Pakistan’s leather industry is urging the government to reconsider a proposed tax change that could further strain exporters. The Pakistan Tanners Association (PTA) chairman, Muhammad Mehr Ali, has appealed to the Prime Minister and Finance Minister to maintain the existing 1% final income tax system for exporters.
Concerns about the Proposed Change:
- Increased Tax Burden: The proposal would subject export income to regular income tax rates, with the 1% final tax considered a minimum payment. This would significantly raise the tax burden on leather exporters already facing financial difficulties.
- Horizontal Equity vs. Industry Challenges: While the government aims for “horizontal equity” (equal tax for equal income), the PTA argues that the leather industry’s unique challenges, like high production costs compared to regional competitors, necessitate a different approach.
- Declining Exports: The leather sector has seen a concerning decline in exports for three consecutive years, with a negative growth rate of 19.60% for finished leather and 10.21% overall (July 2023 – April 2024).
- Potential for Further Decline: The PTA fears that additional taxes could be the “last nail in the coffin” for leather exports, hindering the government’s overall economic goals.
The Existing System:
- Currently, leather exporters pay a flat 1% final income tax on their export proceeds. This system provides the government with a predictable revenue stream while minimizing compliance burdens for exporters.
The PTA’s Appeal:
The PTA urges the government to maintain the existing 1% final tax system. They argue that it provides a stable tax revenue source for the government while allowing the struggling leather industry to remain competitive.
