Page 8 - TEXtalks International June/July-2025

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Pakistan Budget 2025–26: Major push for

domestic industry as tax exemptions on

imports are retracted

Finance Minister Muhammad Aurangzeb shortfalls created by such reforms. The finance
announced in the National Assembly that the minister said the focus will remain on expanding the
government is withdrawing sales tax and duty tax base, improving compliance through digitiza-
exemptions on imported cotton and yarn, a move tion, and rationalizing government expenditures. He
designed to protect domestic cotton growers and also noted that these efforts are crucial for achiev-
rejuvenate Pakistan’s textile industry. The exemp- ing fiscal sustainability while supporting critical
tion, previously allowed under the Export Facilitation sectors like agriculture and industry. Other revenue
Scheme (EFS), had enabled exporters to import adjustments include reducing sales tax on solar
cotton and yarn at zero tax. However, over the past panels and encouraging domestic manufacturing in
few years, local cotton producers have suffered due renewable energy.
to cheaper imports, which led to suppressed local
prices and reduced cultivation. The minister noted In tandem with these reforms, Aurangzeb unveiled
that this step was essential to restore balance in the several agricultural and social initiatives aimed at
market and promote self-reliance in the textile value stimulating economic activity and empowering
chain. vulnerable communities. The government plans to
launch an unsecured digital lending scheme,
Aurangzeb stated that this policy change address- offering loans up to Rs 1 million to smallholder
es a long-standing issue of distorted pricing that farmers. Additional support includes a warehouse
disadvantaged local farmers while encouraging an receipt system to ensure better storage and market
unsustainable dependence on imported raw access for crops. The minister also highlighted
materials. He emphasized that removing these housing support for low-income families and
exemptions would revive domestic spinning units, women’s financial inclusion, noting that Rs 14
reduce the pressure on foreign exchange reserves, billion has already been disbursed to nearly
and ultimately strengthen Pakistan’s position in 200,000 women under inclusive finance programs.
global textile markets. The All Pakistan Textile Mills
Association (APTMA) welcomed the imposition of Despite the positive framing of the policy, several
the 18% sales tax on imported cotton yarn, calling it stakeholders, particularly from the farming commu-
a necessary correction to safeguard the local nity, have voiced concerns. Farmer associations are
industry. However, APTMA also requested uniform demanding that the 18% General Sales Tax (GST)
taxation across all yarn and fabric imports under the on domestically produced cotton be abolished.
EFS to prevent imbalances in downstream textile They argue that while imports are now being taxed,
segments. local growers still face an unfair burden, which
discourages investment in cotton cultivation. The
As part of the broader fiscal strategy for 2025–26, government has yet to respond to these demands,
the government is introducing Rs 36 billion in but the issue is likely to remain a key point in
additional tax measures to compensate for revenue upcoming budget discussions.

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