Muse and Zara Shahjahan were sealed by the tax man. Did they do anything wrong?
Is the Punjab Revenue Authority the latest #AyeshaMumtaz on the streets?
The Punjab Revenue Authority (PRA) shut down two major designer retail outlets in Lahore yesterday, MUSE and Zara Shahjahan. Shoppers who visited either brand's outlets were greeted with notices on their entrances calling for their premises to be sealed.
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| The Punjab Revenue Authority's notice on the front door of Muse (L) and Zara Shahjahan (R) |
Established two years ago, the PRA's mandate includes taxing business entities providing services. Muse and Zara Shahjahan were sealed under violation of Rule 6 of the Punjab Sales Tax on Services (Enforcement) Rules, 2014. Under this rule, companies providing services within Punjab are authorized to pay a sales tax on the services rendered.
But does owning a retail store qualify as providing a service or a good?
Assistant Commissioner Enforcement -IV Sumaira Umbreen says it's the former, with a special emphasis on custom orders: "Designers by definition are charging for their designs and are therefore need to register with the PRA and pay the service tax. When they make an outfit or a bridal on a custom order they are providing a design service and that service is taxable; the PRA is a separate entity from the Federal Board of Revenue and this tax is on top of the sales tax.”
How can we isolate the design function within a brand? Every retailer, after all, will have all their overheads built into the price of their product including the cost of hiring designers or incurring a design fee
It seems that the road to understanding the burgeoning Pakistani fashion industry is still murky. If a designer sells custom outfits under the same label as their retail brand does the PRA's claim still hold? If creating bespoke outfits is providing a service, then doesn’t your local tailor provide you with the same service? Are they also taxable under the same law?
When asked whether a local tailor who also takes custom orders would also be taxed Umbreen replied: "Yes. We will be going after smaller vendors soon because they are also providing a service.”
It stands to fact that many retailers in the market have in-house design teams as opposed to outsourcing designs, like, say, textile mills do. If this is the case then are all retailers and manufacturers with in-house design teams subjected to this tax? To this Umbreen responds, “No, not all retailers are subjected to this tax, just the ones calling themselves designers, because they are in essence charging a design fee built into the price of their product.”
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| Muse stocks luxurious pieces like this embellished jacket and feather-trimmed skirt - Photo: Faisal Farooqui and his team at Dragonfly |
What remains ambiguous is the distinction between what counts as a service and what counts as a good, and how to isolate the design function within a brand: every retailer, after all, will have all their overheads built into the price of their product including the cost of hiring designers or incurring a design fee.
As for the designers involved, Muse has filed a petition in the High Court against the sealing of their outlet. “Since this is an ongoing legal matter Muse cannot comment,” says Moeed Yousaf of Muse.
Zara Shahjahan, the other design house whose retail store was sealed on the same grounds, said: “We are providing a retail product and are a legally registered company, registered with the FBR. We are not providing any services other than selling a product that is designed, manufactured and packaged by us.”
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| Zara Shahjahan is known for flirty, feminine prints and cuts. - Photo: Faisal Farooqui and his team at Dragonfly |
Design services by definition include any service that is designed by a particular entity, person or company but not necessarily executed by them.
If someone has designed every item coming into the market, whether it is a garment, shoe or even a pen, be it high street or high end, and are all these items now taxable under Rule 6 of Enforcement Rules 2014 of the PRA?
The plot thickens, and one thing's for sure: this is not the end of this story.
