Lahore June 12 2025: All Pakistan Textile Mills Association strongly urges the government to extend the 18% sales tax to all yarns and fabrics, whether cotton or polyester, imported under EFS to ensure true competitiveness and sustainability of Pakistan’s textile value chain.
The All Pakistan Textile Mills Association (APTMA) extends its sincere appreciation to the Government of Pakistan for announcing 18% sales tax on imported cotton yam. This addresses a major distortion in the market and is a significant step toward resolving the sales tax anomaly in the Export Facilitation Scheme (EFS). It demonstrates the government’s commitment to restoring faimess and balance in the domestic textile value chain, and we commend this decisive action. However, this correction-while welcomed-is insufficient in scope. After having dealt a severe blow to the spinning sector, the sales tax disparity is now eroding the viability of downstream sectors like weaving. EFS, under which imported inputs for export enjoy a 0% sales tax rate while local materials for export are taxed at 18%, continues to place upstream domestic sectors at a gross disadvantage.
To ensure true competitiveness and sustainability of Pakistan’s textile value chain, APTMA strongly urges the government to extend the 18% sales tax to all yarns and fabrics, whether cotton or polyester, imported under EFS. Moreover, these imports must be placed on the EFS Negative List, imposing a 5% customs duty on yarn and 11% on fabric to establish a level playing field and incentivize local manufacturing. Without this, the gains made in one segment will be undone by distortions in another. The situation with polycotton and polyester yams is particularly concerning, as they are already approximately 35% more expensive to produce domestically. Subjecting local manufacturers to 18% sales tax while exempting imported polyester inputs undermines industrial policy objectives and discourages investment in local capacity. APTMA also reiterates its demand for the removal of sales tax on cottonseed and cottonseed cake-byproducts of cotton lint, used primarily in livestock feed. These items are not subject to sales tax in any major cotton-producing economy. Imposing 18% GST on these products pushes farmers below their cost of production, especially given the price inelasticity of demand, and drives a damaging shift toward more water- intensive crops. This not only imperils water security but also fuels underreporting of cotton production, thereby reducing revenue collection on cotton lint itself.
We are grateful for the govemment’s attention and responsiveness to industry concerns thus far. However, without extending similar GST treatment to all EFS imports of yarns and fabrics, the crisis faced by spinning will soon replicate in weaving. Yarn feeds into fabric production, and if locally produced fabric is taxed while imported fabric is not, exporters will inevitably choose the cheaper, untaxed import- undermining both the fabric and yarn sectors.
APTMA urges the government to adopt a comprehensive, value-chain-wide perspective. Partial reforms are insufficient. The core anomaly remains: imported inputs for export are exempted while local inputs are taxed. This policy penalizes domestic value addition, stifles backward linkages, and impedes the very foundation of an export-led growth strategy. Efforts to integrate into global value chains should continue, but not at the expense of domestic industry, employment, and investment. APTMA deeply appreciates the government’s broader economic reform agenda, which has yielded substantial relief and renewed confidence across the industrial landscape. The reduction in power tariffs from an unsustainable 16-17 cents/kWh to approximately 11 cents/kWh, the successful curbing of back-breaking inflation, and the lowering of interest rates from 22% to 11% are commendable achievements. These efforts have laid the groundwork for economic stabilization and set the stage for sustainable recovery. To translate this momentum into broad-based industrial growth and export expansion, it is imperative that remaining issues such as the EFS- related tax anomalies are addressed comprehensively. With these distortions resolved, the textile value chain can regain its full competitiveness, unlocking investment, job creation, and foreign exchange earnings for Pakistan.
