TNS – The News on Sunday

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The inputs of export-oriented sectors namely textile, leather, surgical items, carpets and sports goods, which in the past fiscal year were allowed zero-rated sales tax will now face a standard rate of tax. The zero-rating of utilities allowed for these sectors has also been withdrawn. Higher prices will now also be seen in the case of LNG and CNG fuels. This axe falls on the export-oriented sector at a time when manufacturing exports could not see much increase even after currency depreciation. Additionally, high policy rate announced by the central bank has made the cost of accessing the working capital and credit for fixed investment expensive. Despite alternate arrangements, such as the launch of promissory notes, a large part of liquidity of exporting entities remains stuck with Federal Board of Revenue in the form of delayed tax refunds, duty drawback of taxes, duty drawback of local taxes and levies, withholding tax refunds, and customs duty rebate. Some of the sector-specific taxation measures could also negatively impact the foreign direct investment (FDI). For example, while the new investment regime in the auto sector had created some interest of foreign vehicle manufacturers, the Budget 2019-20 has now slapped duties on vehicles of all engine sizes. Again, this is one sector which is already getting stifled due to the falling value of the rupee. Likewise, some of the costs faced by the construction industry will also see an increase. Most notably, the hike in duties faced by the cement industry will be easily passed on to the end-consumer, ultimately leading to reduced demand. Negative implications could also be seen of the Prime Minister’s ambition of providing low-cost housing. Perhaps the most startling and unexpected taxes have been seen in the food and food processing sector. The increase in duties imposed on cooking oil, sugar, cream, milk and other household items shows the desperation of a government which is willing to tax even the most essential needs of the citizens. Of course, such actions have implications for the future of food security and nutrition in the country. The local industry, particularly real estate, building, iron, steel, cement, construction services and accessories, and consumer durable goods, has traditionally benefited from the infrastructure disbursement under the public sector development programme (PSDP). Unfortunately, the PSDP for the fiscal year 2019-20 has been slashed by almost 25 percent with negligible allocation for projects falling under China-Pakistan Economic Corridor (CPEC) programme. This situation could have been averted had the government taken early decisions to reduce the size of the federal government and its affiliate departments; and had it pulled out its resources dedicated to keep the loss-making public sector enterprises afloat. [box type="shadow" align="alignright" class="red_lines" ]Incentives to become an exporter in industries other than the traditionally zero-rated sectors seem weak. The Competition Commission of Pakistan, which could have helped in increasing the pace of competition policy reforms, desired enterprise-level learning and market development of non-traditional products, today faces issues of its own.[/box] Instead of moving towards consolidation and merging the existing ministries and divisions, the government still seems in an expansionary mode. To reduce poverty, the government came up with the idea of forming a new ministry for poverty reduction. One is left to wonder what then is the objective of having a Ministry of Planning, Development & Reform? This milieu will be particularly challenging for new exporters, potential exporters, small and medium enterprises (SMEs). With rising cost of electricity, gas and oil there will be a clear increase in the cost of production. The government’s own plan to expedite the ease of doing business lost speed once the Chairperson of Board of Investment at the Prime Minister’s secretariat recently resigned, citing the government’s inability to operationalise a one-window operation for current and potential investors. The budget also remains silent on how compliance costs faced by honest taxpayers could be reduced. Currently, Pakistan has one of the highest man-hours dedicated to tax compliance. With new and multiple tax authorities emerging in all provinces, corporate taxpayers are required to file multiple returns (within a single tax year) with multiple tax bodies and also face audits and hearings at multiple desks within each of these bodies. The future growth of SMEs and potential exporters will critically hinge on the availability of credit. The reality, however, remains that even at high policy rates, accessing credit still remains a challenge for most SMEs. Even the access to Export Finance Scheme and Long Term Financing Facility is not without its own intricacies. The government’s narrative in the budget also advocates that the ambition to pursue low-cost housing programme will kick start the local