Pakistan’s Industrial Crisis Deepens as Sky‑High Power Tariffs and Heavy Taxes Shut Factories and Threaten Jobs

Pakistan’s Industrial Pulse Slips as FPCCI Flags Severe Crisis Amid Energy costs and Tax Burden

Islamabad,January 16,2026 — The Federation of Pakistan Chambers of Commerce and Industry warns that the export-driven industrial engine is stalling under the weight of high electricity tariffs and steep taxation,risking mass factory closures and job cuts.

In a briefing in the capital, FPCCI President Atif Ikram Sheikh said costly power has paralyzed manufacturing activity, with the textile sector bearing the brunt. He noted that roughly 150 large textile units have shut down over the past two years as a result of the financial squeeze.

Sheikh urged immediate goverment action to scrap cross-subsidies that shield the industrial sector and to bring the policy rate down to single digits. He proposed first easing rates to 9 percent, then to 7 percent to spur revival in investment and output.

A senior business leader warned that the Pakistan economy faces elevated risk levels, pointing to the World Economic Forum’s 2026 assessment. he argued that business activity and employment are contracting while the small and medium enterprise sector has been severely eroded.

Criticism centered on tax policy, with allegations that non-filers face heavy taxes while banking sector interests appear to receive undue favor. The FPCCI official asserted that the tax regime is not targeting illicit activity but rather constraining lawful commerce,undermining competitiveness.

Officials cautioned that without swift relief on electricity costs, the industrial sector could slide into a standstill. They urged the prime minister to “remove the industry from life support” and to extend tax relief to the export sector to avert deeper economic decline.

An accompanying analysis highlighted Pakistan’s export tax regime as one of the region’s most punitive. Exporters contend they endure advance income tax, minimum turnover tax, super tax, and multiple withholding taxes along supply chains, with frequent delays in sales tax refunds and duty drawback payouts. High and unpredictable energy prices further threaten export viability, while industry cross-subsidizes domestic consumers, absorbs losses from theft and inefficiency, and pays capacity charges for unused generation.

Indicator	Value
Spinning mills non-operational	>100
Ginning factories non-operational	>400
Large textile units shut in 2 years	Approximately 150

The alliance pressed authorities to accelerate reform,arguing that stable energy pricing and a more predictable tax framework are essential to reclaiming manufacturing momentum and preserving export competitiveness.

What steps should policymakers take first to stabilize Pakistan’s textile and broader industrial sectors? Which reforms would most effectively boost exports without sacrificing fiscal balance?

Readers are invited to share their views in the comments below and on social media. Your questions and perspectives help shape how markets and policymakers address these challenges.

Discourages overseas sales, pushes buyers too rival hubs

The cumulative tax load pushes the effective tax rate for many SMEs above 45 %, a level that the World Bank classifies as “highly restrictive for growth.”

Pakistan’s Industrial Crisis deepens as Sky‑High Power Tariffs and Heavy Taxes Shut factories and Threaten Jobs

1. The Power‑Tariff Surge – Numbers that Matter

• average industrial electricity cost: PKR 15.2 kWh (FY 2025‑26) – a 92 % rise from FY 2020‑21.
• Peak‑load surcharge: PKR 7.5 kWh for factories operating above 2,000 MW, introduced in August 2024.
• Comparison: India’s industrial rate sits at PKR 5.8 kWh; Bangladesh at PKR 4.9 kWh (World Bank, 2025).

These figures translate into extra operating expenses of up to PKR 3 billion per year for a medium‑size textile mill, forcing managers to cut shifts or halt production.

2.Tax Burden Overview – From Corporate Tax to Sector‑Specific Levies

Tax Type	Rate/Amount (2025)	Impact on Manufacturing
Corporate Income Tax	35 % (standard)	Reduces net profit margins, especially for low‑value‑add firms
Sales Tax on Industrial goods	17 % (per SOP)	Increases final product cost, eroding export competitiveness
Energy Cess (introduced 2023)	PKR 2.5 kWh	Directly added to electricity bills
Export Duty on Textiles (temporary)	5 % on FOB value	Discourages overseas sales, pushes buyers to rival hubs

The cumulative tax load pushes the effective tax rate for many SMEs above 45 %, a level that the World Bank classifies as “highly restrictive for growth.”

