18% Sales Tax Forcing Cotton Factories to Shut Down

Pakistan’s cotton ginning industry has entered a fresh crisis after several ginning factories in Sindh began shutting down barely a month into the new cotton season, with industry representatives blaming the government’s decision to retain an 18% sales tax on the sector in the federal budget.

According to industry officials, ginning factories in Tando Adam have already suspended operations, while similar closures are feared in other major cotton-producing districts, including Sanghar, as falling cotton prices and rising tax costs make operations financially unviable.

The latest crisis follows the federal government’s decision to retain the 18% sales tax on cottonseed and oil cake despite repeated requests from the All Pakistan Textile Mills Association (APTMA) and cotton ginners for tax relief ahead of the FY2026-27 budget. Industry representatives said they had been assured the tax burden would be reduced, but no such relief was included in the Finance Act.

The tax decision has coincided with a sharp decline in domestic cotton prices. The Karachi Cotton Association’s spot rate has fallen by Rs. 4,000 to Rs. 17,500 per maund, while cotton prices in Punjab have dropped to Rs. 17,800 per maund. Cottonseed prices have also declined from Rs. 4,800 to Rs. 3,400 per maund, and oil cake prices have fallen from Rs. 5,200 to Rs. 3,500 per maund.

The financial pressure has been worsened by recent heatwaves, which have reduced cotton quality and lint recovery, further squeezing margins for ginners. They warn that continued factory closures could leave farmers with fewer buyers for their crop and encourage undocumented trading outside the formal market.

The Pakistan Cotton Ginners Association (PCGA) has also raised concerns over alleged market manipulation, accusing some digital information platforms of publishing unverified cotton prices that undermine market confidence. The association has urged market participants to rely only on verified transaction data.

The cotton sector has already been grappling with documentation challenges. According to the Cotton Ginners Forum, while official PCGA figures recorded 5.5 million bales during the 2025-26 cotton season, actual production was estimated at around 7 million bales, suggesting nearly 1.5 million bales remained outside the documented economy.

The PCGA is scheduled to release its first cotton arrival and production report for the 2026-27 season on July 18.