18pc sales tax cripples cotton ginning

LAHORE: In an unprecedented crisis for Pakistan’s textile backbone, several cotton ginning factories in Tando Adam and other key towns have begun shutting down just one month after becoming operational, marking a devastating first in the country’s history.

The sudden shutdowns result directly from the federal government’s failure to reduce the crushing 18 per cent sales tax on the cotton ginning sector in the recent federal budget.

This legislative oversight has triggered a historic crash in domestic cotton prices, sending shockwaves of anxiety through farmers and millers nationwide while threatening the very survival of the local industry.

Representatives from the All Pakistan Textile Mills Association (Aptma) and cotton ginners had met with top ministry officials prior to the budget to plead for relief from the heavy tax burden.

Factories shut a month after opening as spot rate down Rs4,000 to Rs17,500

Even after the budget speech, federal ministers and high-ranking bureaucrats explicitly assured them that the 18pc sales tax on cottonseed and oil cake would be abolished, and the tax on raw cotton would be significantly reduced. Despite making 30 last-minute amendments to the finance bill, the government provided no relief to the struggling sector.

This broken promise has triggered a massive market crash across the country. The Karachi Cotton Association’s spot rate plummeted by Rs4,000 to land at Rs17,500 per maund. In the provincial markets, Punjab cotton prices plunged by Rs5,000 to Rs17,800 per maund, while Sindh cotton fell by Rs4,000 to match the spot rate of Rs17,500 per maund.

The downstream products hit even harder, with cottonseed (phutti) tumbling from Rs4,800 down to Rs3,400 per maund, and oil cake dropping from Rs5,200 to Rs3,500 per maund, with experts warning that prices are expected to slide even further.

The economic disaster has been severely compounded by harsh environmental factors. Hareesh Kumar, President of the Tando Adam Cotton Ginners Association, released an emergency video statement confirming that heavy taxation, combined with extreme heatwaves, has drastically reduced both the quality and the lint yield of cotton from the seed.

The resulting financial losses are forcing factories to close their doors, raising serious fears that the wave of shutdowns will soon hit Sanghar and other major cotton-producing districts in Sindh, leaving farmers with fewer buyers and causing an unprecedented rise in undocumented, underground trade.

Market manipulation

In tandem with the price crash, the Pakistan Cotton Ginners Association (PCGA) has launched a crackdown on digital market manipulation. PCGA Chairman Sham Lal Manglani issued a stern warning letter to social media information firms, ordering them to publish only verified transaction rates.

The association noted that certain digital entities are intentionally reporting deflated transaction prices to unfairly benefit specific buyers, heavily damaging market sentiment. This is not the first time the sector has faced this issue, as the PCGA recalled a previous crisis where the district administration in Bahawalpur registered criminal cases (FIRs) against social media pages spreading fake cotton data.

Cotton Ginners Forum Chairman Ihsan-ul-Haq claims the lack of tax relief is also severely compromising national data accuracy by driving the cotton economy offline. During the 2025-26 cotton year, the heavy tax burden resulted in a massive gap: the PCGA officially documented only 5.5 million bales, while the actual estimated production was closer to 7m bales, meaning nearly 1.5m bales went undocumented. For the upcoming 2026-27 cotton year, the PCGA is scheduled to release its first official production and arrival data on July 18, tracking factory arrivals and operational units.

Published in Dawn, July 4th, 2026 ...