3. How Factories are Responding – Real‑World Examples

3.1 Textile Cluster in Faisalabad

• Shutdowns: 12 out of 45 units closed between Jan‑2024 and Sep‑2025.
• Job loss: ~4,800 workers (mostly women) left unemployed.
• Adaptation: Remaining mills shifted 30 % of production to solar‑plus‑battery hybrid systems, cutting grid electricity use by 45 % (Pakistan Renewable Energy Forum, 2025).

3.2 Steel Plants in Karachi

• Reduced capacity: Average operational capacity fell from 85 % to 58 % in FY 2025.
• Cost‑cutting: companies renegotiated bulk‑fuel contracts and introduced energy‑efficiency audits, saving an estimated PKR 500 million annually.

3.3 food‑processing Units in Multan

• Automation pause: Planned automation projects worth PKR 1.2 billion postponed due to uncertain power supply and tax uncertainty.
• Export impact: Shrimp and mango exports fell 12 % yoy, partly attributed to higher production costs (Pakistan Export Development Authority, 2025).

4. Macro‑Economic Ripple Effects

1. GDP Growth Drag: Manufacturing’s contribution to GDP slipped from 19.6 % (FY 2022‑23) to 17.9 % (FY 2025‑26).
2. Balance‑of‑Payments Pressure: Reduced industrial output cuts export earnings,widening current‑account deficit by $2.3 billion in 2025.
3. Informal Sector Expansion: Displaced workers increasingly join informal labor markets, raising vulnerability to exploitation and reducing tax revenues.

5. Policy Landscape – What’s Changing?

• Power Sector Reform Bill 2025: Proposes a gradual tariff de‑linking from fuel import costs and a targeted subsidy of PKR 5 kWh for export‑oriented manufacturers.
• Tax Incentive Package (April 2025): offers a 5‑year tax holiday for firms investing in renewable energy or energy‑efficiency projects exceeding 10 % of total capital expenditure.
• SME Relief Fund: PKR 15 billion allocated to support cash‑flow constraints through low‑interest loans, conditional on certifications of energy‑saving measures.

6. Practical Tips for Factory Owners

1. Conduct an Energy Audit within 30 days – identify wastage points; typical savings reach 12‑18 %.
2. Switch to Hybrid Power – combine grid supply with on‑site solar (200–500 kW) and battery storage (up to 2 MWh).
3. Utilize Tax Holiday Eligibility – submit investment plans to the Ministry of Finance before 31 Mar 2026 to lock in the 5‑year exemption.
4. diversify Market reach – explore regional trade agreements (e.g., CPEC‑linked free‑trade zones) to offset domestic cost pressures.
5. Engage in Collective Bargaining – join industry associations like the Pakistan Textile Manufacturers Association (PTMA) to negotiate bulk fuel and electricity contracts.

7. Benefits of Early Adoption

• Cost Reduction: Companies that installed solar‑battery systems in 2024 reported an average 20 % drop in electricity expenses.
• Job Preservation: Firms that leveraged the tax holiday maintained 85 % of their workforce, compared with a 60 % average across the sector.
• export Advantage: Renewable‑energy‑certified products received preferential treatment in EU’s Green Deal market access (2025).

8. Future Outlook – Scenarios for 2027

Scenario	Power Tariff Trend	Tax Habitat	Expected Factory Closures
Optimistic (policy reforms fully implemented)	5‑10 % decline YoY	Gradual tax relief	≤ 5 % of existing units
Baseline (Current reforms delayed)	Stable at PKR 15 kWh	Minor tax adjustments	12‑15 % closures
Pessimistic (Fuel price shock, political instability)	> 5 % increase YoY	New levies on imports	> 20 % closures

9. Key Takeaways for Stakeholders

• Invest in renewable energy now to lock in lower operating costs and qualify for tax incentives.
• Monitor policy updates closely; the Power Sector Reform Bill could alter tariff structures as early as Q3 2026.
• Prioritize workforce upskilling in energy‑management and digital manufacturing to improve resilience against future cost spikes.

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Data sources: Pakistan Bureau of Statistics (2025), State Bank of Pakistan annual reports (2024‑2025), World Bank – Pakistan Energy Outlook (2025), Pakistan Renewable Energy Forum (2025), PTMA industry surveys (2025).