Kot Lakhpat, in south Lahore, has long been one of the city's main industrial districts, including leather goods and footwear manufacturers producing for local brands and for export. These units buy hides or finished leather, employ skilled workers on piece-rate, and sell to brands, wholesalers and foreign buyers.
Export vs domestic sales
| Sales | Tax points |
|---|---|
| Exports (shoes, gloves, garments, bags) | Export proceeds through banks; tax deducted under export provisions; sales tax zero-rated or under export regime |
| Supplies to local brands | Sales tax invoices; buyer may withhold income tax |
| Wholesale to markets | Sales tax position; documentation |
Export proceeds and local sales should be kept separate in the books.
Raw materials
Finished leather from tanneries, synthetic materials, soles, adhesives and accessories. Purchases from registered tanneries provide input tax; from unregistered suppliers, they don't. Imported materials come with import documents.
Leather sector tax regimes
The leather and footwear sector has had special sales tax arrangements for exporters at various times, and refund regimes for input tax on exports. Check the current position for your products and markets.
Workers
Piece-rate stitchers, cutters and finishers make up most of the workforce. Wage registers, EOBI, social security, and for qualifying units workers' welfare and profit participation apply. Export buyers audit labour compliance.
Export documentation
Contracts or purchase orders, export goods declarations, bills of lading or airway bills, and bank certificates of realised proceeds. These support both income tax and any sales tax refund.
Samples and fairs
Exporters send samples and attend international fairs. Sample costs and fair participation are business costs; keep records.
Keep a monthly reconciliation of export shipments with bank realisations. Unrealised proceeds and late realisations are what most often hold up refunds and raise questions.
Local brands and chain stores
Supplying footwear to local brands and chains usually means purchase orders, sales tax invoices and payment by bank with tax withheld. Brands may also require labour and quality audits. Keep each brand's statements and certificates.
Hides and leather prices
Raw material prices move with the Eid-ul-Adha hide season. Record purchase rates on each lot so margins make sense.
Job-work for exporters
Some units stitch for larger exporters on job-work. Then your income is the making charge; the exporter withholds tax on payments.
Kot Lakhpat — questions we get asked
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