By: Sajid Mahmood
Head Transfer of Technology Department Central Cotton Research Institute Multan
FBR Imposes 18% Sales Tax on Cotton Yarn, Grey Cloth, and Cotton Imports
The Federal Board of Revenue (FBR) has issued a new notification, SRO 1359(I)/2025, removing cotton yarn, grey cloth, and cotton from the zero-rating scope of the Export Facilitation Scheme (EFS). As a result, these items will now be subject to an 18% sales tax upon import.
This decision comes after a year-long controversy surrounding the tax exemption on imported cotton, yarn, and fabric under the EFS, which had become a significant issue for local industries. Local spinning mills and yarn manufacturers had been complaining that the tax exemption on imported yarn had led to a substantial decline in demand for local production, putting several factories at risk of closure.
The FBR’s decision aims to establish parity between local and imported products by imposing the same sales tax on imported yarn, grey cloth, and cotton.
Key Points:
- Imported cotton yarn, grey cloth, and cotton will now be subject to an 18% sales tax.
- Orders booked 10 days prior to the notification’s issuance will still be allowed to be imported under the old scheme.
- The FBR has announced the introduction of an “insurance guarantee” system under the EFS, but until the final procedure is issued, EFS users will have to provide a “bank guarantee.”
Impact:
The decision is expected to provide relief to local spinning and textile industries by establishing a level playing field between local and imported products. However, traders have pointed out that clarity is still needed on certain items, such as “micro fabric.” The effects of this decision will become apparent in the coming months.
Industry Reaction:
Industry experts believe that the FBR’s decision is a positive step towards improving policy balance and transparency. The government’s move to address the long-standing demands of local industries is seen as a welcome development.
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