Tanners ask ministry to clarify zero-rating facility
Pakistan Tanners Association has claimed that SRO 283(1)2011 and SRO 505(1) 2013 have created confusion among tanners regarding application of zero rating facility on entire registered supply chain and asked the Ministry of Finance for necessary clarification. PTA Central Chairman Agha Saiddain in a letter to the Federal Minister of Finance pointed out that hides/skins fall under PCT heading No 41.01 to 4101: 9000.
Copyright Business Recorder, 2013
He said the local supply and import of hides/skins under SRO Nos 535(1)2005, 536(1) 2005, 621(1)2005, 525(1) 2006, 509(1)2007, 283(1)2011, 1012(1)2011, 1058(1)2011 and 1125(1)2011 has always remained exempted from duties and taxes. He said tanners need clarification as they are confused regarding application of SRO 283(1)2011 and SRO 505(1)2013. Under the SRO 283(I) 2011, zero rating covers whole registered supply chain both import and local supplies except retail, he said and added that SRO 505(I) 2013 is applicable on taxable goods meaning that it is not applicable on supply or import of hides/skins which are not taxable for being agriculture produce like live animals meat and beef and raw cotton.
The hides/skins are purchased from small butchers from all over the country and on Eid-e-Qurban from persons carrying 4/5 skins on bicycles. For this reason hides/skins were never made taxable even in our competing countries India, China, Vietnam, Cambodia, Malaysia, Indonesia, Taiwan etc. It would be unique example if hides/skins are made taxable even from unregistered persons. Though hides/skins are not taxable even from unregistered person but law is not clear on this point. FBR needs to issue new SRO clarifying this point, he added.
If Sales Tax is charged from unregistered person in such case no one will buy Qurbani skins which are purchased from mosques and welfare institutions which are not-registered. If tanners pays Sales Tax on Qurbani skins then it cannot compete in international market due to very thin margins, he maintained.
He said that SRO 283(I) 2011 dated April 1, 2011 clearly indicates that zero-rating facility shall cover the whole registered supply chain covering both import and local supplies except retail. Thirdly, SRO 505(I) 2013 dated June 12, 2013 has created confusion and anomaly in rules.
SRO 505(I) 2013 after its amendment in special procedure (withholding rules) contains that a withholding agent shall on purchase of taxable goods from unregistered person, deduct Sales Tax at the applicable rate of the value of taxable supplies made to him from the payment due to the supplier and unless otherwise specified in contract between the buyer and the supplier, the amount of Sales Tax for the purpose of this rule shall be worked out on the basis of gross value of taxable supplies.
He said that governments have always taken prudent decision and zero rated status on local supply and import of hides and skins was not disturbed due to a number of factors considered by the Federal Board of Revenue. These include; hides/skins are zero rated in India, China, Bangladesh, Turkey, Indonesia, Vietnam, Cambodia, Philippines and other competing countries. Levy of duties and taxes would have rendered leather industry of Pakistan non-competitive. To allow level playing field the authorities adopted same policy in the country.
Since exports of leather sector were showing either declining trend or were stagnant, as such, any further tax burden on raw material could have prove last nail for the leather sector. During last six years PTA kept informing authorities about various reasons for decline in exports and stagnation. As against global growth of 40 percent Pakistan lost its market share by 39 percent in last 6 years, he added.
Agha Saiddain said the major reason for this decline was higher incentives like duty drawback, government investment in shape of grants for technology up-gradation, modernization and capacity building in competing countries. "Our neighbouring country India announced following Leather Development Plans (ILDP) in last 10 years by making an outlay of IRS 4000 million, IRS 9140 million, IRS 12510 million under 10th ILDP, 11th ILDP and 12th ILDP respectively."
Small suppliers working with working capital of Rs 100,000 to Rs 500,000 will become jobless and no one will buy from these being unregistered and very small. It is practically not possible to be withholding agent of unregistered persons as such tanning sector needs exemption from any such law.
PTA Chairman said world-wide exportable goods are exempted from all kinds of taxes and duties, adding "The zero rating system was introduced after lot of research and home work by FBR and any change in it will have serious repercussion on our exports which are needed for the survival of our country."