Pakistan: Students, parents to pay taxes on every pen, pencil they buy

The Express Tribune

The prices of locally-manufactured writing instruments will increase by up to a fifth even before they reach factory gates, as the government has indirectly slapped a 17% sales tax on the industry’s raw material, making manufacturing unviable. The government’s decision to tax unregistered companies is likely to increase the retail market prices of all types of pencils, pens, colour pencils, rulers and sharpeners by more than 20%, according to industry insiders. The writing instruments manufacturing industry had earlier been granted the zero-rating facility on imported or locally-purchased raw material in 2007, which now seems to have been withdrawn through some neat legal acrobatics. The Federal Board of Revenue (FBR) has actually taken away the zero-rating from the writing instruments manufacturing industry and granted it an ‘exempted sector’ status. But tax experts call this a tax anomaly, as it has resulted in a 17% levy on import of raw materials, which are mainly chemical. This will make the local industry, which currently has a turnover in the billions of rupees, unviable; as the price structure for imported finished products has remained the same, industry officials told The Express Tribune. Earlier, under the zero-rating facility, the industry used to pay sales tax at the import stage, but later claim refunds on its output. Since the industry has been granted ‘exempted status’, it will no longer be entitled to claim refunds, a tax expert explained. Since inputs make up about 80% of the cost of production, while the rest of the 20% is incurred on labour and other expenses, prices are expected to go up by at least 14%, on average, immediately. The price of an HB pencil is currently Rs5 per piece, which will now increase to Rs6 after the levy – an increase of 20%. Similarly, the cost of a dozen colour pencils will increase from Rs70 to Rs80, an increase of 14.3%. The prices of a dozen crayons, on the other hand, will increase to Rs90 from Rs80, up by 12.5%. A sharpener that was available for Rs5 will now cost Rs6, after a 20% increase in prices. A six-inch ruler’s price will also increase by 20% to Rs6, while a ballpoint pen will now cost 16.7% higher. Pakistan is home to some good brands in this sector, like Gold Fish, Piano and Dollar, but these have been threatened in the past by an influx of competing imports. The government’s decision to tax the sector will increase the import bill and make the industry’s exports uncompetitive, industry insiders complained. Local manufacturers also claim that importers of writing instruments easily evade taxes through under-invoicing and undervaluation of products, which they say is done in connivance with corrupt FBR officials. This latest development will now place them at an even more advantageous position. FBR officials seem to be aware of the industry’s reservations. They say that the industry has demanded the reinstatement of the pre-budget status quo, but no decision has been taken in this regard so far. This is the second decision taken by the government which has a direct impact on Pakistan’s beleaguered educational sector. It has also reportedly withdrawn an income tax relief granted to educators who teach full-time. A 75% relief in tax incidence had earlier been granted to teachers in the Musharraf era to attract highly-qualified Pakistanis who had been teaching abroad.