Textile mills and manufacturers

Sales tax, input adjustment, export zero-rating and duty on raw materials. Each answer below explains one point in plain words, works through an example, and links the exact section of the law it relies on.

• Is my input tax lost if I paid the supplier in cash instead of through the bank?Section 73 of the Sales Tax Act requires bank payment above Rs. 50,000 per supplier in a tax period. Pay in cash and input tax, refund and zero-rating are lost.
• What counts as a cottage industry for sales tax, and can a small power loom or weaving unit avoid registration?A weaving unit escapes sales tax registration only if it meets all four cottage industry tests in section 2(5AB). Failing one makes it a manufacturer.
• What special sales tax and income tax rules apply to a cotton ginning factory?Rule 34(1)(a) lets cotton ginners claim excess input tax refund in any month. The old section 153 opt-out for ginners was omitted in 2016, so buyers deduct tax.
• What special sales tax and income tax rules apply to a cotton ginning factory?Ginners may claim excess input tax refund in any month, and their income tax is capped at 1% of turnover from lint, seed, oil and cake as final tax.
• Does federal excise duty apply to anything a textile mill makes or buys?Section 16 of the Federal Excise Act exempts goods and services not in the First Schedule, which has no textile entries. A mill can still bear duty on inputs.
• Under the Export Facilitation Scheme, which category does a textile manufacturer fall in, what security must it give, and can it bring in machinery?How the Export Facilitation Scheme places textile mills in categories A to C, the bond, cheque or guarantee each gives, and the five-year rule for machinery.
• Under the Export Facilitation Scheme, which category does a textile manufacturer fall in, and what security and time limits apply?How the Export Facilitation Scheme sorts textile exporters into categories A, B1, B2 and C, the security each gives, and the 24 to 60 month utilization periods.
• Under EFS, how much output can I sell in the local market and what duty, tax and surcharge apply?Rule 886 lets an EFS user sell up to 20% of output locally on duty and taxes as if imported. Above that, a KIBOR plus 3% surcharge is added on input value.
• How can a manufacturer get an exemption or reduced-rate certificate so buyers or customs deduct less income tax?Section 159 lets the Commissioner issue exemption or lower rate certificates for advance tax and withholding, with a 15-day deemed issue for companies via Iris.
• How much income tax is collected through a mill's industrial electricity bill, and can it be adjusted?Section 235 collects advance tax on industrial electricity bills: Rs. 1,950 plus 5 percent above Rs. 20,000. Companies adjust it; others bear some minimum tax.
• If I supply yarn or fabric to an exporter locally as an indirect exporter, what income tax and sales tax treatment applies?Section 154(3) and 154(3B) deduct 1.25 percent from local supplies to exporters as minimum tax, and EFS rules let such inputs move on zero-rated invoices.
• Which purchases can a registered manufacturer claim as input tax, including sales tax on industrial electricity and gas bills?Section 7 lets a registered mill deduct input tax on invoices and utility bills in its name. Section 8 lists purchases whose input tax can never be claimed.
• When is input tax disallowed because of the supplier, such as fake invoices, unpaid tax or a blacklisted or non-active supplier?Section 8 bars input tax on fake invoices and unpaid supplier tax, section 21(3) rejects blacklisted suppliers' invoices, and rule 12A covers non-active ones.
• What penalty and default surcharge apply if a manufacturer files the monthly sales tax return late or pays less than due?A late sales tax return costs Rs. 50,000, or Rs. 2,000 a day if filed within ten days. Late tax adds default surcharge at 12% a year or KIBOR plus 3% if higher.
• Is sales tax charged when a mill imports new machinery, and can it be claimed back?Imported looms and spinning machines pay 18% sales tax under section 3 unless an exemption fits. It is input tax and sits outside the 90% cap in section 8B.
• How is sales tax charged when a unit dyes, processes or weaves someone else's yarn or fabric on conversion charges?The Sales Tax Act treats a unit working on goods it does not own as a manufacturer and its return of those goods as a supply, and adds a 2026 withholding entry.
• What sales tax rate applies to yarn and fabric today, and is any textile supply still zero-rated?Local supplies of yarn and fabric carry the 18% standard rate under section 3. Section 4 zero-rates exports and Fifth Schedule supplies, not local textiles.
• Does a factory or manufacturing unit have to register for sales tax, and what does FBR ask a manufacturer for at registration?Section 14 requires every manufacturer that is not a cottage industry to register for sales tax. Rule 5 lists the machinery photos and checks FBR asks for.
• Why can FBR suspend or blacklist a manufacturer's sales tax registration, including for not integrating e-invoicing, and how is it restored?Section 21 grounds for suspending or blacklisting sales tax registration, including e-invoice and section 40C failures, the show cause timeline and restoration.
• When a company or government buyer withholds one-fifth of the sales tax on my invoice, how do I account for it in my return?Section 3(7), the Eleventh Schedule and rules 150ZZI and 150ZZJ explain when a buyer withholds one-fifth of your sales tax and how the supplier claims it.
• How much income tax is deducted under section 153 when a manufacturer supplies goods, and is it minimum tax or adjustable?Section 153 deducts 5% for companies and 5.5% for others on goods in tax year 2027, doubled off the active list, and is adjustable for manufacturing companies.
• What tax does an exporter deduct when paying a unit for stitching, dyeing, printing, embroidery, washing, sizing or weaving?Section 153(2) makes exporters deduct income tax at 1.25 percent when paying for stitching, dyeing, printing, embroidery, washing, sizing or weaving services.
• How long does FBR have to pay a textile exporter's sales tax refund, and is compensation due if it is late?Section 10 sets 45 days for an export sales tax refund, FASTER targets payment orders in 72 hours, and section 67 adds KIBOR compensation when a refund is late.
• Why can a manufacturer adjust input tax only up to 90% of output tax, and how is the remaining input tax recovered?Section 8B caps input tax adjustment at 90% of output tax, except on capital goods. The rest is carried forward or adjusted or refunded after the year ends.
• How does FBR fix allowable wastage for a manufacturer, and how does it limit input tax on wasted material?How the Board fixes and notifies input wastage limits through IOCO under Chapter IV-A of the Sales Tax Rules, and why input tax on excess wastage is lost.
• As a textile company or exporter, when must I withhold sales tax from payments to my own suppliers?The Eleventh Schedule makes companies sales tax withholding agents: 1/5th from active taxpayers, 5% of gross value from others, with key exclusions for mills.
• Why is part of my export sales tax refund deferred or held back, and what does the law say happens next?Rules 39C to 39G and sections 10 and 21 explain why part of an export sales tax refund is held back, from weekly FASTER checks to proceeds realisation.
• What withholding tax applies to toll manufacturing, such as processing or converting someone else's yarn or fabric?Section 153 treats toll manufacturing as sale of goods, taxed at 9% for companies and 11% for others in tax year 2027, against 5% and 5.5% for ordinary goods.