Rising costs weigh leather exports down
Manufacturers of leather products use cutting-edge technology. Yet the leather sector has consistently failed to enhance exports, which currently hover around $335 million.
In contrast, annual exports of leather garments and goods by India and China are around $3.92 billion and $3.13bn, respectively.
In the past, exporters of leather products would send their samples to prospective international buyers through snail mail to get approval. This would usually result in delays in production and delivery of products.
However, information technology radically changed the structure of the industry, which can now get in contact with international buyers through digital platforms and e-commerce websites.
Despite latest IT solutions, the leather industry is running at least 30pc short of the installed capacity due to the unavailability of raw, pickled and wet-blue hides and skins.
Due to the imposition of duties and taxes on the import of basic raw materials, the cost of leather products is increasing, rendering Pakistan’s value-added products uncompetitive in the world market, according to Fawad Ijaz Khan, patron-in-chief of the Pakistan Leather Garments Manufacturers and Exporters Association (Plgmea).
The government charges 3pc customs duty and 1pc withholding tax on the import of raw skin, pickle and wet blue. The government gives back refunds in the shape of a duty drawback of only 4.26pc, he added.
When the duty drawback rate was fixed in 2012, Mr Khan said, there were no duties and taxes on the import of raw materials needed for value-added products.
In contrast, governments of India and China give a high rate of duty drawbacks to incentivise the exports of leather products. Mr Khan said China and India give 8.5pc and 9.5pc duty drawbacks, respectively, on the export of leather goods against 4.26pc duty drawback given by the Pakistani government.
Many factors increase the cost of production for Pakistani exporters and manufacturers of leather products, such as extra travel expenses because many international buyers refrain from visiting the country due to poor law and order.
The government collects 0.25pc export cess for the Export Development Fund (EDF) whose size has grown to Rs6bn. Mr Khan said the cess is a burden on exporters and should be done away with immediately. With a meagre annual budget of Rs1.25bn, the Trade Development Authority of Pakistan (TDAP) has failed to support exporters as more than 60pc of its budget is used to meet salary expenses, he added.