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Govt must eliminate regulatory duty & additional custom duty on materials

Govt must eliminate regulatory duty & additional custom duty on materials

LAHORE: Lahore Chamber of Commerce and Industry President Khawaja Shahzad Nasir has said that government must eliminate regulatory duty and additional customs duty to attract zero or low customs duty

This was sated by the participants at the All Pakistan Chambers Convention on “Revitalization of Economy under chairmanship of LCCI President Almas Hyder for a brainstorming session  on economic issues, their causes and solution.

On the occasion LCCI Senior Vice President Khawaja Shahzad Nasir, Vice President Faheem-ur-Rehman Saigal, President Faisalabad Chamber Syed Zia Alumdar Hussain, President Islamabad Chamber Ahmad Hassan Mughal, President Sahiwal Chamber Ch. Rashid Hameed, SVP Kohat Chamber M.  Shahid, President & Vice President Gujrat Chamber Amer Noman & Muhammad Altaf, Ahsan Sarwar from Sahiwal Chamber, President Sialkot Chamber Khawaja Masud Akhter, President Khanewal Chamber Habib Ur Rehman, Adil Farooq Khan from Khanewal Chamber, President Gujranwala Chamber Asim Anees, President Haripur Chamber Atta Ur Rehman Yousafzai and Representative of Vihari Chamber, Mian Muhammad Ashraf, Iftikhar Ali Malik, Bashir A Baksh, Mian Anjum Nisar, Sheikh Muhammad Asif, Shahid Hassan Sheikh, Irfan Iqbal Sheikh. Khawaja Khawar Rasheed and LCCI EC members also expressed their views.

They said that custom duties (CD) on intermediary products should be reduced so that our industry is able to import quality materials, components and machinery from the rest of the world at the same duty rate at which it imports through different FTAs.

They said that measures should be taken to make sure that tax collection from all sectors is commensurate to their contribution in GDP. The Agriculture sector which is around 19% of GDP contributes just 0.6% to Tax Collection while Services Sector which is around 70% of GDP contributes only 30% to Tax Collection. They said that the Sales Tax Rate of 17% is exorbitantly high andmust be reduced.

“Overall, there is a need for overhauling of Taxation System with competitive Tariff Regime that promotes Industrialization, Tax Holidays for new Entrepreneurs, Tax exemptions for BMRE, reduction in frequency & number of Taxes and Equality in Taxation System where all incomes are treated and taxedequally”, they added.

The participants further stated that the decision of the elimination of SRO 1125should be put in abeyance till an efficient system of Refunds is made, tested andimplemented.

The Government must lay down a clear plan about State Owned Enterprises (SOEs) as they are eating up over Rs.400 billions annually and this huge amount is being paid by the taxpayers.

They said that there is a need to review old regulations with a Regulatory Guillotine and replace them with Smart/Prudent Regulations for facilitating Investors in overcoming persistent business regulatory environment challenges e.g. registering a company, getting industrial electricity connection, getting construction permits, resolving insolvency and registering property etc. The potential sectors for attracting Foreign Direct Investment are Sports Goods,Textiles, I.T, Surgical, Leather Products, Ceramic and Cutlery.

There should be benchmarks for Expenditures and Revenues. A mechanism has to be devised to measure the effectiveness of specific expenditures and determine that which expenses are unnecessary and can be shifted to Private sector. The aforementioned mechanism should also allow Government to determine which expenses can be undertaken efficiently by Federal Government and which can be undertaken by the Provincial Government.

Participants of the convention said that devaluation of around 27% has takenplace since August 2018 and 11% since May 2019. This massive devaluation hasresulted in confusion in private sector as it is not aware of the extent to which Government would interfere to stabilize the exchange rate, especially after entering IMF Program. In this scenario, future planning is difficult forbusinesses. They said that if the exchange rate is left on the market, it would havenegative repercussions for the economy. They said that if the Government doesnot plan to stabilize exchange rate, then there is a need for investment to gear up Exports which is highly unlikely given the current fiscal constraints (8.9% fiscaldeficit). In this scenario, the only option left is to curtail imports.

According to the Government Budget documents, inflation rate in the next financial year is projected to grow which means there would be more devaluation and hike in interest rates.

The hike in interest rates, by next year, would push up borrowing cost to around18-20% which would retard investment, capacity generation and hence exports.This scenario will trap our economy in a vicious circle.

Government should take steps (through State Bank Interventions) to reduce the interest rate to a single digit.

They said that the Inflation rate has increased exorbitantly in recent times i.e. from5.8% in July 2018 to 10.3% in July 2019, owing majorly to hike in electricity andgas tariff, devaluation and surge in fuel prices.

They said that the Taxation System in Pakistan is complicated where even the salaried people need advice to fill out their Tax Returns.  The Number of Tax Filers in our country is around 2.5 million which is just 4% of the Total Employed Labour Force of 61.71 Million, 6.5% of the non-agriculture employed labour force of 37.95 million and 23% of the non-agriculture employed labour force working in Formal Sector (10.62 Million). They said that the Tariff Structure is not competitive owing to exorbitant duties on raw materials/industrial inputs. This promotes de- industrialization and also hampers our export competitiveness. As a result, the businesses community struggles to keep their nose above water.

They said that the elimination of SRO 1125 has created an uncertainty amongexporters that their Refunds from 1st July on wards would be stuck for a long time as Government has not put up an efficient system of Refund payments in place. This would result in squeezing of working capital and make it difficult for businesses to even pay their salaries.

The decision of the elimination of SRO 1125 should be put in abeyance till inefficient system of Refunds is made, tested and implemented.