APTMA commends govt for imposing 18% sales tax on imported cotton yarn to ensure level playing field

ISLAMABAD: Chairperson of the All Pakistan Textile Mills Association (APTMA) Kamran Arshad has lauded the government for announcing 18 per cent sales tax on imported cotton yarn.

“This has addressed a major distortion in the market and is a significant step towards resolving the sales tax anomaly in the export facilitation scheme (EFS). It demonstrates the government’s commitment to restoring fairness and balance in the domestic textile value chain, and we commend this decisive action.”

However, this correction being welcomed is insufficient in scope. After having dealt a severe blow to the spinning sector, the sales tax disparity is now eroding the viability of downstream sectors like weaving. The EFS, under which imported inputs for export enjoy a zero per cent sales tax rate while local materials for export are taxed at 18 per cent, continues to place upstream domestic sectors at a gross disadvantage. In his statement, Arshad called for ensuring true competitiveness and sustainability of Pakistan’s textile value chain.

The APTMA urges the government to extend the 18 per cent sales tax to all yarns and fabrics, whether cotton or polyester, imported under the EFS. Moreover, these imports must be placed on the EFS Negative List, imposing a 5.0 per cent customs duty on yarn and 11 per cent on fabric to establish a level playing field and incentivize local manufacturing. Without this, the gains made in one segment will be undone by distortions in another.

The situation with polycotton and polyester yarns is particularly concerning, as they are already approximately 35 per cent more expensive to produce domestically. Subjecting local manufacturers to 18 per cent sales tax while exempting imported polyester inputs undermines industrial policy objectives and discourages investment in local capacity.

The APTMA also reiterates its demand for the removal of sales tax on cottonseed and cottonseed cake -- byproducts of cotton lint, used primarily in livestock feed. These items are not subject to sales tax in any major cotton-producing economy. Imposing 18 per cent GST on these products pushes farmers below their cost of production, especially given the price inelasticity of demand, and drives a damaging shift toward more water-intensive crops. This not only imperils water security but also fuels underreporting of cotton production, thereby reducing revenue collection on cotton lint itself.

We are grateful for the government’s attention and responsiveness to industry concerns thus far. However, without extending similar GST treatment to all EFS imports of yarns and fabrics, the crisis faced by spinning will soon replicate in weaving. Yarn feeds into fabric production, and if locally produced fabric is taxed while imported fabric is not, exporters will inevitably choose the cheaper, untaxed import -- undermining both the fabric and yarn sectors.

In its statement, the APTMA appreciated the government’s broader economic reform agenda, which has yielded substantial relief and renewed confidence across the industrial landscape. The reduction in power tariffs from an unsustainable 16-17 cents per kWh to approximately 11 cents per kWh, the successful curbing of back-breaking inflation, and the lowering of interest rates from 22 per cent to 11 per cent are commendable achievements.