The five exporting sectors circles have urged the Federal Board of Revenue (FBR) to formalize informal trade in domestic commerce as only 50 percent of domestic commerce is being fed by the local industry and remaining 50 percent is the share of informal trade, including smuggling, mis-declaration under worn clothing, under-invoicing and official import.
Sources from textile, leather, carpets, sports goods and surgical instruments are of the view the total volume of domestic sales of textiles ranges between Rs 270-300 billion against the government's claim of Rs 1200 billion. The government estimates, they added, are not supported by a concrete data and they are based on wrong perceptions.
According to these circles, the domestic per capita fiber consumption is further distributed into official imports which are nearly 9%, informal trade which makes up for 24%, domestic fiber consumption is another 50% and lastly, worn clothing imports that make up another 17%, respectively. Out of these four classes, it is the worn clothing trade that needs to be managed by means of formalizing trade.
They said the removal of zero-rating regime has hit the level-playing field as the government has not only imposed 17 percent sales tax but also introduced punitive taxes like further tax and pre-conditions in sub sectors not presently organized. The sources said registration of the informal sector would take time and there was a need of introducing a gradual registration process for the informal sector.
They said the prevailing uncertainty has halted industrial processes followed by the value chain disruptions. They stressed that there should be a level-playing between imports and informal trade vis-à-vis domestic industry. They said stock lots are being cleared under the garb of worn clothing at prices even lesser then the cotton price, which is the first right of the domestic industry and both formal and informal market size comes around Rs 600 billion, ie., Rs 300 billion each and not Rs 1200 billion.
According to them, the government should introduce taxation at the retailable point but also check the volume of informal trade both at the entry and sale points. A good number of markets are involved in selling of smuggle stuff in Pakistan without providing a proof of procurement or import at their retail points. There is a need of verification of this fact by the government, they stressed.
Similarly, they said, the Afghan Transit Trade requires formalization, which would benefit the industries of both countries. The import of Afghanistan is $6 billion today and its consumption is estimated around 2 kilogram per person, which is far below than the global average. Therefore, the economy of Afghanistan is also suffering from an unusual contribution of the informal trade. Both Afghanistan and Pakistan should take it seriously and get rid of heavy influx of informal trade to benefit their respective exports and revenues and make it a win-win situation for their countries, they added.
The industry circles have urged the government to introduce reduced rate regime to avoid liquidity stuck up, availability of level playing field, end of uncertainty in the industry and the government should provide enabling environment for new investment to create exportable surplus while removing punitive taxation and focus on registration of the informal sector.
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