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Express Tribune
01-07-2025
- Business
- Express Tribune
Farmers demand end to GST on local cotton
Listen to article Following the government's decision to impose 18% General Sales Tax (GST) on imported cotton and yarn in the amended Finance Bill 2025, farmers and industry groups are now urging authorities to abolish GST on locally produced cotton and its by-products. Pakistan Kissan Ittihad (PKI) President Khalid Mahmood Khokhar has strongly opposed the continued taxation of domestic cotton, saying it unfairly targets local growers and further erodes already thin profit margins. While the Pakistan Business Forum (PBF) welcomed the tax on imported cotton to help restore balance in the textile value chain, it warned that domestic producers still bear the brunt. "Local spinners are still subject to GST, which they recover from farmers, effectively treating them as withholding agents. This is unjust and must be corrected," said PBF South Punjab Chairman Malik Talat Suhail. Cotton farmers, already burdened by soaring production costs, are finding it harder to keep cultivating. According to PKI, cotton output has dropped from 14.8 million bales in 2011-12 to under 7.5 million bales in 2024-25 — a decline of nearly 50%. Meanwhile, imports now exceed 5 million bales, and exports have nearly vanished. One major issue is the widening gap between input costs and output prices. In 2010-11, cotton fetched Rs5,500-6,000 per maund, or about $70 at the exchange rate of Rs85 per dollar. Now, in 2024-25, the price is around Rs7,600 per maund, equal to just $27 due to currency depreciation. This marks a 250% fall in dollar terms, while input costs have skyrocketed. Fertiliser prices have more than tripled in a decade. A 50kg bag of DAP (Diammonium Phosphate), once priced at Rs3,236, now costs Rs12,900 (298% rise). NP (Sarsabz Nitrophos) has jumped from Rs2,108 to Rs8,100 (284%), Urea from Rs1,035 to Rs4,230 (309%), and SOP (Sulphate of potash) from Rs2,807 to Rs10,000 (256%). These hikes have put over 90% of small and medium farmers under severe financial strain. Energy prices have also surged. Diesel has climbed from Rs85 per litre in 2012 to Rs264 in 2025. Electricity for irrigation has risen from Rs4 per unit to Rs42 — a 950% increase. Labour costs are up too, with cotton-picking charges rising from Rs100 per maund in 2010-11 to Rs1,000 per maund today. In response, PKI has outlined urgent reforms. These include abolishing the 14% GST on tractors to support mechanisation and removing the 18% GST on locally made tractor-mounted implements. They also demand removal of GST on "Khal Banaula," a key cotton by-product used in livestock feed. PKI has called for the creation of a Commodity Price Commission to ensure fair pricing and a guaranteed 25% return on farmer investments. They further propose a flat electricity rate of Rs10 per unit for irrigation tube wells and the timely export of surplus produce to stabilise prices and reduce losses. PBF echoed these concerns, stressing that taxes on cottonseed and cottonseed cake — exempt in most cotton-producing countries — hurt farmers and shift cultivation toward water-intensive crops, threatening both agriculture and water security. Both organisations warn that without bold reforms, Pakistan risks becoming a net importer of cotton.
Business Recorder
05-06-2025
- 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
Business Recorder
05-06-2025
- Business
- Business Recorder
PBF seeks 18pc GST exemption on yarn, fabric
KARACHI: The Pakistan Business Forum (PBF) has called on the federal government to exempt yarn and fabric from the 18% General Sales Tax (GST) in the coming Federal Budget 2025–26, warning that the failure to do so could push the country's textile industry toward total collapse. PBF Chairman South Punjab, Malik Talat Suhail emphasised 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 favor imported inputs, causing serious damage to local suppliers. As a result, Pakistan's import of cotton, yarn, and greige 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 favor of more water-intensive crops, placing further stress on national water resources. The 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. The Forum stressed that if current policies are not revised, Pakistan could lose $4–6 billion in potential foreign exchange earnings. Instead, the country continues to rely on expensive foreign loans to cover rising import costs, worsening the trade deficit, unemployment, and tax collection shortfalls. International partners have also taken notice. The United States has signaled that, unless Pakistan addresses its trade imbalance, it may impose a 29% tariff on all Pakistani exports. Though the US has offered to export up to 1.5 million bales of cotton and has invited a Pakistani trade delegation for discussions, the crumbling of local spinning capacity raises the critical question: who will consume the cotton if domestic mills shut down? The 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 the EFS is effectively a 'Pakistan-unfriendly policy'. It undermined 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