industry. However, industry representatives have informed that even acquiring land for such projects could hit a snag, as seen in the case of special economic zones (SEZs) across the country which even after several years of CPEC’s initiation could not be operationalised. According to the doing business ranking by the World Bank Group there remain over a dozen administrative processes requiring over 250 days to get the permit before starting a construction on-ground. The same ranking puts Pakistan among the poorly performing countries in terms of ‘trading across border’ and the costs of both border- and documentary-compliance remain higher than competitors. The budget speech suggested that the government aims to help Pakistani enterprises integrate in global value chains. However, this in reality is not possible in an environment where taxes on imports are being increased. The ‘Made in Pakistan’ or ‘Pakistan first’ slogan is not helped by the imposition of taxes on imports of raw material, machinery, and other intermediate inputs. The author made an attempt to ask industry players what in fact are their expectations from the PTI government? This should be taken not just as a proposal to give final shape to Budget 2019-20 but may also help PTI’s future fiscal policy. None asked for tax exemptions! All, in fact, wanted ease in tax compliance and reduction in costs associated with interfacing with tax departments. Second, they would like to see uninterrupted supply of energy and related utilities in industrial areas and overtime reduction in business costs allocated to energy. Third, a reduction in regulatory costs is desired. Also read: Loaded with heavy taxes Currently, all expenses related to municipality, building, environment, labour, worker safety, health safety, and consumer rights regulations go much beyond the statutory costs due to the element of corruption. Fourth, the progressive industry players want the government to share the financial risks associated with research and development, and introduction of new technologies. On the same point, it was stressed that some sharing of costs to improve quality of labour should also be a future priority. The Export Development Fund could have helped achieve this. However, considering EDF to be fungible in the budget has often allowed the government to use this for deficit financing and not for the uplift of industry. Fifth, incentives to become an exporter in industries other than the traditionally zero-rated sectors seem weak. The Competition Commission of Pakistan, which could have helped in increasing the pace of competition policy reforms, desired enterprise-level learning and market development of non-traditional products, today faces issues of its own which overtime has weakened the writ of the commission. Lack of incentives for self-discovery by private enterprises can also undermine Pakistan’s pursuit to effectively embrace the fourth industrial revolution.   [post_title] => Unravelling the budget [post_excerpt] => [post_status] => publish [comment_status] => open [ping_status] => open [post_password] => [post_name] => unravelling-budget [to_ping] => [pinged] => [post_modified] => 2019-06-16 00:31:07 [post_modified_gmt] => 2019-06-15 19:31:07 [post_content_filtered] => [post_parent] => 0 [guid] => http://tns.thenews.com.pk/?p=100780 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw [format_content] => ) [1] => WP_Post Object ( [ID] => 100781 [post_author] => 29 [post_date] => 2019-06-16 03:22:09 [post_date_gmt] => 2019-06-15 22:22:09 [post_content] => According to experts, Dr. Abdul Hafeez Shaikh, Advisor to Prime Minister Imran Khan on Finance, Revenue and Economic Affairs, and his team, did not have a choice but to present yet another conventional budget in the given circumstances to balance the books and meet many preconditions of the International Monetary Fund (IMF) for the proposed bailout package of US$ 6 billion. Considering these constraints, budget 2019-20 is loaded with heavy taxes and little effort to cut unproductive expenditures. The revenue target fixed at Rs5500 billion is being widely criticised as too ambitious when the economy is in shambles and growth rate is dwindling. However, the main faultline of the budget is its failure to provide any long-term strategy for self-reliance — boosting value added exports, collecting taxes as per real tax potential, right-sizing of monstrous government machinery and achieving growth rate of over 7 percent for a decade. In the absence of adequate resources available to the federal government and burgeoning debt burden, the main theme of the budget speech of Hammad Azhar, State Minister for Revenue, was first achieving fiscal stabilisation and then growth. The crux of taxation proposals is to further crush the fixed-income groups and substantially increase indirect taxes (customs duty, sales tax, excise, etc, on a number of items, including items of common use as sugar and ghee). Strangely, after offering amnesty, no measure is included in the Finance Bill 2019 to confiscate untaxed assets if it is not availed. There