Pakistan Leather Exporters Seek Relief from Proposed Tax Increase

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.

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