Tax infected garment industry in Pakistan.

Byline: Muhammad Nadeem Bhatti

Textile and garments are considered the most important sector of Pakistan's economy and the largest industry with a 46% share of total manufacturing. Accounting for 67% of exports, employment for 40% of the workforce and a 10.20% share in GDP confirms the importance of this sector. According to the Pakistan Economic Survey 2018-19 analyzed by Gallup Pakistan, in 2018-2019, Pakistan's largest export industry was the textile industry, with hosiery and readymade garments contributing 544 billion PKR/3.47 billion USD to total trade. Pakistan is considered the giant in garment industry since last decade. Pakistan is not only known for the export of garment products but also the garment business is also one of the biggest businesses in Pakistan. Garment manufacturing is a major growing sub-sector of the textile value chain. It consumes the majority of the workforce in Pakistan's textile and garments industry and has been contributing towards the high growth-rate in exports as government data shows it is 67% contributing in export of Pakistan.

However, the garment industry is now suffering from some acute problems: in productivity, in quality, in management and marketing skills: and thus facing a serious threat of a reduced share of international markets and biggest of all is large sums of taxes implemented on garments products by Pakistan government. Pakistan's current taxation system is defined by Income Tax Ordinance 2001 (for direct taxes) and Sales Tax Act 1990 (for indirect taxes) and administrated by FBR. The sales tax rate in Pakistan stands at 17 percent. Pakistan provides zero-rate of sales tax on inputs and products of five export-oriented sectors i.e. textile, leather, carpets, sports goods and surgical goods.FBR started the preparations for charging 17 percent sales tax on local supplies of manufacturers-cum-exporters of five zero-rated sectors from July 1, 2019. The board also initiated stocktaking to avert any possibility of showing clearance of all stocks at zero percent (on papers) till June 30, 2019. The FBR has issued instructions to the Large Taxpayer Units and Regional Tax Offices. The pre-budget talks between the government and industrialists on contentious issue of withdrawal of tax concessions and energy subsidies have ended, as tax authorities claim to gain some ground due to a rift between exporters and local suppliers.

Currently garments industry is facing great decline in its growth rate...