Failure of the federal budget to abolish sales tax on cotton and its by-products may lead to widespread factory closures and rise in undocumented economy, warned cotton ginning and oil mill sector leaders in Pakistan.
Business leaders in the country urged Prime Minister Shehbaz Sharif to redirect over Rs 700 billion annually allocated to the Benazir Income Support Program (BISP). These funds should instead be used to revitalize businesses struggling under excessive taxation, they said, adding, strengthening industries, rather than providing aid, is key to national economic stability, they argue.
Senior cotton ginners revealed, formed at the Prime Minister's behest, a pre-budget committee had fully endorsed their plea to either eliminate sales tax or implement the Export Facilitation Scheme (EFS) domestically. Despite this, the budget maintained sales tax on raw cotton, cottonseed, oilcake, and cottonseed oil, and notably, did not impose it on imported cotton. This oversight intensifies fears that many more of Pakistan's already non-operational over 800 ginning factories and over 1,000 oil mills are now at risk.
Stakeholders attributed Pakistan's fall from the world's fourth-largest cotton producer to seventh to the sales tax on ginning and oil mills exceeding 70 per cent, lax crop zoning enforcement, increased sugarcane cultivation, and the sales tax exemption on imported cotton. Consequently, the state spends a significant portion of Pakistan’s foreign exchange reserves on importing cotton, yarn, and edible oil. Critics argue, diverting over Rs 700 billion to charity, or alleged misuse, is counterproductive when industries are collapsing.
Allocate these funds to revive the industry, experts appealed to Sharif. Despite increase in cotton arrivals, ongoing sales tax limits factories’ operations, leading to a fall in cotton prices. This not only harms farmers but also weakens the national economy, and raises fears of a sharp increase in undocumented business activity, they argued.
