The Pakistan Carpet Manufacturers and Exporters Association (PCMEA) on Friday voiced his concern over a proposal by the Federal Bureau of Revenue (FBR) to increase the sales tax from two to five percent in the upcoming budget on the handmade carpet industry. Chairman Usman Ghani and Senior Vice Chairman Qamar Zia in a statement on Friday said that almost 100 percent of carpets produced in the country were exported providing more than 800 percent value addition to its product.
"The association has already sent its proposals to the FBR and the Ministry of Finance for federal budget 2015-16, requesting for withdrawal of the sales tax on the carpet industry as was allowed previously because it is 100 percent export industry," they added. They also said the high ratio of the sales tax would shrink the working capacity of carpet manufacturers, causing a flood of more unemployment in this sector. "Despite the GSP Plus status granted to Pakistan, the export of the value added carpet industry is going down continuously for various reasons and the same is likely to decline further if un-friendly treatment will be continued to the exporting industries. Handmade carpet exports have dropped 10 percent to $120 million in 2014, continuing the declining trend for the industry despite getting free market access to European countries. Pakistan has suffered a huge decline of over 50 percent during the last seven years as handmade carpet exports have fallen to $120 million from its peak of $320 million, depriving almost 0.5 million people of direct employment," they mentioned.
They strongly opposed the proposed move of the government for irrational increase in Sales Tax up to five percent under the prevailing business circumstances within the country, which would stuck up a huge working capital of carpet sector in the sales tax regime, while refund process is unfortunately quite slow. They said exporters are already facing huge liquidity crunch due to large amounts stuck up with the FBR in respect of their duty drawback, sales and income tax claims. The five percent sales tax will increase production cost, rendering the sector more uncompetitive in the international market, which is already on higher side due to additional import duties by the Turkish government.
They further said, "The global floor covering market is estimated to be valued at around $15 billion, and Pakistan has a very little share, mainly due to its failure to cope with the changing trends, no research and development activity and the absence of support from the government."