is also absence of pragmatic measures for tapping the real tax potential by taxing the wealth of the rich, like imposing Income Support Levy as was done in 2013 but repealed the very next year. The Finance Bill 2019 confirms that the rich and mighty would continue to retain and amass colossal wealth without paying due taxes. No new tax is imposed on them while major burden is shifted to the middle class, the poor and small businesses. Sadly, the corporate sector is still burdened with many withholding tax provisions, freezing of rate of 29 percent for the next two years and enhanced turnover tax. The taxation scheme presented by the Government of Pakistan Tehreek-i-Insaf (PTI) is going to harm the SME sector and benefit only the rich. By keeping higher sales tax rate of 17 percent intact, the bias against the middle class and the poor is shown as it takes larger slice of their income than that of the affluent segments. In Finance Bill 2019, there are no concrete measures to incentivise industralisation. Less investment in industry means less job opportunities. The Finance Bill 2019 could have provided tax breaks for industries and businesses creating new jobs and giving some percentage employment to women. This should have been the top priority, but is completely missing. The PTI government in its first budget has failed to give concrete plans to overcome the main economic challenges faced by the country — fiscal, trade, current account deficits, stagnation in industrial growth, etc. The 72nd ‘technocratic’ budget is no different from earlier ‘bureaucratic’ budgets. The budget 2019-20 contains the same old clichés about economic revival but, in fact, through erratic taxation working against it. It is a painful reality that during the Decade of Democracy (2008-18), the governments of Pakistan Peoples Party and Pakistan Muslim League (Nawaz) failed to initiate any fundamental reforms to overcome issues like resource mobilisation, social mobility, shortage of skilled manpower, non-availability of affordable power supply and rapid industrial and infrastructure development. The PTI Government made tall claims about these during election campaigns but now all these have been conveniently ignored. The budget 2019-20 has failed to provide steps to bridge the huge tax gap that is more than 100 percent of actual collection. (Details in Taxes for growth, The News, November 8, 2015). The mighty sections of society do not pay due taxes, enjoy tax-free benefits and also get State lands at throwaway prices. The government, instead of taxing them and cracking down on undocumented economy and benami transactions, is offering amnesties and immunities as the mighty sections of society are engaged in these transactions. Also read: At the cost of development  One of the main tools of tax policy is to increase the level of savings and capital formation in the private sector partly for borrowing by the government and partly for enhancing investment resources within the private sector for economic development. On the contrary, Pakistani economic managers have not only failed to achieve this goal, they are ruthlessly taxing capital gains arising out of immovable property and shares to destroy creation of capital and incentives for investment that can boost growth. Tax is a byproduct of growth. With more growth we would have more taxes. The prevalent anti-growth taxes are the real cause of retarded economic growth, burgeoning fiscal deficit and insurmountable debt burden. There is a consensus that the existing tax policy has been stifling economic growth and widening the rich-poor divide. There was a hope that PTI would reformulate it to provide an equitable, pragmatic and investment-oriented environment, integrating efficient tax administration with simplified tax laws that are easily comprehensible and hassle-free from implementation perspectives. Unfortunately, this perspective is completely missing in the Finance Bill 2019.   [post_title] => Loaded with heavy taxes [post_excerpt] => [post_status] => publish [comment_status] => open [ping_status] => open [post_password] => [post_name] => loaded-heavy-taxes [to_ping] => [pinged] => [post_modified] => 2019-06-16 00:32:11 [post_modified_gmt] => 2019-06-15 19:32:11 [post_content_filtered] => [post_parent] => 0 [guid] => http://tns.thenews.com.pk/?p=100781 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw [format_content] => ) [2] => WP_Post Object ( [ID] => 100786 [post_author] => 29 [post_date] => 2019-06-16 03:20:07 [post_date_gmt] => 2019-06-15 22:20:07 [post_content] => Allocations to the Public Sector Development Programme (PSDP) reflect the government’s developmental priorities. The government has allocated Rs1.863 trillion to the Public Sector Development Programme (PSDP) for the upcoming fiscal year 2019-20. However, economists believe that the allocation will have little to no effect unless funds are released on time and utilised effectively. The budget contains two types of expenditures, current expenditures and the PSDP. Current expenditures cover interest