Pakistan’s cotton ginning industry has entered a fresh crisis barely a month into the new cotton season. Several ginning factories in Sindh have begun shutting down operations as the cotton sales tax burden becomes unsustainable. Industry representatives blame the government’s decision to retain an 18 percent sales tax on the sector in the federal budget.

According to industry officials, ginning factories in Tando Adam have already suspended operations. Similar closures are feared in other major cotton-producing districts, including Sanghar. Falling cotton prices combined with rising tax costs make operations financially unviable. The latest crisis follows the federal government’s decision to retain the cotton sales tax on cottonseed and oil cake despite repeated requests from the All Pakistan Textile Mills Association for tax relief.

Industry representatives said they had received assurances that the tax burden would be reduced ahead of the FY2026-27 budget. However, no such relief appeared in the Finance Act. Therefore, the cotton sales tax remains a major financial burden for industry operators.

The tax decision coincided with a sharp decline in domestic cotton prices. The Karachi Cotton Association’s spot rate fell by Rs. 4,000 to Rs. 17,500 per maund. Similarly, cotton prices in Punjab dropped to Rs. 17,800 per maund. Cottonseed prices declined from Rs. 4,800 to Rs. 3,400 per maund. Additionally, oil cake prices fell from Rs. 5,200 to Rs. 3,500 per maund.

Recent heatwaves have worsened the financial pressure considerably. The extreme temperatures reduced cotton quality and lint recovery rates. Consequently, margins for ginners have shrunk dramatically. Industry officials warn that continued factory closures could leave farmers with fewer buyers. This may encourage undocumented trading outside the formal market.

The Pakistan Cotton Ginners Association raised concerns over alleged market manipulation. Some digital platforms publish unverified cotton prices that undermine market confidence. Additionally, documentation challenges plague the sector. While official figures recorded 5.5 million bales during 2025-26, actual production reached around 7 million bales. Therefore, nearly 1.5 million bales remained outside the documented economy. Finally, the cotton sales tax crisis threatens both formal sector viability and market transparency.