By Commerce Reporter
LAHORE: Pakistan’s cotton ginning industry is entering a fresh phase of financial distress as several factories across Sindh and Punjab begin shutting down shortly after the start of the new cotton season, industry representatives say, blaming the continuation of an 18 per cent sales tax on the sector for triggering falling prices and operational losses.
According to industry stakeholders, ginning units in key cotton-producing areas such as Tando Adam have already suspended operations, while similar closures are feared in Sanghar and other districts if the current tax structure remains unchanged.
The crisis has emerged just weeks after factories resumed seasonal activity, highlighting what stakeholders describe as a deepening structural imbalance in the country’s cotton economy. The ginners say the tax burden has distorted market pricing, weakened demand from textile mills, and pushed the entire supply chain into financial uncertainty.
Industry officials argue that they were given prior assurances during pre-budget consultations that the federal government would reduce or remove the 18pc sales tax on cottonseed, oil cake, and related by-products. However, no such relief was included in the final Finance Act, leaving the sector exposed to continued cost pressures.
The fallout has been immediate. Market participants report that cotton spot rates have fallen sharply by several thousand rupees per maund, while prices of phutti (seed cotton) and cottonseed oil cake have also declined. The drop in prices has squeezed margins for ginning factories, many of which operate on thin profit margins even under stable conditions.
Representatives of the All Pakistan Textile Mills Association (APTMA) and cotton ginners had earlier raised concerns with government officials, warning that the tax regime was making locally processed cotton less competitive compared to imported alternatives. They argued that the existing Export Facilitation Scheme structure had already tilted the market in favour of imports, further undermining domestic ginning activity.
The ginners’ body also claims that the cascading effect of sales tax at multiple stages of the cotton value chain is increasing costs and encouraging informal trade. As margins shrink, some operators are reportedly forced to reduce throughput or temporarily shut down operations to avoid accumulating losses.
Agricultural economists note that Pakistan’s cotton sector has been under pressure for several years due to declining crop yields, climate variability, and rising input costs. The additional tax burden, they say, has intensified the crisis by discouraging local procurement and weakening incentives for farmers and processors.
There are also growing concerns about employment in rural areas, where cotton ginning serves as a key source of seasonal jobs. Factory closures are expected to affect labourers, transporters, and small traders linked to the cotton supply chain.
Stakeholders are urging policymakers to reconsider the current taxation framework, arguing that a uniform tax structure or targeted relief could help stabilise prices and restore confidence in the domestic cotton market. Some industry voices are also calling for alignment between import and local taxation to ensure a level playing field.
Meanwhile, uncertainty continues to loom over the upcoming cotton output reporting season, with industry groups warning that prolonged financial stress could further distort production figures and push more trade into undocumented channels.
Unless policy clarity is provided soon, ginners fear the current wave of shutdowns could expand, deepening the strain on Pakistan’s already fragile textile backbone.
