4 days ago
- Business
- Business Recorder
PBF urges govt to exempt local cotton, seed, yarn, fabrics from 18pc GST
LAHORE: The Pakistan Business Forum (PBF) has called on the federal government to exempt local Cotton, yarn, Fabrics, Oil cake, seed cotton and oil from the 18% General Sales Tax (GST) in the upcoming Federal Budget 2025–26, warning that the failure to do so could push the country's Agriculture and textile industry toward total collapse.
PBF Chairman South Punjab, Malik Talat Suhail while talking to media emphasized that the Export Finance Scheme (EFS), introduced to phase out subsidies and promote exports, has instead proven detrimental to the textile sector. Under EFS, imported raw materials are exempted from both sales tax and customs duty, while local inputs continue to be taxed at 18%. Though this tax is technically refundable, in practice, only 60–70% of refunds are released. The refund process is plagued by delays, manual processing, and high costs—issues that disproportionately harm small and medium-sized enterprises (SMEs).
This imbalance has led many exporters to favour imported inputs, causing serious damage to local suppliers. As a result, Pakistan's import of cotton, yarn, and fabric surged by $1.5 billion in FY 2025, climbing from $2.19 billion to $3.64 billion.
In contrast, textile exports rose by only $1.4 billion and net textile exports are projected to decline from $14.0 billion to $13.6 billion. Over 120 spinning mills and more than 800 ginning factories have shut down, while protests from loom workers in Faisalabad are growing. SMEs are particularly vulnerable, as they face multiple tax payments at every stage of production and have limited access to cheaper imported alternatives, unlike larger firms.
The current situation has placed severe pressure on the country's foreign exchange reserves, especially as the number of commercial import licenses has tripled from 800 to 2,400. Meanwhile, local cotton production has fallen to a historic low of just 5 million bales, with further declines anticipated. Due to a lack of government support and declining demand, many farmers are abandoning cotton cultivation in favour of more water-intensive crops, placing further stress on national water resources.
PBF also warned that the collapse of the cotton economy is stripping rural areas of $2-3 billion in income, with women cotton-pickers among the hardest hit. 'Pakistan is currently the only country imposing an 18% sales tax on cottonseed and cotton feed, driving farmer income below the cost of production and hitting the poorest segments of society the hardest'. Rising unemployment and declining rural earnings are further exacerbating the economic crisis.
PBF South Punjab Chief has urged the government to immediately delist cotton, yarn, and fabric from the current EFS policy. He further stated that maintaining GST on local cotton while exempting imports under EFS is effectively a 'Pakistan-unfriendly policy'. It undermines local production, weakens the economy, and benefits only opportunistic importers. Without urgent reforms, the country risks facing a deepening economic crisis driven by misguided policy decisions.
Copyright Business Recorder, 2025
