Govt Withdraws Sales Tax Exemption on Imported Cotton Yarn

ISLAMABAD: The federal government has officially withdrawn sales tax and duty exemptions on imported cotton and yarn, aiming to strengthen domestic cotton farming and revive Pakistan’s textile sector.

Finance Minister Muhammad Aurangzeb announced during his concluding speech on the Finance Bill 2025-26 in the National Assembly. He said that previous policies had allowed exporters to import raw materials, including cotton and yarn, free of taxes and duties to support exports.

However, Aurangzeb cited data from the past three years showing a stark price disparity between imported and local cotton, which had adversely affected domestic farmers. In response, the government decided to reverse these exemptions to protect the local industry and encourage higher local cotton production.

The withdrawal of sales tax exemption on imported cotton yarn is expected to reinvigorate local spinning mills, conserve foreign exchange, and reduce reliance on imports. The decision is also part of broader reforms aimed at self-reliance and industrial sustainability.

Aurangzeb highlighted that the government’s strategy involves minimal new taxes, equivalent to only 0.25% of GDP, while focusing on widening the tax net and improving compliance. He reiterated that the fiscal measures are meant to boost the economy without overburdening existing taxpayers.

The minister also unveiled Rs36 billion in additional tax measures for FY 2025-26 to offset revenue losses due to reduced sales tax on solar panels.

As part of the government’s holistic plan for economic recovery, the move to eliminate tax relief on imported cotton and yarn is seen as a critical step toward supporting local agriculture, reviving key industries, and stabilizing the trade deficit.