LAHORE - The leather industry is unable to benefit from duty-free market access of the EU countries under the GSP Plus Status, as the Federal Board of Revenue has started sending notices to the industry to submit 17 per cent withholding tax for the period of Oct-Dec 2013, rending leather export uncompetitive even in the region, escalating cost of production by 17 per cent.

Pakistan Tanners Association Chairman Sheikh Saqib Masood observed that the FBR has created hindrance in the way of leather export by issuing SRO 505 & 897, as its implementation has enhanced the cost of manufacturing goods of leather by 17% as compared to India & Bangladesh where this sector is facilitated by the government to take maximum advantage of fetching precious market share globally.

He raised objections over the government decision to make it mandatory upon exporters of leather products to charge sales tax on every purchase from unregistered suppliers. “The rate of sales tax has already been increased and the new SROs would make their produce costlier which may shrink their market and if this policy continues the result would be disastrous.” Sheikh Saqib said that the Federal Board of Revenue has shifted its responsibility of collecting tax to the exporters, as under the new finance bill, they have been declared withholding tax agent for all local purchases from unregistered suppliers.

He said that leather industry would lose even a limited share of the global market and the cash flow of the members will be adversely affected whilst the government will not gain anything, due to decrease in export.

He said that higher percentage of tax always gives birth to malpractices such as under-invoicing and other corrupt practices. As a result the government may lose both sales tax and customs duty due to under-invoicing on imported items.

Keeping in fiscal deficit of 8 per cent of current year with huge public debt of Rs14,284 billion the revenue target of Rs2,598 billion is insufficient.

He further added that the previous government violated Debt Limitation Act 2005 and allowed public debt to grow by 88% in the last five years. Pakistan can easily manage higher tax collection by expanding tax base and by bringing more people in tax net including agricultural sector.

Why a person with large landholding is exempted from tax payment is beyond normal common sense. At first stage government may impose agricultural tax on landlords with huge landholdings and gradually bring it down to the reasonable level, he suggested.

As most of the suppliers belong to an unorganized sector and are not registered sales tax department therefore, the withholding of sales tax against raw materials will ultimately be borne by the registered buyers of the leather industry, increasing cost of production drastically. He said that leather industry is already suffering due to energy crisis, rise in prices of other factors and tough competition in international market therefore, the added burden of withholding of sales tax on raw material would made them uncompetitive in the international market.

The Chairman of the PTA appealed to the government for immediate withdrawal of SROs 505 & 897 for five export-oriented sectors including leather industry to provide them level-playing field.