How the 'gool' trade is fudging Pakistan's cotton production numbers

A new way of tax evasion was unearthed in Pakistan's cotton ginning and production process where stakeholders are hiding the real output and millions of bales have been unreported during the season.

Industry sources informed Nukta that last year nearly 2.5 million bales changed hands without any legal invoice. This amounts to nearly PKR 215 billion worth of cotton bales, which would have generated PKR 38 billion in sales tax revenue for the government.

However, they went unreported under the umbrella of “gool” trade, a commonly known word for this process. For context, one bale weighs around 160 kilograms, whereas price for one maund or 37.2 kg is nearly PKR 20,000. After incorporating these numbers one bale has a price tag of nearly PKR 86,000.

This year too, it is expected that while the cotton production might stand around 7.5-8 million bales, the reported number may be around 5-5.5 million bales.

The main factor behind the cotton “gool” trade has been a higher sales tax of 18%. The same amount of tax has also been levied on cotton seed for oil processing and wastage commonly known as ‘Khali”, which is consumed as food by cows. When cotton bales are under-reported, producers are then able to avoid sales tax in three areas — the bales themselves, cotton seeds and wastage.

Cotton production during the last season was around 8.4 million bales as reported by the Pakistan Cotton Ginners Association. Despite this shortfall, import numbers revealed that the amount spent on shipments was less than what should have been spent considering the country's demand.

Nearly 1.2 million bales were imported last year, whereas textile sector claimed their demand has been around 11.5-12 million bales, proving that more than two million bales have been unreported, leading to tax evasion.