FAISALABAD: Undocumented transactions worth millions of rupees conducted by yarn and fabric traders in Sutar Mandi are hurting the national exchequer.

Located in Faisalabad, Sutar Mandi – also known as Yarn Market – is one of the biggest yarn and fabric markets in Asia. According to the Federal Board of Revenue (FBR), there are 860 registered wholesalers, traders and commission agents in Sutar Mandi. Spinner, weavers, traders, brokers and agents are attached with this business hub.

Talking to Dawn, sources explained that kachchi parchi and pakki parchi were basically plain paper receipts which were being used to conduct business in the Yarn Market. FBR officials claim that kachchi parchi is being used to evade taxes – which run into millions – as these transactions remain anonymous. However, dispelling the impression, traders said that this was a decades-old practice at the market and insisted that they were paying taxes. Tax collection from Sutar Mandi is expected to fall as most trade nowadays is being done using cash rather than through banks.

Riaz, a fabric trader, who did not allow to use his full name, said that despite paying billions of rupees in taxes, the textile sector was being dubbed as tax evaders which was not a good sign. “We issue kachchi parchi when we send fabric for checking at the mending section. After completion of the mending process, a pakki parchi is issued to the supplier featuring total amount to be paid and the number of metres to be supplied against this amount. The amount is being paid through banks as we know that any wrongdoing in the payment process would land us in trouble,” he added.

Riaz claimed that instead of finding other ways to increase revenue collection, the FBR officials and media were unfairly labelling them as tax evaders.

Pakistan Council of Looms Owners Association Chairman Waheed Ramay acknowledged the kachchi parchi tradition in the Yarn Market and said that majority of traders were not registered for General Sales Tax (GST) while some were doing business with ill-gotten money.

“After the weaving process, the GST chain is not completed. No trader in grey cloth trading is registered for GST and thus the tax chain remains incomplete,” he explained. “Due to kachchi parchi, speculative trading also happens many times during the year which harms the business of clean traders dealing in yarn,” he added.

An FBR official said that Rs222 million revenue was collected in 2019-20 while the tax amount was Rs46m in 2017-18. “The FBR has determined the daily yarn business size in Sutar Mandi at Rs450m. The amount of fabric is not included in this number,” he added.

With the advent of improved communications thanks to cellphones and the internet, traders have started to shift their offices from the main yarn market to different locations in the city to avoid heavy shop rents.

Nadeem Hussain, a trader of yarn, said once people from different cities like Toba Tek Singh, Chiniot and even from Lahore visited Sutar Mandi to purchase yarn and fabric. “Now the facility of mobile phones has changed the business pattern,” he said.

He admitted that yarn was still being sold through kachchi parchi for reasons best known to the traders and spinning mills. They have to pay full amount as this plain receipt would not bear any fruit for them, he added.

Talking to Dawn, FBR Additional Commission Headquarters Asif Rafiq said the revenue body was aware of the undocumented economy in Sutar Mandi and was monitoring the situation closely.

“Undocumented goods remain unregistered till their dumping and this is inflicting losses on the national kitty. Kachchi parchi is being used to evade taxes while only pakki parchi is being brought on the record by businessmen for the tax purpose,” he added.

He went on to add that a public awareness drive was needed for discouraging the use of fake and flying invoices. “We recently detected a tax fraud involving millions of rupees,” he added.

The FBR official lamented that traders in Faisalabad were not ready to trust government institutions. “They are optimising their profits through tax evasion and this trend must be arrested,” he added.

Published in Dawn, May 30th, 2021