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KARACHI: Pakistan Business Council (PBC) note with concern from Friday’s press reports that the government is considering an additional tax of 5 percent on manufacturing businesses with a minimum turnover of Rs 50 million, which fail to export at least 10 percent of their turnover.

PBC chief executive Ehsan A Malik in a letter to the Federal Finance Minister Miftah Ismail said this move is purported to offset the loss of revenue from traders and appears to be positioned with the positive optics of encouraging exports to help manage the balance of trade.

You are aware that the manufacturing sector which represents 20 percent of GDP already contributes 56 percent of national tax revenues. Also, that over the last couple of decades the country has been deindustrializing. This has not only resulted in loss of jobs and share of world exports, in a consumption-oriented economy, our inability to make basic goods also resulted in increased reliance on imports, with negative consequences on the balance of trade and the current account.

Pakistan Business Council’s ‘Make-in-Pakistan’ thrust aims to address three objectives: create jobs, promote value-added exports and encourage sensible import substitution.

This cannot succeed in an unlevelled playing field in which traders and the informal sector enjoys an unfair competitive advantage.

Whilst the logic of providing incentives to exports is conceptually sound, it must be recognized that it is impossible for a business that has never exported to start exporting as much as 10% of its turnover, especially when these industries are denied energy at regionally competitive cost and when their current range of products are not designed for the export market. It should also be noted that the Fixed Tax Regime already provides exporters a tax incentive.

PBC recommends that any further stimulus for exports be phased over a 3–5 years period allowing those currently serving the domestic market to reconfigure their offerings in exchange for lower tax on profit from domestic sales.

Also, they should be provided energy at a cost comparable to the five core export sectors, at least for the proportion of items they will produce for exports. Likewise, they should be provided rebates and concessional credit to transform their units for the global market.

The current export rebates are not configured to expand the export basket as they are targeted at promoting traditional exports.

Most businesses serving the domestic market are unlikely to be engaged in manufacture traditional items for exports. PBC has for long supported export-oriented FDI.

Measures that we suggest above and a phased programme would encourage subsidiaries of MNCs operating in Pakistan to compete for a share of their global value chain.

PBC would also draw your attention to the experience several decades ago in India, when continued foreign ownership was linked to export performance of Indian subsidiaries. This resulted in foreign-owned FMCG companies operating in the food, beverages, home and personal care categories resorting to exports outside their core business. Items like carpets and thermometers were routed through their books in a bid to qualify.

There was hardly any net increase in aggregate exports as FMCG companies had no expertise or marketing networks abroad and acted merely as a front for existing exporters to qualify for continued foreign ownership.

Last, but not the least, resorting to tax the manufacturing sector at 34% to make up for shortfalls from retail and other sectors is unfair and unreasonable and will only encourage further informalization of the economy. If introduced abruptly, as is suggested by the media, exports will merely be an excuse to tax the already taxed.

PBC urge you to reconsider this proposal, especially as it comes after imposition of Super Tax and higher taxes on salaries. For those in the private sector, this represents a “perfect storm” and amounts to killing the goose that lays the golden egg.

