KARACHI: Cotton prices have suffered a steep decline since the start of the current season, falling by five thousand rupees per maund, while the new crop’s deliverable spot rate has dropped by a further twenty five hundred rupees. The downward trend continued on Saturday evening, when the market slipped even lower, with cotton being quoted at eighteen thousand rupees per maund. The price of phutti also fell, losing between one thousand and fifteen hundred rupees per forty kilograms, although overall trading volume held up relatively well despite the slide.
Industry leaders have linked the downturn directly to policy failures at the federal level. Pakistan Ginners Forum Chairman Ehsanul Haq said the absence of any reforms for the cotton ginning and textile sector in the federal budget for 2026-27 had driven the market into a sharp crash. His comments were echoed by the All Pakistan Textile Mills Association, which criticized the Federal Board of Revenue’s strict tax penalty regime, cautioning that provisions in the finance bill risk penalizing compliant businesses while allowing those engaged in fraud to evade accountability.
Against this backdrop, a delegation from the Pakistan Cotton Ginners Association met with Federal Finance Minister Muhammad Aurangzeb to raise concerns facing the sector and seek government support.
The market turmoil coincided with renewed tension at the Karachi Cotton Exchange. The Sindh High Court had earlier ruled that, for a period of ninety days, tenants of the Exchange and its three hundred and twenty registered brokers should be permitted to operate from their offices inside the building. On Friday, however, when brokers arrived in large numbers to resume work, the Federal Investigation Agency, which has allegedly occupied the building since December 12, 2025, shut the premises and barred them from entering through the main gate.
Cotton prices in the local market witnessed a sharp decline over the past week, mainly due to a significant increase in the supply of phutti and improved trading volume. On December 13, 2025, the ETPB, with the assistance of the FIA, had allegedly taken over and sealed the Karachi Cotton Exchange building. Following this, the KCA resumed the daily cotton spot rate from June 9, 2026, starting at Rs 21,500. The price of new crop 2026-27 cotton, which had opened at Rs 23,000, fell sharply by Rs 4,000 per maund to close at Rs 19,000. Similarly, the price of phutti per 40 kg also recorded a notable decline of around Rs 1,000 to Rs 1,500.
At present, depending on the delivery date, cotton prices in Sindh are ranging between Rs 18,500 and Rs 19,000 per maund, while in Punjab prices are ranging between Rs 19,200 and Rs 19,800 per maund. Phutti prices per 40 kg are ranging between Rs 8,800 and Rs 9,300 in Sindh and between Rs 9,300 and Rs 9,800 in Punjab. The supply of phutti is expected to increase after Muharram-ul-Haram, while purchasing activity by mills is also expected to pick up.
No positive measures concerning cotton were introduced in the recent budget, except for the abolition of the Rs 5 per maund tax imposed on phutti in Sindh. A delegation of the Pakistan Cotton Ginners Association, led by Chairman Shamlal Mungalani, met with Federal Finance Minister Muhammad Aurangzeb and demanded the removal of taxes imposed on cottonseed oil cake and cottonseed. The minister assured the delegation that the matter would be reviewed.
APTMA criticized the FBR’s draconian tax penalty system, warning that the finance bill could end up punishing compliant businesses while letting fraudulent ones go unchecked.
Meanwhile, judges of the Sindh High Court have issued a favourable ruling regarding the Karachi Cotton Exchange building.
Karachi Cotton Brokers Forum Chairman Naseem Usman reported that international cotton prices rose, with New York cotton futures trading between 76 and 82 US cents per pound. According to the USDA’s weekly export and sales report, 177,100 bales were sold for the 2025-26 season, with Pakistan leading purchases at 76,600 bales, followed by India at 39,600 bales and Vietnam at 21,000 bales. For the 2026-27 season, 188,400 bales were sold, led by Vietnam with 65,600 bales, followed by Pakistan with 39,600 bales and Indonesia with 22,500 bales. Total exports reached 251,000 bales, with Vietnam importing the most at 66,300 bales, followed by Pakistan at 33,100 bales and Turkey at 28,000 bales.
Meanwhile, the domestic cotton market crashed after the federal budget for 2026-27 failed to introduce reforms for the cotton ginning and textile sectors. Over just four trading days, the spot rate at the Karachi Cotton Association (KCA) fell by Rs 2,000 per maund, while open market rates dropped by up to Rs 2,500 per maund. Industry sources warned of further declines in coming days, with concern spreading across the cotton sector. Ahead of the budget’s passage, the industry had demanded major relief in sales tax, income tax, and WAPDA fixed charges, while ginners welcomed Punjab government’s decision to abolish the excise cotton fee.
Cotton Ginners Forum Chairman Ehsan-ul-Haq said the ginning sector currently faces sales tax exceeding 86 percent. He said senior federal officials had assured the industry before the budget that sales tax would be fully eliminated on two segments of the ginning sector and reduced on others, but these commitments were not reflected in the federal budget, triggering a sharp negative reaction in cotton markets. He noted that within four trading days, the KCA spot rate fell to Rs 19,500 per maund after the Rs 2,000 decline, while open market prices fell to around Rs 19,000 per maund in Sindh and somewhat higher in Punjab after dropping more than Rs 2,500. He cautioned that prices could weaken further in the coming days.
