What sales tax rate applies to yarn and fabric today, and is any textile supply still zero-rated?

A registered mill selling yarn or fabric inside Pakistan charges sales tax at 18 percent of the value of supply. Exports are the main textile supply still charged at zero percent. In the Act as amended to 30 June 2026, the Fifth Schedule (zero rating) and the Eighth Schedule (reduced rates) contain no entry for local supplies of yarn or fabric.

What does the law say?

The standard rate. Section 3(1) of the Sales Tax Act, 1990 charges sales tax “at the rate of eighteen per cent of the value” of taxable supplies made by a registered person in the course of a taxable activity, and on imports. The word “eighteen” was substituted for “seventeen” by the Finance (Supplementary) Act, 2023.

Further tax on unregistered buyers. Section 3(1A) adds further tax at four percent of the value where taxable supplies are made to a person who has not obtained a registration number or is not an active taxpayer. It is in addition to the rates under section 3(1) and section 4, and the Federal Government may by notification specify supplies on which it is not charged.

Zero rating. Section 4 says that “notwithstanding the provisions of section 3”, listed goods “shall be charged to tax at the rate of zero per cent”. Clause (a) is “goods exported, or the goods specified in the Fifth Schedule”. The proviso takes out goods exported but intended to be re-imported, goods entered for export but not exported, and exports to a country the Federal Government specifies. A further proviso lets the Federal Government restrict input tax credit claimed by a person making zero-rated supplies.

Exemption. Section 13(1) exempts supplies and imports in the Sixth Schedule.

What is in the Fifth Schedule today?

The live entries in the Fifth Schedule, as amended to 30 June 2026, are:

Serial	Entry, in short
2	Supplies to diplomats, diplomatic missions and privileged persons and organisations
5	Raw materials, components and goods for further manufacture in Export Processing Zones
7	Supplies to exporters under the Duty and Tax Remission Rules, 2001, subject to their conditions
8	Imports or supplies to Gwadar Special Economic Zone
8A	Imports or supplies for a qualified investment under the Foreign Investment (Promotion and Protection) Act, 2022
12(xxiii)	Exercise books, and their inputs, subject to conditions
13 and 14	Inputs for manufacture in Gwadar Free Zone, and plant and machinery supplied to manufacturers there
20	Petroleum crude oil

None is a general entry for yarn, fabric or made-ups sold locally. Serials 5 and 7 can reach textile inputs, but only when the supply is to an EPZ unit or to an exporter under the Duty and Tax Remission Rules, 2001, which are not in this corpus.

The only textile-related entries found in the other schedules are narrow: the Eighth Schedule, serial 23, charges second hand and worn clothing (heading 6309.0000) at 5 percent, and Table-4 of the Sixth Schedule exempts listed goods, including sewing and embroidery thread, only when supplied within Border Sustenance Markets with Iran and Afghanistan.

What happened to the old zero-rated textile regime?

The Act itself does not describe it. The only trace found in this corpus is a footnote to rule 34 of the Sales Tax Rules: rule 34(1)(a) once let “persons making supplies under Notification No. S.R.O. 1125(I)/2011” claim refunds, and that expression was omitted by S.R.O. 918(I)/2019 dated 7 August 2019. SRO 1125(I)/2011 itself is not held in this corpus, so its terms and its withdrawal are not covered here.

Worked example (illustrative figures)

A registered weaving mill in Faisalabad has these supplies in one month:

Supply	Value	Rate	Tax
Grey cloth to a registered processing mill	Rs. 5,000,000	18%	Rs. 900,000
Grey cloth to an unregistered cloth trader	Rs. 1,000,000	18% + 4%	Rs. 220,000
Grey cloth exported to a buyer abroad	Rs. 8,000,000	0%	Rs. 0
Total output tax			Rs. 1,120,000

Working: Rs. 5,000,000 x 18% = Rs. 900,000. Rs. 1,000,000 x 18% = Rs. 180,000, plus Rs. 1,000,000 x 4% = Rs. 40,000, total Rs. 220,000. The export is charged at zero percent under section 4(a).

On each invoice for yarn or fabric, section 23(1)(d) requires the description to include “count, denier and construction”.

Common mistakes

• Treating local supplies to an exporter as zero-rated. Section 4 covers goods exported. A local supply to an exporter is zero-rated only if it fits a Fifth Schedule entry, such as serial 7 with its conditions.
• Forgetting the further tax. Supplies to unregistered buyers carry the extra four percent unless a notification excludes them.
• Relying on an old SRO. Rates set by notification change often; check the current SRO, which this corpus does not hold.

What to check in the official text

Read section 3(1), (1A), (2)(b) and (6), section 4 and section 13 with the Fifth, Sixth and Eighth Schedules in the source PDF, and section 23 for invoice contents. Any SRO under section 3(2)(b), 3(6), 4(c) or 13(2)(a) affecting textiles is outside this corpus and should be checked separately.