Farmers demand end to GST on local cotton

Following the government's decision to impose 18% General Sales Tax (GST) on imported cotton and yarn in the amended Finance Bill 2025, farmers and industry groups 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 domestic cotton, saying it unfairly targets local growers and further erodes already thin profit margins.

While the Pakistan Business Forum (PBF) welcomed the tax on imported cotton to help restore balance in the textile value chain, it warned that domestic producers still bear the brunt. "Local spinners are still subject to GST, which they recover from farmers, effectively treating them as withholding agents. This is unjust and must be corrected," said PBF South Punjab Chairman Malik Talat Suhail.

Cotton farmers, already burdened by soaring production costs, are finding it harder to keep cultivating. According to PKI, cotton output has dropped from 14.8 million bales in 2011-12 to under 7.5 million bales in 2024-25 — a decline of nearly 50%. Meanwhile, imports now exceed 5 million bales, and exports have nearly vanished. One major issue is the widening gap between input costs and output prices. In 2010-11, cotton fetched Rs5,500-6,000 per maund, or about $70 at the exchange rate of Rs85 per dollar. Now, in 2024-25, the price is around Rs7,600 per maund, equal to just $27 due to currency depreciation. This marks a 250% fall in dollar terms, while input costs have skyrocketed.

Fertiliser prices have more than tripled in a decade. A 50kg bag of DAP (Diammonium Phosphate), once priced at Rs3,236, now costs Rs12,900 (298% rise). NP (Sarsabz Nitrophos) has jumped from Rs2,108 to Rs8,100 (284%), Urea from Rs1,035 to Rs4,230 (309%), and SOP (Sulphate of potash) from Rs2,807 to Rs10,000 (256%). These hikes have put over 90% of small and medium farmers under severe financial strain.

Energy prices have also surged. Diesel has climbed from Rs85 per litre in 2012 to Rs264 in 2025. Electricity for irrigation has risen from Rs4 per unit to Rs42 — a 950% increase. Labour costs are up too, with cotton-picking charges rising from Rs100 per maund in 2010-11 to Rs1,000 per maund today.

In response, PKI has outlined urgent reforms. These include abolishing the 14% GST on tractors to support mechanisation and removing the 18% GST on locally made tractor-mounted implements. They also demand removal of GST on "Khal Banaula," a key cotton by-product used in livestock feed.

PKI has called for the creation of a Commodity Price Commission to ensure fair pricing and a guaranteed 25% return on farmer investments. They further propose a flat electricity rate of Rs10 per unit for irrigation tube wells and the timely export of surplus produce to stabilise prices and reduce losses.

PBF echoed these concerns, stressing that taxes on cottonseed and cottonseed cake — exempt in most cotton-producing countries — hurt farmers and shift cultivation toward water-intensive crops, threatening both agriculture and water security.

Both organisations warn that without bold reforms, Pakistan risks becoming a net importer of cotton.