LAHORE: The Federal Minister for Finance & Revenue Miftah Ismail Saturday directed the Chairman FBR and Governor State Bank of Pakistan to look into the suggestions presented by the LCCI and create conducive environment for the businesses. He has asked the top men to hold meetings with the LCCI representatives.
He was speaking at a meeting at the Lahore Chamber of Commerce & Industry. LCCI President Mian Nauman Kabir presented the address of welcome while Senior Vice President Mian Rehman Aziz Chan and Vice President Haris Ateeq, Chairman FBR also spoke. Governor SBP attended the meeting through zoom.
The Finance Minister said that when the government came into power in April, there was a serious threat of default as the foreign exchange reserves were $10.5 billion while $ 36 billions were required for debt repayments and other expenses so tough decisions, based on ground realities, were needed to avert the default. He said that no international financial institution is lending those countries that don’t have three months’ foreign exchange reserves.
About the withdrawal of subsidies on petroleum products and power, he said it was the condition of IMF and was needed in order to bring Pakistan’s economy on the right track. He declared that the risk of Pakistan’s default had evaporated due to tough decisions such as an increase in energy prices and curtailment of imports, which slashed the demand for foreign exchange. He said that at present Rs. 7.5 per litre and Rs. 37.5 per litter taxes are imposed on diesel and petrol, respectively.
Miftah Ismail said that unfortunately industrial growth could not grow at a pace, which was required. He said that the production of electricity doubled from 13,000MGW to 25,000MGW in 2013-2018, but industrial production did not grow enough to consume this energy and increase the exports of the country.
He said that at present, Pakistan’s exports are $ 31 billion while imports are $ 80 billion. No country can afford such a large trade deficit so we have to control unnecessary imports.
While mentioning present 9.5 % tax-to-GDP ratio, he said if we boost the rate of tax-to-GDP and Exports-to-GDP to 15%, the government will not need to ask for aid from the world. He said that per unit generation cost from Jamshoro power plant is Rs.59 which reaches to Rs. 78 after transmitting to the consumers. He said that the government has passed on just the cost of fuel and LNG to the consumers.
He said that the estimate of flood destruction is $18.5 billion. Some 6500-km of road, 246 bridges, 1.7 million houses have been destroyed. One million animals have been died and 1300 people have been martyred. The entire cotton of Sindh has been destroyed which will have to be imported and two third of rice crop has also been destroyed
LCCI President Mian Nauman Kabir said on the occasion that due to economic uncertainty prevailing in the country, the representatives of private sector are facing a lot of issues.
He said that even though Pakistan has received more than $ 1 Billion loan tranche of IMF Extended Fund Facility, the value of the currency has still not stabilized and surprisingly we are experiencing another round of devaluation as the value of dollar has crossed Rs.228 in the interbank market.
The LCCI President said that the currency devaluation is the mother of all the evils and results in multiple economic problems like hike in cost of production for our industry, manufacturing and agriculture sectors as we are heavily reliant on imports of raw materials, components, machinery, oil, food items and fertilizers etc.
He said that other than IMF tranche that has been recently received, there will be some additional financial inflows in pipeline from the other donor agencies and friendly countries in coming months. Hopefully, this would further strengthen our forex reserves.
About seeking prior approval from the State Bank of Pakistan for the import of machinery under chapter 84 and 85, Mian Nauman Kabir said that holding of shipping documents by commercial banks is adversely impacting the operations of the businesses and also resulting in bearing undue demurrage charges due to the delays in getting the required approval. Since the last couple of months, we are being approached by our numerous members on daily basis in this connection, he said.
He also highlighted the issue of demurrage charges which are badly hurting the business community. This matter is still pending and is required to be expedited on priority. He said that any decision of demurrage waiver must be implemented across the board including the private shipping companies.
The LCCI President said that the Ministry of Finance should take concrete measures for permanently solving the long standing issue of the misuse of tax exemptions by the industries based in FATA/ PATA that results in heavy tax evasion. Once these exemptions get expired in June 2023, they should not be renewed.
He said that upon our continuous complaining, you informed us that strict action is being taken against the Banks for exploiting the business community for demanding 10 to 15 rupees over and above the inter-bank dollar rate for releasing the import shipment documents.
Kabir said that LCCI should be given representation on the various boards working under the Ministry of Finance.
To curtail our dependence on textiles, he recommended giving special fiscal incentives to other potential export sectors of the economy e.g. Halal food, information technology, pharmaceuticals and engineering, etc. He said that a cash incentive scheme on the model of 1960s should be given to potential export sectors. You should ponder over this idea.
The LCCI Senior Vice President Mian Rehman Aziz Chan and Vice President Haris Ateeq said that our exports to potential markets like Africa, Central Asia, Iran and Russia cannot be increased due to lack of banking channels and other alternate arrangements such as barter trade. State Bank of Pakistan and other relevant authorities should be directed to take special measures in this connection.
Kabir added that 15% policy rate is considerably higher as compared to other economies in the region (e.g. India 5.4%, Bangladesh 4.75%, and China 3.7%). This has made access to credit considerably expensive for the private sector and would hinder the process of Industrialization and private sector growth. We are of the view that through lenient Monetary Policy, Government should support industrialization.
He said that we desperately need to enhance the export competitiveness of our SME sector.
The foremost thing to address is the issue of inadequate access to finance for SMEs whose share in private sector credit is less than 6%. He said a better oversight of State Bank of Pakistan should be ensured over the commercial banks and obligating them to create more financial space of SMEs.
He said that according to the State Bank data, the outstanding domestic debt of public sector enterprises stood at around 1,800 billion rupees as in June 2022. These losses result in misallocation of taxpayers’ money and reduce the much needed fiscal space for social sector development. He called for a planning to deal with these losses.
He said that the tax base is still around 3 million taxpayers, resulting in one of the lowest Tax to GDP ratios in the world. The industry is bearing the large burden of taxes while the contribution of agriculture and services in the tax collection is not proportionate to their share in GDP. Broadening of tax base across various sectors of the economy, especially services and agriculture is the only way forward.
Copyright Business Recorder, 2022