Pakistan Leather & Leather Garments Industry

Federation of Pakistan Chamber of Commerce & Industry is keeping up its appreciable tradition of awarding trophies (this being 26th) to best export performers in different fields. As always, it is graceful and prestigious event. It is always very well organised by the management of FPCCI, hats off to the management for this commendable effort.
Leather and leather garments industry is the second biggest export industry of Pakistan after textile industry. Before 9/11 incident it was $650 to US $700 million industry which was growing up but due to the unfortunate incident a sizeable decline was noted in the growth of this industry.
Pakistan has a conspicuous position in the international market of leather and leather products. Pakistan is prominent due to its specific raw materials eg buffalo and katal (calf) are its special raw material which are unparalleled in the world.
Pakistani sheep has a fine grain and it can be compared by all means with English domestic sheep. Cow & Goat are also available in abundance.
Being Muslims our people are mainly meat eaters that's why at the time of slaughtering the animals priority is given to meat and unfortunately due to lack of information and knowledge hides & skins are neglected.
Of course after slaughtering the animals first 2 - 3 hours are very important in preservation of hides & skins but these 2 - 3 hours are totally wasted in our country, in normal course salt is applied to the skins after lapse of this very important period. It should be kept in mind that salt is applied to preserve the skins from petrifaction.
Secondly, there are no industrial freezers available to preserve the skins/hides. Thirdly, non-professional people damage the hides & skins by mishandling & excessively cutting them.
These problems can be solved by creating awareness among the concerned people and providing required equipment ie industrial freezers etc to all the slaughter houses by Govt.
As narrated above it was ever growing industry of $650 million per annum before 9/11 incident but after that the trends and requirements in the world changed drastically.
The international inflation played a negative role. Of course leather is an expensive item and it can be termed as a luxury item. The luxuries were not afforded by the people after the 9/11 incident.
Major players of leather and leather products in the international market are China, Korea, Turkey, Pakistan, India and Italy. Our competitors are China and Korea, now India is coming up in fashion garments industry. To compete with these giants in the international market Pakistan has to work a lot.
The Government's assistance is required foremost. It is pertinent to mention that this is highest value addition export industry of Pakistan.
Here are a few points which the government must undertake to boost this industry and enhance the exports of leather garments from Pakistan.
1. Allow 10% compensatory rebate on leather garments export. As per WTO regime Pakistan is still entitled to do it.
2. Allow revision of duty drawback rates on export of leather garments.
3. To determine the correct procedure for filing duty drawback claims as per CGO 02/99.
4. Exempt value-added exports of leather garments from Export Development Surcharge (EDS).
5. To make Manufacturing Bond Rules SRO 450(I)/2001 easy and practicable.
6. To devise mechanism and allow refund of newly imposed Excise Duty of 16.38% on imported chemicals in the Federal Budget of 2002-2003.
7. SRO 698(I)/2002 of duty draw back rates for Leather Garments be made effective retrospectively from 1st July 2002 as this is judicious and rightful.
Moreover, the chemicals are imported from Europe and prices for duty draw back are calculated on the basis of US dollar. It should be on the basis of Euro. It will result in increase of duty draw back.
8. To reduce the rate of Sales Tax on Leather to 5%.
9. Banks should be asked to charge 1% over the rate provided by SBP for Export Refinance instead of prevailing 1.5%.
10. GST being charged on telephone bills should be made refundable as on other inputs.
11. Rates of utility bills of electricity, gas and telephone should be brought down in order to bring down the cost of leather garments/made ups, to compete with the international market.
12. Withholding Income Tax @ 0.75% being charged on all export proceeds should be reduced to 0% for Leather Garments industry for a period of one year to save this industry from present crisis.
13. SRO 410 which is going to loose its validity on 30th December 2004 should be revalidated permanently, as DTRE Rules are not substitute for temporary importation.
14. DTRE Rules should be made further easy.
15. Sale Tax regime for the exporters is based on zero rated (Sec 4 of Sales Tax Act 1990); it should not be mitigated by introducing %age capping concept.
16. Refunds (Customs duties and Sales Tax) should be allowed to the exporters with in seven days by all means.
17. Outstanding refunds should be cleared within one month's time.
18. Leather industry, generally and leather garments and accessory industry specially facing scarcity of raw material. To improve the situation it is necessary to impose 25% export duty on the export of raw leather and wet blue leather.
19. Temporary imports under Manufacturing Bond should be exempt from payment of Withholding Tax. Please refer to second schedule Part IV, Serial No 29 (i) of Income Tax Ordinance 2001, according to which imports made under Manufacturing Bond Rules 1997, SRO 1140(I)/97 dated 06.11.1997 were exempt from payment of Withholding Tax @ 6%.
However, under Federal Budget 2001-2002, SRO 1140(I)/97 has been replaced by above mentioned SRO all benefit of customs which were allowed under previous SRO 1140(I)/97 have been allowed to be continued but notification regarding the withholding tax has not yet been issued and as a result any time custom staff may stop the transaction of exporter(s) because any exemption for said payment is not available.
Necessary SRO / Notification / Correction for replacing SRO No 1140(I)/97 to SRO 450(I)/2001 (Chapter XII, Sub Chapter 4) in above referred second schedule w.e.f. 18.06.2001 may kindly be issued immediately.
20. Exporters are frequently travelling abroad for development of export, business promotion and participation in fairs, and exploring new markets. Sometimes, during these visits exporters get orders, need special trims or labels etc and exporters need to bring with them such trimmings as accompanied baggage (in commercial quantities) to avoid delay in making trial shipments/samples as these inputs are not available in the local market.
Regular import through airlines or courier could result in delay due to transportation time and customs clearance which would be minimum 4 to 5 days. Sometimes even the customers due to urgency hand carry these items and bring it with them as accompanied baggage (in commercial quantities).
As per current customs rules in force, it is customary that these items are detained at the airport and normal import procedure and paperwork is required which defeats the purpose of bringing them with the passenger.
The reason for detention is that no items can be imported in commercial quantity by individuals but can only be imported by importers registered with the relevant departments.
21. At the time of arrival at destination, exporters can go through the RD Channel, declare the goods, show an invoice and pay the necessary customs duties etc on the spot and take the goods with them.
22. We suggest that a similar procedure can be evolved since the Customs authorities at the airports have the tariff and procedure defined allowing the passengers to clear these goods.
23. Exporters should be allowed duty free import of machinery which is not being manufactured locally. For example Hydraulics Leather Shaving & Buffing machine greater than 800 mm width are not being produced in the local markets and can only be imported.
24. The consumable parts which are actually component of the machine should be allowed to import duty free. Necessary amendment is required in SRO 554(I) 1998 in this regard.
25. Re-export of temporarily imported goods supplied by buyers should be allowed without sight letter of credit or advance payment if supplied as free of cost.
The present policy does not provide any provision for export such goods in original and unprocessed form due to cancellation of export order or changes in design/style of the order.
I strongly believe that the Ministry of Commerce and the Central Board of Revenue will consider these recommendations seriously and will definitely remove all the hurdles, which hamper exports of the country the country.
(The writer is Director Chairman P.L.G.M.E.A)