payments, defence, services, pensions, subsidies and running the civil government. Development expenditures, including the PSDP, are measured to be the core mechanism behind development and channelising budgetary assets towards development projects. Keeping in view the resource constraints and importance of the private sector as an engine of economic growth, the government can also provide an enabling environment for the private sector and fostering public-private partnerships and joint ventures to reduce the burden on the PSDP. The cut in the budget for development projects is always a discouraging sign for the private sector, as it reduces demand for manufacturing goods, consequently hurts business activities and slows down the economic growth of the country. Historically, the government presents optimistic estimates of development expenditures and conservative estimates of current expenditures as presented by the PTI government in the budget speech. Dr. Naveed Iftikhar, former official of the ministry of finance says development expenditures are revised downward, and current expenditures are revised upward during budget execution. Consequently, the share of current expenditures increases in revised estimates compared to original estimates. This was the case in FY 2018-19. “The PSDP is the primary instrument for providing budgetary resources for development projects and programmes. Pakistan’s infrastructure needs are huge considering rapid urbanisation and population growth. Unfortunately, the current mode of PSDP is neither efficient nor financially sustainable.” The current government has continued to develop PSDP based on previous flawed practices — no restructuring of the planning commission has been undertaken by this government, he adds. Budget deficit in the FY 2019-20 will be Rs3,560 billion and defence budget will remain the same as last year’s Rs1,150 billion. Dr. Qais Aslam, an economist, says the combined share of five heads of expenditures —debt servicing, defence, payments, subsidies and civil and military pensions — is likely to reach 92 percent of the current expenditure in FY 2019-20. “That certainly reduces the scope for federal government interventions in the social and economic sectors. Therefore, the budget deficit is a negative number because expenditure always exceeds revenue in Pakistan.” However, government has set the target of revenue collection at Rs5,555 billion for the Federal Board of Revenue (FBR) to cover the expenditures. “The government always finalises its expenditure plan while preparing the budget, particularly the Public Sector Development Programme (PSDP). The revenue target set by the government is impossible to achieve with respect to the level of economic activity in the country. Consequently, unrealistic revenue targets exacerbate fiscal indiscipline and affect the quality of spending,” Aslam adds. “At the point when the government fixes unreasonable or overambitious revenue targets, it has been seen that the FBR endeavours to accomplish these targets by keeping refunds back and pressuring business entities to submit tax ahead of time. Such practices can have serious repercussions for organisations’ business activities,” he believes. Dr. Naveed Iftikhar believes though the government will not be able to meet its revenue target but the FBR will likely end up collecting about Rs4.8 trillion. “It is natural to speculate on why development matters had to suffer the consequences of FBR’s inefficiencies. However, it is equally important to understand that current expenditures are very inflexible; there is hardly ever any cushion for budget cuts. Thus, development expenditures always suffer in the case of revenue shortfall.” Of the total PSDP allocation, Rs951 billion have been set aside for federal ministries and divisions whereas Rs912 billion for the provinces, according to a budgetary document, which further notes that the National Economic Council (NEC) had approved the PSDP allocations on May 29, with foreign assistance worth Rs127 billion. Dr Qais Aslam shows concern saying in the case of failure to achieve quarterly tax targets, past experience shows that such failure compels the government to take additional tax measures to bridge the shortfall in tax collection and a cut in PSDP allocation. During the budgetary speech State Minister for Revenue, Hammad Azhar, stated that “The PSDP had been aligned with economic policies and strategies outlined in the 12th Five-Year Plan, with a focus on economic stabilisation, achieving balanced regional development, improving social protection and poverty alleviation, housing, augmentation of water resources, energy and food security, developing competitive knowledge economy, and modernisation of transport infrastructure and greater regional connectivity.” Has the budget for FY2019-20 been aligned with the SDGs and other international commitments? The Sustainable Development Goals (SDGs) include a set of 17 goals with 169 targets. Each of these goals consists of targets which should be achieved by each participating country within the next 15 years (by 