ISLAMABAD: The federal government has reportedly imposed an 18% sales tax on the import of cotton fiber, yarn, and greige cloth, nearly a month after the announcement was made in the Federal Budget 2025–26.
The decision follows sustained lobbying by the All-Pakistan Textile Mills Association (APTMA), which had warned of a looming crisis in the domestic cotton market due to unequal tax treatment.
Sources confirmed that the Federal Cabinet has approved the Finance Ministry’s summary through circulation, fulfilling the commitment made to APTMA to align tax policy between imported and locally produced raw materials under the Export Facilitation Scheme (EFS).
APTMA Chairman Kamran Arshad had formally written to Finance Minister Senator Muhammad Aurangzeb on July 18, urging immediate issuance of a Statutory Regulatory Order (SRO). The letter highlighted that, despite clear budgetary commitments, the delay in implementation had created significant uncertainty in the market.
Initially, APTMA had sought complete removal of these imports from the EFS, arguing that unrestricted and untaxed imports were harming the domestic textile industry. However, during budget consultations, the government agreed instead to equalize the sales tax regime for both local and imported inputs used for exports, rather than removing them from the facilitation scheme.
The delay in issuing the SRO, according to APTMA, contributed to depressed demand for Pakistan’s new cotton crop, which began arriving on the market this month. With the tax disparity in place, local mills and traders had shifted towards untaxed imports, avoiding domestic raw materials and creating uncertainty in the procurement process.
APTMA warned that without a level playing field, the textile sector — which represents over 50% of Pakistan’s exports — would suffer long-term consequences. While the sector posted a $1.5 billion export increase in FY 2024–25, it also saw imports surge by $1.5–$2 billion, neutralizing gains and pressuring the trade balance.
As of now, the Finance Ministry has yet to issue an official statement, but the approval marks a key step toward restoring market stability and encouraging local procurement.
