Pakistan withdraws duty exemptions on imported cotton yarn

Pakistan government has officially withdrawn sales tax and duty exemptions on imported cotton yarn in order to revive its textile industry and strengthen domestic cotton farming. Pakistan’s previous policies allowed exporters to import raw materials, including cotton and yarn, free of taxes and duties to support export, said Muhammad Aurangzeb, Finance Minister during his concluding speech on the Finance Bill 2025-26 in the National Assembly,

However, from the past three years there has been a stark disparity between imported and local cotton prices, adversely affecting domestic farmers, Aurangzeb noted. To protect the local industry, the government decided to reverse these exemptions and encourage higher local cotton production.

The withdrawal of sales tax exemption on imported cotton yarn is expected to reinvigorate local spinning mills, conserve foreign exchange, and reduce reliance on imports. The decision is also a part of broader reforms aimed at self-reliance and industrial sustainability.

The government’s strategy involves minimal new taxes, equivalent to only 0.25 per cent of GDP, while focusing on widening the tax net and improving compliance, emphasized Aurangzeb. Fiscal measures are meant to boost the economy without overburdening existing taxpayers, he reiterated.

The minister also unveiled Rs 36 billion in additional tax measures for FY 2025-26 to offset revenue losses due to reduced sales tax on solar panels. As a part of the government’s holistic plan for economic recovery, the move to eliminate tax relief on imported cotton and yarn is seen as a critical step toward supporting local agriculture, reviving key industries, and stabilizing the trade deficit.