Copyright Business Recorder, 2022

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samir sardana- Aug 20, 2022 07:23pm
Pakistani manufacturers,have to float merchant trading houses,as subsidiaries ,to export agri commodities,animal husbandry and processed foods.THIS HAS MANY ADVANTAGES-Part 1 The actual exporter,saY x,HAS NO CLUE OF TRADE AND DOCUMENTARY CREDIT,BANKING,FX RISK, DEMURRAGE, DESPATCH,FOB/CIFFO,CQDTERMS,SHIPPING, The actual exporter,say X,WANTS MONEY CASH DOWN,AND THE IMPORTER SAY IN DUBAI WILL PAY AFTER RECEIPT AND TESTING The actual exporter,say X,CANNOT GIVE OR UNDERSTAND PBG/FBG/INDEMNITY,FOR QC,DELIVERY CTC.,AND THE IMPORTER IN DUBAI,WANTS/PBG/FBG AND INDEMNITY The actual exporter,say X,CANNOT HANDLE EXPORT LC DOCUMENTATION AND DISCREPANCIES The actual exporter,say x,CANNOT UNDERSTAND CONTRACT TERMS,ON QC.MOISTURE ETC. AGRI TRADING MARGINS ARE 2-3%,WHICH WILL BE LOST TO X,IN FX VOLATILITY,WHICH X CANNOT HANDLE ALL THESE COSTS AND RISKS CAN BE OBVIATED,BY SOMEONE LIKE LUCKY CEMENT- IF IT STARTS EXPORTS,VIA A SUBSIDIARY.dindooohindoo
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samir sardana Aug 20, 2022 07:35pm
Pakistani manufacturers,have to float merchant trading houses,as subsidiaries ,to export agri,animal husbandry & processed foods.THIS HAS ADVANTAGES-Part 2 X(the actual exporter) WILL NOT GET,& WILL NOT BE ABLE,TO HANDLE EXPORT FINANCE,IN USD X WILL NOT BE ABLE,TO MANAGE THE BEST EXPORT CREDIT INSURANCE,& VET IMPORTER CREDIT X WILL NOT HAVE THE SKILLS,TO BOND HIS STOCK,IN DUBAI PORTS,OR FTZ X ILL NOT BE ABLE TO EXPORT,ON DEFERRED CREDIT or HEDGE,COMMODITY PRICE RISK X WILL NOT BE ABLE TO GET BACKHAUL SEA FREIGHT BREAK BULK CARGO,TO PORT QASIM X HAS NO BRAND IF A DUBAI STORE WANTS X TO MANUFACTURE ON THE STORE BRAND - X ILL NEITHER DO IT,NOR WILL THE STORE TRUST X IF X WANTS ADVANCE OR RED CLAUSE OR GREEN CLAUSE LC FROM IMPORTER - THE IMPORTER IN DUBAI,WILL NOT GIVEI IT,& X CANNOT HANDLE IT DUBAI STORE,SAYS CAN GIVE AN ADVANCE,BUT WANTS AN APBG - X ILL NOT BE ABLE TO GIVE IT ALL THESE COSTS & RISKS,CAN BE OBVIATED,BY SOMEONE LIKE LUCKY CEMENT- IF IT STARTS EXPORTS,.dindooohindoo
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samir sardana Aug 21, 2022 07:34pm
IF A DUBAI BASED IMPORTER WERE TO BUY ON THE CONSIGNOR DETAILS OF LUCKY CEMENT GROUP (LCM), HE KNOWS THAT HE IS BANKING ON THE BRAND OF LCM,FOR CONTRACT PERFORMANCE, AND QC - AND,WILL THUS,PAY A HIGHER FOB RATE THAN H E WOULD PAY X LCM HAS HUGE CASH SURPLUSES FROM CEMENT FOR WHICH THE BANK ROI IS5-8% PER ANNUM.BE DEPLOYING CASH IN AGRI TRADING, AND CAPTURING TH FX AND INTEREST ARBITRAGE,TILL DUBAI IMPORTER LC NEGOTIATION (OF SAY 15 DAYS), THE ROCE FOR 15 DAYS WILL BE 35-40 % PER ANNUM- WHICH WILL COMPOUND EVERY 15 DAYS. LCM WILL NOW BE NEGOTIATING USDLCS WITH ITS BANKERS,TO THE TUNE OF 3-500 MILLION USD PER ANNUM.THIS VOLUME CAN BE USED BY LCM,TO DRIVE DOWN BANK CHARGES AND CMS CHARGES,FOR THE ENTIRE GROUP- AS IT IS A RISK FREE BUSINESSS, FOR THE BANKS LCM IS ALREADY DOING BREAK BULK CHARTERS FOR CEMENT EXPORTS AND COAL IMPORTS.- AND WILL THUS GET THE BEST BREAK BULK TIME AND VOYAGE CHARTER RATES- AS THE DUBAI IMPORTER WANTS CIFFFO OR CIF CQD TERMS- AND SO, LCM WILL GET A FREIGHT DIFFEERENTIAL, AND WILL GET HUGE BACKHAUL BENEFITS,FOR BREAK BULK AND CONTAINERSED SHIPMENTS,IMPORTED ON THE REVERSE LEG
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samir sardana-- Aug 21, 2022 07:41pm
SAY X WANTED TO EXPORT 10000 TONS OF MANGOS AT 10 USD PR TON CASH DOWN IN JULY- AND HE WANTS CASH DOWN.LCM PAYS X - RS 2.4 CRORES PKR AND EXPORTS ON LC 90 DAYS TO DUBAI IMPORTER AT LIBOR PLUS 200 BPS &SHORTS THE USD AT IBR OF 240 PLUS PREMIUM OF RS 30.NOW LCM HAS A GUARANTEED PROFIT OF RS 30 PLUS THE LIBOR INTEREST LEVIED ON THE DUBAI IMPORTER,SO LONG AS THE DUBAI IMPORTER,PAYS ON DUE DATE IN MERCHANT TRADES,THE INTERMEDIARY (LCM )CHARGES A SERVICE FEE OF SAY 150 BASIS POINTS FLAT - WHICH COMES TO RS 360,000 IN AGRI EXPORTS,THERE ARE Q,MOISTURE & QUANTITY CLAIMS,FOR WHICH LCM WILL KEEP A DEPOSIT FROM X & AN INSURANCE POLICY (SO IT IS A BACK TO BACK SECURED RISK) ON DUE DATE OF LC, LCM WILL SEND THE DOCUMENTS FOR COLLECTION,TO THE BANKER OF THE DUBAI IMPORTER- THAT BANKER "HAS TO PAY", IF THE DOCS ARE NOT DISCREPANT, - EVEN IF THE BUYER IS DEAD OR INSOLVENT.
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samir sardana Aug 21, 2022 07:47pm
IF THE DUBAI IMPORTER OR HIS BANK PAYS LATE, THEN LCM WILL HAVE TO CANCEL & REBOOK THEUSD FORWARDS WHICH HE SOLD- &THAT LOSS IS RECOVERED, FROM THE DUBAI IMPORTER. AFTER THAT THE CREDIT WORTH OF THE DUBAI IMPORTER & HIS BANK WIIL BE RUINED FOREVER- & SO, THIS WILL NOT HAPPEN SO IT IS A WIN FOR LCM A WIN FOR X A WIN FOR PAKISTAN FARMERS A WIN FOR GOP (TAX REVENUE AND HOLD PKR) A WIN FOR SBP (HOLD PKR) A WIN FOR PAKISTANI BANKS - WHO WILL MAKE "NO BRAIN NO RISK PROFITS" A WIN FOR THE PAKISTANI BRANDED AGRI EXPORTS TO GCC AN OFFSET NATURAL FX HEDGE FOR LCM (FOR THE FX RISK IN IMPORTED COAL ) GOP CAN LIQUIDATE SUBSIDY PAID AGRI STOCKS- WHICH ARE ROTTING AND BLOCKING WORKING CAPITAL 9 WINS= PATH TO SALVATION
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