FBR Finally Slaps 18% Sales Tax on Cotton Imports
The Federal Board of Revenue (FBR) has announced a new notification that places an 18% sales tax on imported grey cloth, yarn, and fibre cotton. The decision was held back for weeks despite being assured in the 2025-26 federal budget.
The decision was made after persistent pressure from the All Pakistan Textile Mills Association (Aptma). They had urged the government to move quickly to rectify the imbalance between tax on imported and domestic cotton.
The formal directive, SRO 1359(I)/2025, states that raw cotton, cotton yarn, and grey cloth are now not included in the Export Facilitation Scheme (EFS). But any shipment with a bill of lading cut within 10 days from the date of this notification will not be charged.
Aptma had written to Finance Minister Muhammad Aurangzeb, informing him that the sales tax was necessary so that things would be fair for domestic producers. They reminded the government that the budget clearly incorporated this taxation plan.
Even though the cabinet agreed on the tax and fixed July 15 as the effective date, the actual order came later. This caused uncertainty in the market. The textile mills and cotton traders hesitated to purchase new stock, which affected demand for the domestic cotton crop.
Pakistan’s textile sector constitutes over 50% of the nation’s exports. It received $1.5 billion more in 2024-25, but that was compensated for with a $1.5–2 billion increase in imports. Aptma is of the view that the only way to rectify this issue is through the adoption of clear and prompt policies.