He added that alongside the heavy sales and income tax burden, WAPDA’s fixed charges on the cotton sector have also risen sharply in recent months, pushing ginners into financial distress. He said the heavy tax burden has led to a continuous rise in undocumented trade within the ginning sector, causing serious damage to the national economy. He urged the federal government to fully withdraw the 18 percent tax imposed on cottonseed oil, cottonseed, and oil cake before the budget is passed, and to significantly reduce taxes on cotton and oil cake residue, in order to curb undocumented trade and strengthen the agricultural economy.
He further noted that, in response to ginners’ demands, the Punjab government has decided in its recent budget to abolish the excise cotton fee on ginning factories, a move welcomed by the industry. He said cotton-growing regions across the country are currently facing severe weather conditions, with record temperatures in some areas and heavy rains in others damaging the crop, raising concerns about overall national cotton output.
He also said that following the end of the Iran-US conflict, the reopening of the Strait of Hormuz is expected to boost cotton imports, which could put downward pressure on domestic cotton and lint prices. He added that if the Pakistan-Afghanistan border is reactivated in the near future through Chinese efforts, an estimated 300,000 to 400,000 bales of cotton could enter Pakistan from Afghanistan in the short term, which would likely add further downward pressure on cotton prices.
Pakistan’s largest export-oriented industry has launched a strong attack on the Federal Board of Revenue’s proposed sales tax enforcement regime, warning that controversial provisions introduced through the Finance Bill 2026 could expose thousands of genuine businesses to penalties, recovery proceedings and litigation for actions committed by suppliers over whom they have no control.
In a detailed representation submitted to FBR Chairman Rashid Mahmood Langrial, the All Pakistan Textile Mills Association (APTMA) argued that the proposed amendments to Section 33 of the Sales Tax Act, 1990, effectively reverse fundamental principles of tax administration by treating compliant taxpayers and fraudulent operators alike. The association warned that if enacted in their present form, the measures could create widespread uncertainty for businesses, undermine confidence in FBR’s own digital tax systems and significantly increase the cost of doing business in Pakistan.
The textile industry’s intervention comes at a time when the government is seeking to tighten tax enforcement and crack down on fake invoicing through the Finance Bill 2026. While APTMA reiterated its full support for efforts to eliminate tax fraud, curb fake invoices and strengthen documentation of the economy, it maintained that the proposed framework goes far beyond targeting tax evaders and instead places an unfair burden on businesses that have complied with every legal requirement.
According to the representation signed by APTMA Chairman Kamran Arshad, the proposed insertion of Serial Nos. 30 and 31 into Section 33 could expose law-abiding taxpayers to severe financial consequences despite having acted in good faith. The association warned that businesses could face reversal of input tax, payment of default surcharge and substantial penalties even where they have received actual goods, obtained valid tax invoices, made payments through documented banking channels and complied with all applicable provisions of tax law.
APTMA argued that the proposals ignore long-established legal principles repeatedly recognized by superior courts. The association noted that courts have consistently held that penal consequences should ordinarily be imposed only where there is evidence of fraud, collusion, deliberate concealment, wilful misstatement or conscious participation in tax evasion. The proposed provisions, however, make little distinction between a taxpayer knowingly involved in fraud and one who has fulfilled all statutory obligations and relied on information available through FBR’s own computerized systems.
The association cautioned that the practical effect of the amendments would be to expose innocent taxpayers to the same treatment as deliberate tax offenders. “The burden of combating fraud should fall on those responsible for the fraud, not on genuine businesses that have complied with the law,” APTMA maintained in its representation.
A major source of concern for the industry is the apparent contradiction between the proposed penalties and FBR’s technology-driven compliance framework. Under the STRIVE system and the existing electronic invoice verification regime, businesses are permitted to claim input tax only where the supplier’s invoice is reflected in FBR’s computerized database. Taxpayers therefore rely on information generated, processed and validated through the tax authority’s own infrastructure before claiming input tax.
APTMA argued that once an invoice has been accepted and reflected within FBR’s system, a purchaser has every reason to believe that the transaction satisfies legal requirements. Yet under the proposed amendments, the same taxpayer could later be penalized because of a mismatch, amendment, omission or reporting failure attributable to the supplier. Industry representatives warned that such an approach effectively destroys the certainty that digital verification systems were designed to provide.
“If taxpayers cannot rely on invoices validated through FBR’s own systems, then the very purpose of electronic verification comes into question,” a senior industry source observed while commenting on the proposed changes.
Particular concern has been expressed over proposed Serial No. 30. Under the proposed provision, where input tax claimed by a registered person cannot subsequently be matched with the supplier’s output tax declaration, the taxpayer may become liable not only for reversal of input tax and payment of default surcharge but also for an additional penalty equivalent to 20 percent of the unmatched amount.
APTMA described this provision as excessively harsh and disconnected from commercial realities. The association pointed out that invoice mismatches frequently occur due to timing differences in filing returns, amendments to declarations, clerical mistakes, data migration problems, software glitches and supplier-side reporting errors. Such discrepancies are common in large-scale manufacturing operations involving thousands of transactions and do not necessarily indicate fraud or tax evasion.
Copyright Business Recorder, 2026
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