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The Federal Board of Revenue (FBR) has imposed an 18 percent sales tax on cotton imports after previously withdrawing sales tax exemption on imported cotton yarn. This decision removes raw cotton, cotton yarn, and grey cloth from the benefits of Pakistan’s Export Facilitation Scheme (EFS).
Under SRO.1359(I)/2025, issued Tuesday, the FBR excluded key cotton-related items from the EFS. These include raw cotton, yarn, and grey cloth, all listed under specific headings in the Pakistan Customs Tariff.
The FBR sales tax on cotton now applies to these items at the import stage. However, shipments with bills of lading dated within ten days of the SRO will still qualify under the old EFS terms.
The updated policy allows imports of compressor and motor scrap but only for copper extraction. The allowed copper content is capped at 10 percent by weight for motor scrap and 8 percent for compressor scrap.
Customs duties, sales tax, and withholding tax will apply to the remaining steel scrap. Only registered sales tax melters can purchase this component.
New Raw Material Rules for EFS Users
EFS users must now submit a bank guarantee unless the FBR notifies an insurance guarantee format. The scheme also allows users to import up to 10 percent of new raw materials without prior approval. This limit is based on their total authorization quota.
In exceptional cases, a committee comprising officials from the FBR, Ministry of Commerce, and Ministry of Industries and Production may extend the material utilization period by up to nine months. Reasons for the extension must be documented.
These changes reflect the FBR’s move to tighten import controls and enforce tax compliance. The FBR sales tax on cotton imports is expected to impact exporters and textile manufacturers who relied on duty-free access to these materials.
The updated EFS framework aims to reduce loopholes and ensure a more regulated import process.
