LAHORE: Following the government’s move to impose an 18% General Sales Tax (GST) on imported cotton and cotton yarn in the amended Finance Bill 2025, farmers and industry bodies are now urging authorities to abolish GST on locally produced cotton and its by-products.
Pakistan Kissan Ittihad (PKI) President Khalid Mahmood Khokhar has strongly opposed the continued taxation of local cotton, saying it unfairly targets domestic growers and reduces their already thinning profit margins.
While the Pakistan Business Forum (PBF) welcomed the tax on imported cotton as a positive step to restore balance in the textile value chain, it also stressed that domestic producers remain burdened. “Local spinners are still subject to GST, which they recover from farmers, effectively treating them as withholding agents. This is an unjust situation that must be rectified,” said PBF South Punjab Chairman Malik Talat Suhail.
Cotton farmers, already facing massive increases in production costs, are finding it increasingly difficult to continue cultivation. According to PKI, cotton production has dropped from a peak of 14.8 million bales in 2011–12 to under 7.5 million bales in 2024–25, a decline of nearly 50%. In contrast, cotton imports now exceed 5 million bales, and exports have nearly disappeared.
One of the biggest challenges farmers face is the growing mismatch between input costs and output prices. In 2010–11, cotton was sold at Rs5,500–6,000 per maund, equal to about $70 based on the exchange rate of Rs85 per dollar. Now, in 2024–25, the price is around Rs7,600 per maund, which equals just $27 due to currency depreciation. This reflects a 250% decline in dollar terms, while input costs have skyrocketed.
Fertilizer prices have more than tripled over the past decade. In 2010, a 50 kg bag of DAP cost Rs3,236; today, it is priced at Rs12,900, a 298% increase. Similarly, NP fertilizer has gone up from Rs2,108 to Rs8,100 (284% increase), Urea from Rs1,035 to Rs4,230 (309%), and SOP from Rs2,807 to Rs10,000 (256%). These figures indicate a severe financial strain on over 90% of small and medium landholding farmers.
Energy prices have added to the pressure. Diesel has surged from Rs85 per liter in 2012 to Rs264 per liter in 2025, while electricity costs for irrigation have jumped from Rs4 per unit to Rs42, a rise of 950%. Labor costs have also risen sharply; cotton-picking charges have gone up from Rs100 per maund in 2010–11 to Rs1,000 per maund today.
In light of these issues, PKI has presented a series of demands to the government for urgent reforms. These include abolishing the 14% GST on tractors to support mechanized farming and removing the 18% GST on locally manufactured tractor-mounted implements. The organization also calls for the removal of GST on “Khal Banaula,” a cotton by-product crucial for the livestock sector. PKI further urges the establishment of a Commodity Price Commission to ensure fair pricing and a guaranteed return of at least 25% on farmer investments.
Additionally, they recommend a uniform electricity tariff of Rs10 per unit for irrigation tube wells to relieve the burden of inflated energy prices. The group also advocates for the timely export of surplus produce to stabilize domestic prices and reduce post-harvest losses.
The Pakistan Business Forum echoed some of these concerns, particularly highlighting how the current taxation system on cottonseed and cottonseed cake hurts farmers. These items, exempt from taxes in most cotton-growing economies, remain taxed in Pakistan, pushing farmers below profitability and causing a shift toward water-intensive crops, which threatens both agriculture and water security.
Both bodies are urging policymakers to recognize the urgency of the crisis. Without bold reforms, the country risks becoming a net importer of cotton, a dangerous reversal for a crop once known as the backbone of Pakistan’s economy.