2030). Pakistan was one of the first countries to endorse SDGs globally in 2015 and displayed commitment to the 2030 agenda for Sustainable Development — adopted 16 targets and 41 indicators. However, Zia ur Rehman, coordinator of Pakistan Development Alliance (PDA) and founder of AWAZ CDS (Centre for Development Services) doesn’t seem convinced that the FY2019-20 has been aligned with the SDGs and other international commitments because there was no single word in the whole budgetary speech mentioning SDGs and government’s priorities accordingly. Also read: IMF, opposition, the common man… “The 18th Amendment to the Constitution of Pakistan has shifted social sector development responsibilities to the provinces, however, minimum possible allocation has been made to higher education, research, science and technology sectors in order to meet rapidly growing national needs and move forward in the realm of knowledge and quality research. Moreover, adequate funding has not been planned for structural transformation of agriculture, mining and other important sectors,” says Rehman. PSDP is the most important fiscal policy tool to achieve socio-economic targets. Though allocation of budget for social protection programme and Ehsaas programme is appreciable but two programmes are not enough to bring about change in common man’s economic condition. Nonetheless, release and spending of PSDP and not allocation, is the issue. Around 40 percent PSDP funds for the last fiscal year were neither released, nor entirely spent. During the last fiscal year the government did not release funds for more than 200 development projects. Experts agree that unrealistic revenue targets, budget deficit, defence, payments, and civil and military pensions force the government to cut development spending to achieve the budgetary targets. [post_title] => At the cost of development [post_excerpt] => [post_status] => publish [comment_status] => open [ping_status] => open [post_password] => [post_name] => cost-development [to_ping] => [pinged] => [post_modified] => 2019-06-16 00:37:17 [post_modified_gmt] => 2019-06-15 19:37:17 [post_content_filtered] => [post_parent] => 0 [guid] => http://tns.thenews.com.pk/?p=100786 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw [format_content] => ) [3] => WP_Post Object ( [ID] => 100783 [post_author] => 29 [post_date] => 2019-06-16 03:18:59 [post_date_gmt] => 2019-06-15 22:18:59 [post_content] => The federal budget for fiscal year 2019-20 is out with a very ambitious target of tax collection through various measures. Subsidies on electricity and gas have been withdrawn for various slabs. Prices of many daily essential items are up to get more revenue in the form of General Sales Tax (GST) and Value Added Tax (VAT). The salaried class has been targeted through heavy taxes. The federal government of Pakistan Tehreek-i-Insaf (PTI) has been negotiating with the International Monitory Fund (IMF) for a bailout package for the past few months. Finally, both sides agreed on a package of $6b package for three years coming with several conditions and prerequisites to be implemented in the recently passed budget. The agreement with the IMF would be finally approved by the board by the end of June. The tax proposals also indicate that they are meant to meet the pre-conditions of the IMF bailout package. Similarly, the planned increase in the energy prices also is part of the IMF package. Pakistan will have to seriously implement economic reforms and broaden its tax net as per the IMF demands to ensure return of the borrowed money. That is why this budget reflects measures to reduce non-development expenses and increase exports, discourage imports to stabilise the worsening situation of the economy. The IMF has also urged Pakistan to ensure that open market determines the value of Pak rupee vis-à-vis the American dollar. Recently inducted advisor to prime minister on finance, Dr Abdul Hafeez Shaikh, has already indicated these changes as pre-requisites to get the IMF bailout package. All the austerity measures, i.e, withdrawing subsidies, managing debt servicing, imposing taxes, and not increasing the defence budget are linked to the IMF’s suggested measures to bring the country’s economy on the right track. Opposition parties have termed this budget as dictated by the IMF and have threatened to not let it pass from the parliament where the government has a thin majority. The joint opposition said the federal budget will result in high inflation, making the life of ordinary people more difficult and miserable. Following the budget, reportedly, Pakistan also seeks permission of the IMF for converting $5 billion deposits obtained from friendly countries — Saudi Arabia and United Arab Emirates — for utilising it as budgetary support in the next fiscal year 2019-20 to show reduction in deficit. In view of economic challenges, the IMF also allows Pakistan to utilise certain portions of its bailout package for budgetary support. Dr Pervez Tahir, well-known economist, believes the federal budget for the fiscal year 2019-20 reflects