Pakistan cotton ginners shut down amid crippling 18% sales tax

Several cotton ginning factories in Pakistan have ceased operations just one month after opening, a devastating first for the nation's textile industry. The shutdowns stem directly from the government's failure to reduce the 18% sales tax on the sector in the recent federal budget. This oversight has triggered a historic crash in domestic cotton prices, causing widespread anxiety among farmers and millers and jeopardizing the industry's survival.

Representatives from the All Pakistan Textile Mills Association and cotton ginners had urged ministry officials to alleviate the tax burden before the budget. Despite assurances that the sales tax on cottonseed and oil cake would be abolished and the tax on raw cotton reduced, the government provided no relief, even after making 30 last-minute amendments to the finance bill. This broken promise has led to a massive market crash.

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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.

The Karachi Cotton Association's spot rate plummeted by Rs4,000 to Rs17,500 per maund. Provincial cotton prices in Punjab and Sindh also fell significantly. Downstream products like cottonseed and oil cake experienced even steeper declines, with experts predicting further price drops. Hareesh Kumar, President of the Tando Adam Cotton Ginners Association, confirmed that heavy taxation, combined with extreme heatwaves, has reduced both cotton quality and lint yield. These financial losses are forcing factories to close, raising concerns about future shutdowns in major cotton-producing districts and a rise in undocumented trade.

Adding to the crisis, the Pakistan Cotton Ginners Association is cracking down on digital market manipulation. Chairman Sham Lal Manglani warned social media firms against publishing deflated transaction prices, which unfairly benefit certain buyers and damage market sentiment. The association is demanding that only verified transaction rates be reported.

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The association noted that certain digital entities are intentionally reporting deflated transaction prices to unfairly benefit specific buyers, heavily damaging market sentiment.