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Leather industry raises concerns on double taxation
Jun '08
Mr. Fawad Ijaz Khan, Chairman Pakistan Leather Garments Manufacturers & Exporters Association (PLGMEA) expressed serious concerns of the Leather Garments Industry on Double Taxation at the Import & Export Stages.

The Federal Budget 2008-09 has imposed 2% uniform withholding tax for all importers and exemption certificate for Non-Payment of this tax is not being issued to Manufacturer-cum-exporters.

Now the exporters will have to file for refund of Withholding tax which is a very lengthy and cumbersome process. Consequently a huge amount of their funds will be stuck up in Income Tax Refunds.

Mr. Fawad elaborated that the export proceeds of Leather Garment exporters are taxed at 1% under Section 154 of Income Tax Ordinance 2001 which is considered full and final discharge of tax liability of the exporters.

Manufacturers-cum-exporters who were registered in the Sales Tax Department were exempted from 1% withholding tax at the import stage vide the Federal Budget 2006-07.

Previously Income Tax Department was issuing exemption certificate to Manufacturer-cum-exporter so that they did not have to deposit withholding tax at Import stage.

Now 2% withholding tax has been imposed on all imports after the announcement of Federal Budget 2008-09. The Income Tax commissioners have not been extended the powers to issue Exemption Certificates.

Mr. Fawad said that some exporters who had exemption certificate valid till 30th June 2008 are also being charged 2% withholding tax on imports from 12th June 2008.

Mr. Fawad stated that several shipments are lying at ports since the Customs authorities are demanding 2% withholding tax and he has again requested the Member Income Tax FBR Mr. Usman Khalid to take note of this serious problem of exporters and urgently give instructions to Regional Tax Commissioners to issue Exemption certificates to Manufacturers-cum-Exporters based on their past history.

Mr. Usman assured the PLGMEA Chief that he will look into this problem and find a solution for exporters within next few days.

Mr. Fawad has also discussed this double taxation issue with Mr. Israr Rauf, Director General, Regional Tax Office, Karachi for issuance of Exemption Certificate.

It may be pertinent to mention here that recently SBP has imposed a condition of 35% cash margin on opening L/C for imports which has already overburdened exporters importing essential Raw Materials.

Mr. Fawad stated that there is acute shortage of Leather in the local market and its prices are rising sharply. Exporters are forced to import most of their Leather requirements besides the Import of Chemicals and Garment Accessories.

Mr. Fawad talked to Dr. Shamshad Akhtar, Governor State Bank of Pakistan and according to her the delay in issuing notification for withdrawal of 35% L/C margin is at the end of Ministry of Commerce and Ministry of Finance who have still not finalized the list of items on which 35% L/C margin is to exempted.

According to Dr. Shamshad she is continuously following this case with the Ministry of Finance. Mr. Fawad appreciated the efforts of Governor SBP for early withdrawal of 35% L/C margin condition.

Pakistan Leather Garments Manufacturers & Exporters Association

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