LAHORE: Even after bowing to the pressure of the Federal Board of Revenue (FBR) to deposit tax for supplies made to the registered persons, Faisalabad yarn industry still fears maltreatment under new sales tax regime.
Industry people point out that they made supplies only to the sales tax registered persons duly declared valid on the FBR website. That they later turned out fake was not the fault of the industry, they added.
“The actual culprits are the FBR officials who ignored the law during the registration, which stressed on verification of documents and business premises. While we were threatened with the lodging of First Information Report for no fault of ours, the officials who registered those entities still remain accountable,” said an affected miller.
He said millers were made to look villains in the eyes of the public, but the actual perpetrators of crime still enjoy cozy life in their offices.
Textile sector experts pointed out that for decades Faisalabad traders have dominated the yarn market of the country. He said two decades back 90 percent of the yarn produced in the country used to pass through the hands of Faisalabad yarn traders to the ultimate users. “Unfortunately, the entire Faisalabad yarn trade was undocumented,” he said, adding that in the last one decade the spinning industry capacities increased from five million spindles to 12 million spindles.
At the same time, he added, documented weaving capacities also rose rapidly. “Today, 70 percent of the yarn produced in the country is consumed by the fully documented sector, while 30 percent is still routed through Faisalabad yarn market that still remains undocumented,” he said.
Another spinner said that the problem of non-verification of sales tax is related totally to the yarn supplied to the Faisalabad yarn traders. He said these traders supply yarn to Faisalabad based power looms operating in the residential areas.
“There are over 200,000 power looms in the city that provide direct employment to 400,000 workers and indirect employment to the same number of workers in sizing, transportation and small processing units,” he said.
They produce products for knitwear, bed wear, ladies lawn, and gents clothing. Most of this production is in non-documented sector. He said major challenge for the tax collectors is to document the Faisalabad yarn trade. He said once this trade is fully documented, the downstream chain will automatically be documented. “This is because the yarn traders are in fact the actual financiers of loom operations.” Small looms cannot stock yarn in bulk and buy on daily basis from the yarn market. A documented trader will be bound to sell to a registered buyer or deduct two percent sales tax on non-documented sales, he added.
An affected spinner said the new law now mandates the spinners to sell yarn to both registered and unregistered buyer after deducting two percent sales tax. He said the registered persons or companies would be required to keep their sales record for sales tax adjustments but who will trade with the unregistered buyers. He feared that the FBR may not again ask spinners to identify the persons that bought yarn from them. He wondered as to why the FBR is hesitant in taking action against the FBR officials that registered bogus sales tax entities.