The warning issued by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) is not rhetorical alarmism; it is a summary of a structural breakdown that has been building for years and is now manifesting in factory closures, job losses, and de-industrialisation, particularly in textiles.
- Scale of the Damage
The figures cited are stark:
- 100+ spinning mills and 400+ ginning factories already non-operational
- 150 large textile units shut down in the last two years
- Widespread contraction in SMEs, described bluntly as being reduced to a “junkyard”
Given that textiles form the backbone of Pakistan’s export economy, this is not a sectoral issue; it is a macroeconomic threat.
- Energy Pricing: The Central Fault Line
FPCCI President Atif Ikram Sheikh identifies electricity pricing as the primary choke point.
Key distortions include:
- Cross-subsidisation: Industry is forced to subsidise domestic consumers
- Capacity charges: Paid even for unused electricity
- Loss absorption: Theft and inefficiencies are priced into industrial tariffs
At approximately 12.5 cents per kWh, Pakistan’s industrial power tariff is uncompetitive compared to India’s roughly 7.5 cents per kWh. In a margin-sensitive export sector, this gap alone is sufficient to render viability unviable.
The frustration is compounded by the fact that even when the National Electric Power Regulatory Authority (NEPRA) determines a tariff reduction, the relief is often not passed through to industrial consumers due to fiscal and political considerations.
- Taxation: Punitive by Design
Pakistan’s export sector operates under one of the most extractive tax regimes in the region, including:
- Advance income tax
- Minimum turnover tax
- Super tax
- Multiple withholding taxes across the supply chain
This is before accounting for chronic refund delays on sales tax and duty drawbacks, which convert exporters into involuntary lenders to the state.
As business leader SM Tanvir noted, the result is a system where:
- Formal exporters are over-taxed
- Non-filers face minimal scrutiny
- Banks and short-term revenue targets appear prioritised over productive activity.
This is not tax policy; it is liquidity destruction.
- External Pressure: Imports and Risk Perception
The crisis is intensified by:
- Under-invoiced yarn and fabric imports, particularly from China
- Loss of domestic market share by local producers
- Rising country risk, flagged in the World Economic Forum 2026 report
Once industrial decline becomes visible to global investors and buyers, it feeds a vicious cycle: higher risk perception → higher financing costs → lower investment → further closures.
- The False Comfort of “Excess Capacity.”
The Power Division’s argument that a large number of subsidised domestic consumers justifies high industrial tariffs misses the economic point.
If electricity exists but cannot be sold competitively to industry, then the system is mispriced. Forcing industry to pay for idle capacity is equivalent to taxing production for policy failures elsewhere.
- Why This Matters Beyond Industry
When factories shut down:
- Employment contracts
- Export volumes fall
- Unit values decline
- Foreign exchange inflows weaken
In a country already constrained by external financing needs, industrial paralysis directly undermines macroeconomic stability.
- What the FPCCI Is Really Asking For
Stripped of rhetoric, the demands are economically orthodox:
- End cross-subsidies on industry
- Bring policy rates down to single digits (first 9%, then 7%)
- Make energy pricing predictable and regionally competitive
- Reduce the tax burden on exporters and ensure timely refunds
This is not about concessions; it is about restoring basic competitiveness.
Conclusion
Pakistan is attempting to grow exports while taxing production, overpricing energy, and penalising formality. No amount of export promotion rhetoric can offset that contradiction.
The FPCCI warning should be read as a final signal:
An economy cannot export its way out of crisis if it prices its factories out of existence.
If energy and taxation are not corrected urgently, the risk is not stagnation but irreversible de-industrialisation—with consequences that will be far costlier than any short-term fiscal relief achieved by squeezing industry today.