the measures which the IMF people have mentioned to Pakistan. “Tax target, growth rate, inflation, debt-servicing are the things which are discussed at the staff level before reaching an agreement,” he says, adding, “we should do all these things as per agreement.” Also read: Editorial He agrees though that it needs courage to take difficult steps. He says withdrawal of subsidies will not have an impact on the poor as a majority of people using less than 300 electricity units will still pay a low price. “Similarly, gas prices have been increased for higher slabs.” Tahir says debt-servicing is the biggest expense. “If we do not take hard decisions debt would continue to be multiplied (because of interest) and the situation would become more difficult in the coming years.” In taking these hard decisions, he says, “we have to compromise on many areas like the development budget.” He fears that if the government mismanages it will not be very different from the post-IMF situation in Egypt. [post_title] => IMF, opposition, the common man… [post_excerpt] => [post_status] => publish [comment_status] => open [ping_status] => open [post_password] => [post_name] => imf-opposition-common-man [to_ping] => [pinged] => http://tns.thenews.com.pk/editorial-184/ [post_modified] => 2019-06-16 14:19:52 [post_modified_gmt] => 2019-06-16 09:19:52 [post_content_filtered] => [post_parent] => 0 [guid] => http://tns.thenews.com.pk/?p=100783 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw [format_content] => ) [4] => WP_Post Object ( [ID] => 100998 [post_author] => 29 [post_date] => 2019-06-16 03:18:00 [post_date_gmt] => 2019-06-15 22:18:00 [post_content] => The main emphasis of Finance Bill 2019 is penalising those who have none or below taxable income by asking them to pay double the withholding tax rate and get provisional assessment orders. This is not a fair treatment as many have no taxable income or making investment from remittances on behalf of their relatives living abroad. There may be many non-working housewives buying properties from funds received by way of inheritance or gifts from spouse. It shows lethargy on the part of Federal Board of Revenue (FBR) as they could have utilised the data of banks, power distribution companies, PTCL and mobile companies that collect advance taxes on behalf of the State — they are fully computerised. By using their database, FBR could have easily determined fair tax base and not penalised everybody. Identifying all such persons having taxable income but not filing tax returns is not a difficult task but FBR wants to terrorise even those having no income, income below taxable limit or exempt income. As promised, no reform agenda has been unveiled for the gigantic government apparatus — epitome of inefficiency and corruption. 10 percent reduction in salary of ministers is just peanuts. The real reform would have been reducing the size of the cabinet to half to save billions. No move to monetise the huge perks and perquisites of public office holders, judges, high-ranking civil-military officials to save billions. The only emphasis in the budget is on more oppressive taxes to stifle growth and not cut down wasteful expenditure and luxuries of the elites — the real beneficiaries of taxpayers’ money. [post_title] => No reforms agenda [post_excerpt] => [post_status] => publish [comment_status] => open [ping_status] => open [post_password] => [post_name] => reforms-agenda-2 [to_ping] => [pinged] => [post_modified] => 2019-06-16 09:50:13 [post_modified_gmt] => 2019-06-16 04:50:13 [post_content_filtered] => [post_parent] => 0 [guid] => http://tns.thenews.com.pk/?p=100998 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw [format_content] => ) [5] => WP_Post Object ( [ID] => 100777 [post_author] => 29 [post_date] => 2019-06-16 03:16:22 [post_date_gmt] => 2019-06-15 22:16:22 [post_content] => As soon as the annual budget is announced the print and electronic media is awash with figures and analyses that seem to mean nothing to an ordinary eye — total outlay Rs7,022 billion, expenditure Rs6,717, deficit Rs3,560 billion and so on. People’s only concern: will the new budget add to their problems or make their life any easier. The federal budget 2019-20 did not spring any surprises in terms of relief to the common people. In view of the country’s economic condition at the time of the budget’s announcement, it was expected difficult times would follow. Talks with the IMF had already dragged a bit too long and the overall political and economic uncertainty left no room to be optimistic. This budget is the natural outcome of all these imperatives. The government was adamant the new budget would not bring bad news for the common man who had voted the PTI government into power. This promise of was hard to swallow as the IMF programme meant withdrawal of subsidies and high inflation. While the government maintains the budget does not largely hit the economically marginalised sections of society, the situation on the ground belies its claims. Inflation has already manifested itself in the form of rising prices