Non-payment of taxes: Is Karachi ready for a fashion crackdown?

Designers in the city call out government for singling out their industry following sealing of outlets in Lahore.

KARACHI:

With the Punjab Regulatory Authority (PRA) sealing off countless designer outlets in Lahore over non-payment of taxes, designers in Karachi have, albeit reluctantly, given their two cents on the matter and on whether the government’s move is ethical.

On Thursday, a PRA team sealed the outlets of Zara Shahjahan, Mini Bindra, Sania Maskatiya, Muse, Nida Azwer, Ayesha Imran, Shirin Hassan and Ammar Belal as well as six others in Lahore. According to a spokesperson, the outlets owe Rs80 million in taxes to the authority.

Under the law, companies providing services in Punjab are authorised to pay sales tax. The question, however, that many designers in Karachi have raised is whether the fashion industry is being singled out.

One such designer, a big name in Karachi’s fashion industry, who chose to stay anonymous, says, “They [the PRA] are primarily targeting the retail and service industry. The fashion industry is a growing industry, which needs to be subsidised. We don’t need to give this service tax, or else it should be given by all the people who belong to the service industry — doctors, lawyers, teachers, journalists, even the president and the prime minister of this country. Otherwise, we consider it a harassment of fashion designers only.”

Another designer, who also chose to remain anonymous, claims, “We are selling a product. Selling an outfit is selling a product. We are not delivering any other kind of services to anyone. If I go to a textile mill and tell them, ‘I want to design lawn for you,’ that will come under selling services to a textile house but not otherwise.”

Likewise, another designer chimes in, “We are already paying a lot of taxes. Why are they targeting us? What about those aunties who stitch from home, have a design label in their houses? They are the ones who are minting money, whereas we have overheads to pay maintenance to look after and run a business. Why should we be targeted?”

But don’t designers make millions? This question is immediately shot down by another anonymous designer, who says, “No, my dear you are certainly in the dark. They don’t. It’s the textile company that makes so much money; a designer never does. There are too many overheads that need to be paid and to be looked after.”

One of the designers goes on to call out the government further, saying the move to seal the offices seems ‘convenient’. “When there is no electricity, we are running the karkhana on the generator, no one comes to check on us, but when a new tax needs to be levied, they are the first to pinpoint us.”

Another fashion designer who also wishes to withhold her name claims, “Do you know how poor our kaarigaars are? They don’t even have bank accounts. They get paid via cash every Saturday so they are able to meet the financial budget on a weekly basis. You consider us rich?”

She goes on to add that companies provide services and designers don’t and there is no point in designers paying taxes that FBR is already charging them for. “Why should we pay service tax? FBR is already charging us. For a designer to make money is not easy, we have established a name, a logo, a marketing campaign that literally churns our budget out. This tax should be levied against everyone who belongs to the service industry. If they continue to do so, businesses [in the fashion industry] in the long run are going to run dry. Do they want us to shut our business down?

Who collects service taxes in Sindh?

Unlike income tax collected by the federal government from businesses and individuals every year through the Federal Board of Revenue (FBR), sales tax on services is collected by provincial governments.

The counterpart of the Punjab Revenue Authority (PRA) in Sindh is the Sindh Revenue Board (SRB), a provincial body set up in 2011 to collect sales tax on services.

The Sindh government claims the SRB is the only tax-collecting agency in the country that has consistently exceeded its tax collection targets since its establishment. It achieved its annual target of collecting Rs49 billion in sales tax on services in 2014-15, up 24% from a year ago. Its revenue collection is expected to be Rs61 billion in 2015-16.

Services rendered by fashion designers are taxable at the rate of 14% under the Sindh Sales Tax on Services Rules, 2011. In addition to fashion designers, sales tax on services is also applicable to interior decorators, programme producers, production houses, event managers, event photographers, event videographers, body massage centres, pedicure centres, healthcare centres and gyms.

Published in The Express Tribune, September 5^th, 2015.

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