The Federal Board of Revenue (FBR) has observed that the leather sector is one of the leading foreign exchange earners, but its income tax contribution is too low ie only 50 percent of registered units are filing income tax returns.
According to the Industry Profile-Leather Industry in Pakistan issued by the FBR here on Monday, the provisional data of income tax filers shows that the compliance level is just 50%. In the year 2013-14, 49% of the total registrants were the filers as compared to 58% filers in the year 2012-13. The compliance level during 2009-10 to 2013-14 has ranged from 49% to 59%. Low income tax contribution and nearly 50% non-filers raise various questions like; the leather sector a one of the leading foreign exchange earners, why its income tax contribution is too low? Moreover, why large of number of registrants are not the filers of income tax returns? , FBR questioned.
There are around 2000 registrants/NTN holders and nearly half of them are the non-filers of income tax returns. In the year 2013-14, 1026 were the non-filers as compared to 833 non-filers in 2012-13. The compliance level during 2009-10 to 2013-14 has ranged from 49% to 59%.
The leather industry pays income tax and sales tax at domestic stages. At the imports stage custom duty, sales tax, FED and withholding taxes are collected on the import of leather products and articles of leather. The industry has paid Rs 2,383 million in the heads of income tax, sales tax and custom duties, which is just 0.11% of total federal taxes. The growth in collection is not smooth and also not aligned with the growth in total federal taxes.
During last eight years period the net collection of income tax paid by leather sector ranged from Rs 327 million to Rs 1.3 billion, which is on average just 0.1% of total income tax. Whereas, on the other hand the share of leather sector in exports has been more than 5% during same period. The income tax contribution seems too low when compared with more than Rs 132 billion exports of leather sector during 2013-14.
According to Pakistan Tanners Association (PTA), the tanneries across the country have estimated to buy Rs. 11 billion worth of hides of sacrificial animals during the Eid-ul-Azha in August 2014.
Overall tax contribution by the leather sector is below one percent of the federal taxes, which is in fact a meagre share. The leather industry is one of the major foreign exchange earners for the country as most of its products are exported in finished form. The exports were to the tune of around Rs. 133 billion in 2013-14, whereas the industry's income tax contribution was below Rs. 1 billion during the same period. The overall tax payments by the industry including direct and indirect taxes were Rs 2.4 billion in 2013-14, which is just 0.11% of total federal taxes.
The leather industry is one of the key industries of Pakistan playing vital role in the economy of Pakistan. The industry shares around 4% in GDP, provides jobs to nearly half million people and earns a huge amount of foreign exchange for Pakistan. However, its overall tax contribution and specifically, income tax is very low and moreover, the compliance level of income tax registrants is just 50 percent.
The industry is underutilized and there is an ample scope for further expansion and efficiency. More institutional support should be provided to the industry for full utilization of the production capacity and to overcome the environmental and other issues. Special efforts and attention is also needed to supply sufficient water and power for smooth and uninterrupted working of the industrial units. There is a need of trade diversion and Pakistan should find more markets in Asia and neighbouring countries. The one of the major strengths of leather sector is the occasion of Eid-ul-Azha, which provides a significant portion of raw material to the industry every year. Further coordination and creation of systematic linkages among various sub-sectors, upstream & downstream industries, can be highly effective to enhance the economic benefits in the country.
It is also imperative to draw the attention of income tax registrants and exporters that currently the tax contribution of the industry is too small. The income tax paid by the industry is about Rs. 1 billion, which does not, match to its size and contribution in GDP and the exports earnings of the industry. Moreover, out of 2000 income tax registrants only half are the filers of income tax returns. Major source of government's income is the tax revenues and without sufficient amount of tax collections government is forced to borrow from internal and external sources, but the borrowing has a huge cost. Therefore, tax revenues are the more effective source of financial resources to keep the economy on the fast track of economic development and prosperity without compromising on the national dignity and independence. Thus, the industry should pay its due share in the taxes to support the government to accomplish the developmental projects and also to eradicate the poverty from the country.
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