour in Pakistan are notably higher than the 7 to 10 cents paid by manufacturers elsewhere in the region.
Moreover, the current tariff regime includes cross-subsidies, where industrial consumers effectively subsidise lower rates for other classes of electricity users. This has had the unintended effect of inflating industrial production costs still further, eroding competitiveness and squeezing profit margins for exporters.
In addition to electricity, gas tariffs have also surged dramatically in recent years, affecting captive power plants and other gas-dependent operations critical to textile manufacturing. Past industry reports highlight cases where gas tariffs more than doubled, intensifying operational costs across the sector.
Tax Regime: A Heavy Financial Burden
Compounding the energy crisis is an oppressive tax environment that businesses argue is stifling growth. FPCCI officials are urging the government to slash corporate tax rates on industry from 39% to 20%, and to reduce the tax burden on salaried individuals, arguing that the current regime is unsustainable.
Taxation challenges extend beyond headline corporate tax figures. Many exporters are subject to a web of levies, including advance income tax on export proceeds, sales tax, and other provincial and federal charges. These layers of taxation strain liquidity and divert funds away from critical investments in technology, capacity upgrades, and workforce development. Notably, some smaller exporters face issues with delayed tax refunds, which further tightens cash flow and undermines competitiveness.
The combined effect of energy costs and taxes has led some observers to describe the overall burden on exporters as antagonistic to growth, with effective tax rates in certain cases approaching unsustainably high levels when combined with levies and regulatory duties.
Factory Closures and Rising Unemployment
The consequences of these economic pressures are already manifesting on the ground. FPCCI officials report that around 150 large textile units have shut down in the past two years alone, a trend that signals a deepening industrial erosion.
Independent research suggests the problem could be even more pervasive. Some analyses estimate that 25–30% of garment and textile factories may have closed or scaled back operations in recent years, leading to the loss of as many as 700,000 jobs a staggering figure with serious socio-economic implications.
The shutdown of factories not only affects factory workers but also has a cascading impact across the entire value chain, including cotton growers, transporters, suppliers of machinery, and service providers who depend on a thriving textile ecosystem. This could translate into rising unemployment, stagnant local demand, and increased pressure on social safety nets, particularly in regions heavily reliant on manufacturing jobs.
Calls for Policy Reforms and Government Action
In response to these mounting challenges, the FPCCI has called on the government to take decisive action. Among the key recommendations are:
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Declaring an industrial emergency to mitigate the ongoing erosion of manufacturing competitiveness.
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Urgent reduction of energy tariffs to regionally competitive levels to restore export viability.
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Tax reform, aimed at significantly lowering the burden on industrial enterprises and streamlining incentives for exporters.
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Interest rate cuts, which the FPCCI has suggested should be reduced first to 9% and then to 7% to stimulate investment and reduce the cost of capital.
Industry leaders argue that without such structural reforms, the textile sector may continue to erode, reducing Pakistan’s share in global markets and diminishing its contribution to GDP and employment.
Looking Ahead: Risks and Opportunities
The plight of Pakistan’s textile industry underscores a key economic dilemma: balancing fiscal and revenue needs with the imperative to sustain industrial growth. While the government faces pressures to raise revenues and manage energy subsidies, many business leaders argue that sacrificing industrial competitiveness in the short run could produce far greater economic costs in the long run including higher unemployment and loss of export revenues.
If policy adjustments are made to align energy costs and taxes with regional standards, there is potential not only to arrest the decline but also to reignite growth in the textile sector. With global demand for textile and apparel products on the rise, competitive policy frameworks could help Pakistani manufacturers reclaim lost market share and generate new employment opportunities.
However, the window for such reforms appears narrow. Without timely and meaningful government intervention, the long-term viability of Pakistan’s textile industry and the economic stability it supports remains at serious risk.
In summary, the tensor of high energy tariffs, steep taxation, and restrictive credit conditions has placed Pakistan’s textile industry in an increasingly precarious position. Urgent reforms are needed to prevent further factory closures, revive exports, and protect millions of jobs dependent on this critical sector. The FPCCI’s warnings serve as a stark indicator of the deep-seated challenges facing Pakistan’s industrial economy today.
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