High tax restricts the cotton imports

4. High tax restricts the cotton imports
Due to lower cotton output and inferior quality, large textile mills in Pakistan are signing cotton import agreement to meet the demand. Nevertheless, the government imposes 3% tariff, 2% additional tariff and 5% sales tax on raw cotton this year to protect domestic cotton prices, leading to higher import costs. Meanwhile, FBE delays the payment of business tax refund. Currently, Pakistani cotton textile industry faces large difficulties and market insiders urge to cancel the tax. In the third quarter, cotton imports have declined by 45.8% year on year to 20kt, and in the first nine months of 2019, cotton imports decline by 38.9% to 361kt. Imports of cotton have reached a historical low level. In short, the high import costs will continue to restrict the imports.

In general, 2019/20 cotton output is expected to decrease largely in Pakistan affected by the unfavorable weather during the growing period, inferior quality of seeds, and insect attack. Besides, the high tax will also restrict the cotton imports. In short, the supply of cotton may continue to be tight and cotton prices are supposed to remain firm.