Islamabad, May 13, 2025 — The government of Pakistan is considering a significant tax reform by planning to abolish the 18% sales tax on locally produced cotton in the upcoming federal budget for 2025-26.
The move aims to support the domestic cotton industry and create a level playing field between local producers and importers.
Parliamentary Secretary for Finance and Revenue, Saad Wasim Sheikh, informed the National Assembly on Monday that the government is actively reviewing the current tax structure. Responding to a calling attention notice by MNA Sehar Kamran, Sheikh admitted that the high sales tax on cotton produced locally is unfair and burdensome, especially when compared to imported cotton, which is exempt from sales tax under the Export Facilitation Scheme (EFS).
He emphasized the importance of tax equality, stating, “There should be no discrimination in taxation. Local and imported cotton must be treated uniformly.” He noted that this disparity discourages local cotton production and affects the competitiveness of domestic ginners and textile manufacturers.
Sheikh highlighted that the issue of sales tax on cotton was recently discussed in a high-level meeting between the finance minister and representatives of the cotton ginning industry. During the talks, strong support was voiced for removing the sales tax on locally produced cotton while maintaining the levy on imported cotton not covered under the EFS.
Currently, only importers registered under the EFS benefit from the exemption, creating a loophole that disadvantages domestic cotton growers. The proposed removal of sales tax on local cotton would help revive Pakistan’s cotton sector, reduce input costs for manufacturers, and boost agricultural output.
The FBR is evaluating the impact of this policy change and considering the revenue implications. However, the government appears committed to supporting cotton producers by reforming the current sales tax regime.
If implemented, abolishing the sales tax on cotton could mark a turning point for Pakistan’s agriculture and textile sectors, strengthening local industries and promoting fairer tax practices across the board.