LAHORE - 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.

The leather manufacturers and exporters have asked the FBR to utilize its own tax machinery to collect tax, instead of making exporters or manufacturers as its sales tax withholding agents.  They 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 clause would make their produce costlier which may shrink their market and if this policy continues the result would be disastrous.”

Pakistan Tanners Association Central Chairman, Agha Saiddain, said that a tannery is usually makes purchases of up to Rs20 million in one month, implying that it has to pay tax around Rs3.4 monthly which is not refundable now, as all zero-rated sectors have been abolished. 

“Besides, shifting of responsibility on exporters for collection of taxes and work as withholding agent for income tax, sales tax and FED means incurring of extra cost because all this needs dedicated staff and other resources,” PTA central chairman observed.

The leather industry representatives said that the Federal Board of Revenue (FBR) has proposed in the Finance Bill 2013 to include this clause to deceive the political leadership, working out new ways for corruption.

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 the government has increased Sales Tax from 16% to 17% to increase its Revenue Target. But 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. On the other hand the general public will face more inflation and prices of all commodities will increase.

Secondly the government has planned to face balance of payments through foreign investments by auctioning 3G license and some other measures, whereas, it would have been prudent to bring export friendly policies and built our foreign exchange reserve through increase in exports and by applying import substitute measure.

“We were expecting more creative budget but it was traditional and routine like past. Keeping in fiscal deficit of 8.8 percent of current year with huge public debt of Rs14284 billion the revenue target of Rs2598 billion is insufficient as such the real budget is hidden under apparent budget announced by the government.”

Agha 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.