The federal government is moving forward with a plan to remove the 18% sales tax on local cotton, yarn, and grey cloth. This decision aims to support local products and make them more competitive against imports. A committee of federal ministers and secretaries discussed the proposal after multiple industry requests. Key stakeholders included the Pakistan Cotton Ginners Association (PCGA) and the All-Pakistan Textile Mills Association (APTMA).
Prime Minister Shehbaz Sharif will have the final say on this proposal in the coming days. Additionally, the government needs approval from the International Monetary Fund (IMF). If the plan goes ahead, local cotton prices could rise by up to Rs1,000 per maund. This change might reduce imports and save foreign exchange currently spent on buying cotton from abroad.
Removing the tax could also help reduce undocumented cotton trade in the domestic market. This is important because it would potentially boost government revenue. Currently, imported cotton and related products are exempt from sales tax. This has caused economic issues, including increased imports and a decline in local cotton farming.
Industry representatives believe that eliminating the sales tax will help revive the local cotton industry. This would reduce the reliance on imports and benefit local farmers by increasing cotton prices. However, if gaining IMF approval proves difficult, some stakeholders suggest imposing a similar tax on imported cotton. This would create a level playing field for local producers.