of basic commodities, such as ghee, pulses, flour, etc. The budget also proposes bringing down the bar of taxable income. Add to it indirect taxation already gnawing at the very limited income of the salaried class. On the macro-economic front, has anything tangible been offered to the industry to increase its exports and generate more revenue and employment? Also read: Unravelling the budget Budgetary speeches will continue to mean nothing unless the assurances given by the economic managers translate into solid relief to the person in the street. [post_title] => Editorial [post_excerpt] => [post_status] => publish [comment_status] => open [ping_status] => open [post_password] => [post_name] => editorial-184 [to_ping] => [pinged] => [post_modified] => 2019-06-16 00:49:06 [post_modified_gmt] => 2019-06-15 19:49:06 [post_content_filtered] => [post_parent] => 0 [guid] => http://tns.thenews.com.pk/?p=100777 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw [format_content] => ) ) [post_count] => 6 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 100780 [post_author] => 29 [post_date] => 2019-06-16 03:24:31 [post_date_gmt] => 2019-06-15 22:24:31 [post_content] => In several ways, the Budget 2019-20 is a deviation from PTI’s manifesto which promises making Pakistan’s manufacturing exports competitive. The inputs of export-oriented sectors namely textile, leather, surgical items, carpets and sports goods, which in the past fiscal year were allowed zero-rated sales tax will now face a standard rate of tax. The zero-rating of utilities allowed for these sectors has also been withdrawn. Higher prices will now also be seen in the case of LNG and CNG fuels. This axe falls on the export-oriented sector at a time when manufacturing exports could not see much increase even after currency depreciation. Additionally, high policy rate announced by the central bank has made the cost of accessing the working capital and credit for fixed investment expensive. Despite alternate arrangements, such as the launch of promissory notes, a large part of liquidity of exporting entities remains stuck with Federal Board of Revenue in the form of delayed tax refunds, duty drawback of taxes, duty drawback of local taxes and levies, withholding tax refunds, and customs duty rebate. Some of the sector-specific taxation measures could also negatively impact the foreign direct investment (FDI). For example, while the new investment regime in the auto sector had created some interest of foreign vehicle manufacturers, the Budget 2019-20 has now slapped duties on vehicles of all engine sizes. Again, this is one sector which is already getting stifled due to the falling value of the rupee. Likewise, some of the costs faced by the construction industry will also see an increase. Most notably, the hike in duties faced by the cement industry will be easily passed on to the end-consumer, ultimately leading to reduced demand. Negative implications could also be seen of the Prime Minister’s ambition of providing low-cost housing. Perhaps the most startling and unexpected taxes have been seen in the food and food processing sector. The increase in duties imposed on cooking oil, sugar, cream, milk and other household items shows the desperation of a government which is willing to tax even the most essential needs of the citizens. Of course, such actions have implications for the future of food security and nutrition in the country. The local industry, particularly real estate, building, iron, steel, cement, construction services and accessories, and consumer durable goods, has traditionally benefited from the infrastructure disbursement under the public sector development programme (PSDP). Unfortunately, the PSDP for the fiscal year 2019-20 has been slashed by almost 25 percent with negligible allocation for projects falling under China-Pakistan Economic Corridor (CPEC) programme. This situation could have been averted had the government taken early decisions to reduce the size of the federal government and its affiliate departments; and had it pulled out its resources dedicated to keep the loss-making public sector enterprises afloat. [box type="shadow" align="alignright" class="red_lines" ]Incentives to become an exporter in industries other than the traditionally zero-rated sectors seem weak. The Competition Commission of Pakistan, which could have helped in increasing the pace of competition policy reforms, desired enterprise-level learning and market development of non-traditional products, today faces issues of its own.