APTMA appreciates 18% sales tax on imported cotton yarn

June 12, 2025 (MLN): The All Pakistan Textile Mills Association (APTMA) has extended its sincere appreciation to the Government of Pakistan for imposing an 18% sales tax on imported cotton yarn.

Terming it a significant step toward correcting a key distortion, APTMA stated that the measure addresses a long-standing sales tax anomaly under the Export Facilitation Scheme (EFS) and reflects the government's commitment to restoring fairness and balance in the domestic textile value chain.

However, APTMA emphasized that the correction, while welcome, remains insufficient in scope, as per the press release issued today.

According to the association, after severely impacting the spinning sector, the existing sales tax disparity is now threatening the viability of downstream sectors such as weaving.

Under the EFS, imported inputs for export are taxed at 0% while domestic materials for the same purpose are subject to an 18% sales tax placing upstream local sectors at a distinct disadvantage.

To ensure sustainable competitiveness, APTMA strongly urged the government to extend the 18% sales tax to all imported yarns and fabrics cotton or polyester under the EFS.

Additionally, it recommended placing these imports on the EFS Negative List, with a 5% customs duty on yarn and 11% on fabric, to level the playing field and promote local manufacturing.

APTMA warned that without this step, improvements in one part of the value chain would be undone by persistent distortions in another.

Particular concern was raised regarding polycotton and polyester yarns, which are approximately 35% more expensive to produce locally.

APTMA noted that exempting imported polyester inputs while taxing domestic production undermines industrial policy and discourages investment in local capacity.

APTMA also reiterated its call for removing sales tax on cottonseed and cottonseed cake—byproducts of cotton lint primarily used in livestock feed.

The association pointed out that these products are not taxed in any major cotton-producing country.

Imposing an 18% GST on them pushes farmers below their cost of production, risks shifting cultivation to more water-intensive crops, and contributes to underreporting of cotton production ultimately affecting revenue collection from cotton lint.

While expressing gratitude for the government’s responsiveness and broader economic reform efforts, APTMA warned that failure to extend similar GST treatment to all EFS imports of yarns and fabrics would soon replicate the spinning sector’s crisis in weaving.

Locally produced fabric, if taxed, will lose out to untaxed imports, disrupting both the yarn and fabric segments.

APTMA urged the government to adopt a comprehensive, value-chain-wide approach.

The core anomaly remains: imported inputs for export are exempt, while local inputs are taxed.

This policy, APTMA argued, penalizes domestic value addition, weakens backward linkages, and hinders the foundation of an export-led growth strategy.

The association praised recent economic reforms, including the reduction in power tariffs from 16–17 cents/kWh to around 11 cents/kWh, the control of inflation, and the slashing of interest rates from 22% to 11%.

APTMA credited these measures with creating the foundation for stabilization and recovery.

However, it concluded that resolving the remaining distortions in the EFS is vital for unleashing the full potential of Pakistan’s textile value chain in terms of investment, employment, and foreign exchange earnings.

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