ISLAMABAD: The federal government has agreed, in principle, to remove the 18% sales tax on locally sold cotton, cotton yarn, and grey cloth, aimed at creating a more competitive environment for local products against imported goods.
This decision was discussed by a committee of federal ministers and secretaries following requests from various industry bodies, including the Pakistan Cotton Ginners Association (PCGA) and the All-Pakistan Textile Mills Association (APTMA). The committee met in Islamabad on Monday and reached a consensus to withdraw the sales tax.
However, the final approval is still required from Prime Minister Shehbaz Sharif, who is expected to make his decision in the coming days. The initiative also requires approval from the International Monetary Fund (IMF).
If implemented, the tax removal is anticipated to increase local cotton prices by as much as Rs1,000 per maund, reduce cotton imports, and save significant foreign exchange spent on imports.
Additionally, it could help curb the rise in undocumented cotton trade in the domestic market, potentially improving government revenue.
Currently, imported cotton, yarn, and grey cloth are exempt from sales tax under the Export Facilitation Scheme, while domestic sales are taxed. This discrepancy has led to an economic crisis, with rising cotton imports and a decline in local cultivation.
Industry stakeholders had called for the sales tax on local cotton products to be removed to restore balance and improve local production.
In response to these concerns, Prime Minister Sharif set up a committee consisting of Finance Minister Aurangzeb, Planning Minister Ahsan Iqbal, and Commerce Minister Jam Kamal Ahmed, along with other relevant officials. After holding discussions with stakeholders, including the PCGA, APTMA, and the Pakistan Ready-Made Garments Manufacturers & Exporters Association (PRGMEA), the committee agreed to the proposal.
PCGA representatives expressed optimism that the tax removal would help revive the cotton industry, reduce the need for imports, and increase cotton prices, benefiting local farmers.
However, if IMF approval proves difficult to obtain, stakeholders have suggested that at least a similar tax be imposed on imported cotton to ensure fairness for local growers and industries.
