Tax infected Garments industry in Pakistan, Written by Muhammad Nadeem Bhatti,
The writer is entrepreneur & senior economic analyst (Chairman) Federation Pakistan chamber, garment industry committee, Small & medium industrial association bund road Lahore and Pakistan columnist council Lahore Pakistan.
Textile and Garments are considered the most important sector of Pakistan’s economy and the largest industry with a 46% share of total manufacturing. Accounting for 67% of exports, employment for 40% of the workforce and a 10.20% share in GDP confirms the importance of this sector. According to the Pakistan Economic Survey 2018-19 analyzed by Gallup Pakistan, in 2018-2019, Pakistan’s largest export industry was the textile industry, with hosiery and readymade garments contributing 544 billion PKR/3.47 billion USD to total trade.
Pakistan is considered the giant in garment industry since last decade. Pakistan is not only known for the export of garment products but also the garment business is also one of the biggest businesses in Pakistan. Garment manufacturing is a major growing sub-sector of the textile value chain. It consumes the majority of the workforce in Pakistan’s textile and garments industry and has been contributing towards the high growth-rate in exports as Government data shows it is 67% contributing in export of Pakistan.
However, the garment industry is now suffering from some acute problems – in productivity, in quality, in management & marketing skills – and thus facing a serious threat of a reduced share of international markets and biggest of all is large sums of taxes implemented on garments products by Pakistan government. Pakistan’s Current Taxation system is defined by Income Tax Ordinance 2001 (for direct taxes) and Sales Tax Act 1990 (for indirect taxes) and administrated by FBR. The Sales Tax Rate in Pakistan stands at 17 percent. Pakistan provides Zero -rate of sales tax on inputs and products of five export-oriented sectors i.e. textile, leather, carpets, sports goods and surgical goods.
FBR started the preparations for charging 17 percent sales tax on local supplies of manufacturers-cum-exporters of five zero-rated sectors from July 1, 2019. The board also initiated stocktaking to avert any possibility of showing clearance of all stocks at zero percent (on papers) till June 30, 2019. The FBR has issued instructions to the Large Taxpayer Units and Regional Tax Offices. The pre-budget talks between the government and industrialists on contentious issue of withdrawal of tax concessions and energy subsidies have ended, as tax authorities claim to gain some ground due to a rift between exporters and local suppliers.
Currently Garments industry is facing great decline in its growth rate. The major reasons for this decline can be the global recession, internal security concerns, the high cost of production due to increase in the energy costs, Governments Policies and High Tax rate etc. Depreciation of Pakistani rupee that significantly raised the cost of imported inputs, rise in inflation rate, and high cost of financing has also effected seriously the growth in the Garments Business. As a result neither the buyers are able to neither visit frequently Pakistan nor are the exporters able to travel abroad for effectively marketing their products. Additionally, the government should provide subsidy to the garments industry and withdraw the withholding and sales taxes. Garment industry has large amounts of taxes implemented by the government 17% sales taxes, 4% withholding tax.
A Giant of Energy crisis is another problem and the electricity bills are rising day by day. It is making difficult for the business owner to maintain their business and pay high taxes as well. And In the current economic situation of Pakistan is making even more difficult for the business owner to make ends meet. In this current situation the rates of buying and selling the garment are very high. The margin of profit for the business owner is very low. And it is making it difficult for the garments business owners to maintain their business.
The high tax rates is making it difficult for the local garments business man to hire more people and paying the remaining workforce. On the way of actuality, country is facing lot of economic, social and political problem. People are not Dearing liberally to go through business and running their factory which has been very crucial and crunch due to not helping government intrusions in the favor of nation. This year FBR has achieved his goal nearly but may be next year people will exchange their work and move their business to other countries.
May be close their factory due to high cost of productions rates. in this regard lot of skill people lose their work and growth of Pakistan will automatically lose its figure and then there will be no any kind of FBR made policy which will help to generate the growth of country at high level. at last consequently, the policy maker officers of FBR will just take a exchange from their seats will not be able to held making by ridiculous and passive policy in the favor of nation if it is not fruitful then a legal action against them should must be considered because they are on the seats to exchange the future of nation (Pakistan)
Now this is the time for Prime Minister imran khan to compromise the sale tax rate level and let the good future made on. If it’s happen then lot of industries and cottage industries will grown up and the law and order situation will remain maintained. Otherwise i can see the horrible situation of Pakistan in coming next year’s which is unhandled able to any existing political party of Pakistan.Government should take notices of this kind of situation because this business can create more employments then any one can imagine. And unemployment can cause problem not only for the government but can also create serious law and order situation.