Evasion of sales tax on sewing machines
  By: Nawazish Ali
  Member Sewing Machine Development Committee EDB
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Federal Board of Revenue (FBR) lacks basic and fundamental data of production capacity and potential of various industrial sectors deemed necessary to formulate comprehensive, realistic, practicable and effective tax policies in Pakistan. For increasing new tax assesses FBR usually undertook successive survey to identify the potential tax payers but it was ignored to asses the industrial production which is most important in determining the capabilities of various sectors to pay the taxes.

Being a member of Sewing Machine Development Committee Engineering development Board I wish to brought these facts in the notice of FBR that EDB spent huge money to asses the production potential of the sewing machine sector during the year 2006 which indicates that 1.2 million sewing machines were manufactured in the country while FBR is unable to collect sales tax from hardly one lac sewing machines. It could be estimated that there is tax evasion of estimated to be 750 million rupees per annum on complete sewing machines and parts manufacturing which one is totally oversightness of FBR.


It is also thought provoking government institutions like, Ushar & Zakat Department, Bait Ul Mal Depart, Social Welfare Departments, buying sewing machines in very big quantity for distribution to widows, orphans, under poverty alleviation social sector schemes, but it is pity sewing machine sector misusing the cooperation accorded by government by concealing taxes. During 2006 the manufacturing figure of sewing machines was 1.2 million sewing machines during however now its numbers have jumped to 1.8 million. Complete sewing machine carry assembly of more then 500 parts, apart from complete sewing machines there are millions working machines in operation in the country and many parts of machines are regularly replaceable while their per annum per part sales is estimated around 2.5 million pieces each part. If complete sewing machines and parts should be brought under tax net only this sector could generates huge amount of taxes.

It is assumed that massive ignorance of FBR in receipt of sales tax occurred due to SRO No.549(1)2008 which liberalize complete machine manufacturing at zero per cent sales tax whereas on parts sales tax is applicable.


It is pity in the past years FBR never thought prudent that either parts sectors is paying sales tax or not. Hitherto a very limited quantity of sewing machines production which was declared by sales tax returns filled in the previous years not a single return carry any evidence of input data of parts makers showing there source of parts purchase.

For taxing the sector of sewing machines in proper strategy it is proposed, as per survey of Engineering Development Board there were 3000 Registered trade mark brands in sewing machines till 2006 those are being registered under clause 7 by The Registrar of Trade Marks. For bringing all trade marks under sales tax net it is proposed that complete data of registered brands of sewing machines should be taken from The Registrar of Trade Marks and notices be issued to all registered brand users to get them registered with Sales Tax net.

Nowadays Average price of machine is Rs. 4000 to 5000 and every registered trade mark user is liable for sales tax payment under existing sales tax rules. There are 500 parts those are required for the assembly of sewing machines. Many parts, particularly (1) Shuttle Hook (2) Bobbin Case (3) Thread Take Up Lever these are not made in the country.

All the assemblers of sewing machines should be directed to file complete data of imported parts fitted in the machine with detail of customs duty paid proof, to avoid use of smuggled parts in the assembly of machine. In the country there is no any association of sewing machine trade and industry and a group named Lahore Sewing Machine Manufacturers and Traders Group is affiliated with Lahore Chamber. To avoid the interference of this group who is backed by Chamber, politicians for proper taxation of sewing machine sector it is recommended three years Sales Tax, Customs, income tax audit of Lahore Sewing Machine manufacturers and Traders Group members be decided to grip the whole sector of sewing machines for proper taxation in proper way.

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