[/box] Instead of moving towards consolidation and merging the existing ministries and divisions, the government still seems in an expansionary mode. To reduce poverty, the government came up with the idea of forming a new ministry for poverty reduction. One is left to wonder what then is the objective of having a Ministry of Planning, Development & Reform? This milieu will be particularly challenging for new exporters, potential exporters, small and medium enterprises (SMEs). With rising cost of electricity, gas and oil there will be a clear increase in the cost of production. The government’s own plan to expedite the ease of doing business lost speed once the Chairperson of Board of Investment at the Prime Minister’s secretariat recently resigned, citing the government’s inability to operationalise a one-window operation for current and potential investors. The budget also remains silent on how compliance costs faced by honest taxpayers could be reduced. Currently, Pakistan has one of the highest man-hours dedicated to tax compliance. With new and multiple tax authorities emerging in all provinces, corporate taxpayers are required to file multiple returns (within a single tax year) with multiple tax bodies and also face audits and hearings at multiple desks within each of these bodies. The future growth of SMEs and potential exporters will critically hinge on the availability of credit. The reality, however, remains that even at high policy rates, accessing credit still remains a challenge for most SMEs. Even the access to Export Finance Scheme and Long Term Financing Facility is not without its own intricacies. The government’s narrative in the budget also advocates that the ambition to pursue low-cost housing programme will kick start the local industry. However, industry representatives have informed that even acquiring land for such projects could hit a snag, as seen in the case of special economic zones (SEZs) across the country which even after several years of CPEC’s initiation could not be operationalised. According to the doing business ranking by the World Bank Group there remain over a dozen administrative processes requiring over 250 days to get the permit before starting a construction on-ground. The same ranking puts Pakistan among the poorly performing countries in terms of ‘trading across border’ and the costs of both border- and documentary-compliance remain higher than competitors. The budget speech suggested that the government aims to help Pakistani enterprises integrate in global value chains. However, this in reality is not possible in an environment where taxes on imports are being increased. The ‘Made in Pakistan’ or ‘Pakistan first’ slogan is not helped by the imposition of taxes on imports of raw material, machinery, and other intermediate inputs. The author made an attempt to ask industry players what in fact are their expectations from the PTI government? This should be taken not just as a proposal to give final shape to Budget 2019-20 but may also help PTI’s future fiscal policy. None asked for tax exemptions! All, in fact, wanted ease in tax compliance and reduction in costs associated with interfacing with tax departments. Second, they would like to see uninterrupted supply of energy and related utilities in industrial areas and overtime reduction in business costs allocated to energy. Third, a reduction in regulatory costs is desired. Also read: Loaded with heavy taxes Currently, all expenses related to municipality, building, environment, labour, worker safety, health safety, and consumer rights regulations go much beyond the statutory costs due to the element of corruption. Fourth, the progressive industry players want the government to share the financial risks associated with research and development, and introduction of new technologies. On the same point, it was stressed that some sharing of costs to improve quality of labour should also be a future priority. The Export Development Fund could have helped achieve this. However, considering EDF to be fungible in the budget has often allowed the government to use this for deficit financing and not for the uplift of industry. Fifth, incentives to become an exporter in industries other than the traditionally zero-rated sectors seem weak. The Competition Commission of Pakistan, which could have helped in increasing the pace of competition policy reforms, desired enterprise-level learning and market development of non-traditional products, today faces issues of its own which overtime has weakened the writ of the commission. Lack of incentives for self-discovery by private enterprises can also undermine Pakistan’s pursuit to effectively embrace the fourth industrial revolution.   [post_title] => Unravelling the budget [post_excerpt] => [post_status] => publish [comment_status] => open [ping_status] => open [post_password] => [post_name] => unravelling-budget [to_ping] => [pinged] => [post_modified] => 2019-06-16 00:31:07 [post_modified_gmt] => 2019-06-15 19:31:07 [post_content_filtered] => [post_parent] => 0 [guid] => http://tns.thenews.com.pk/?p=100780 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw [format_content] => ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 6 [max_num_pages] => 1 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => 1 [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => 1 [is_tag] => [is_tax] => [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => [is_404] => [is_comments_popup] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash] => db1169c0b02392f7845b184a6030aa64 [query_vars_changed] => 1 [thumbnails_cached] => )