Pakistan’s industrialists hope for tax cuts, relief measures in budget

The photograph captured on May 12, 2020 shows a general view of Islamabad Highway. (AFP/File)
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Updated 06 June 2020

Pakistan’s industrialists hope for tax cuts, relief measures in budget

  • Business community demands reduction in rates and number of existing taxes for the revival of sluggish economy
  • Economists believe revenue collection and locust control will pose major challenges to the government

KARACHI: As Pakistan focuses on stimulating growth and creating jobs in the upcoming federal budget, the country’s business community called for slashing taxes and introducing relief measures to bring the economy out of its sluggish mode while economists predicted that revenue collection would continue to constitute a major challenge for the government.
Pakistan is expected to present its income and expenditure plan for the next fiscal year (FY2020-21) in the coming week, with a focus to spur the economic growth without imposing new taxes.
“The focus of the upcoming budget is to stimulate growth and create jobs. The focus of the [$8 billion] stimulus package is toward providing support to business, in particular [small and medium enterprises] through payroll loans at subsidized rates, deferral of principal and interest payments for one year and quick disbursement of all as refunds to business,” Dr. Abdul Hafeez Shaikh, Adviser to Prime Minister on Finance and Revenue, told Arab News last week in an exclusive interview.
He also categorically denied that there would be new taxes in the upcoming budget.
Pakistan’s business community expects that the government will come up with a relief package for the revival of the country’s economy to avoid its further weakening amid the COVID-19 pandemic.
“We have proposed that the government should give relief to industries across the board like the one given to the construction industry because it is vital for the revival of the economy,” Agha Shahab Ahmed Khan, President of the Karachi Chamber of Commerce and Industry (KCCI), told Arab News. “The reforms and recovery will automatically follow.”
Industrialists say the government must focus on the means of creating wealth by adopting appropriate measures and offering suitable incentives such as the ones witnessed in other countries. “If there is no wealth creation, there will be no wealth distribution. This may also lead to social disruption in the country,” the KCCI president said, adding: “We have suggested that sales tax should be brought down to a single digit from 17 percent to spur business activities.”
Industrialists also hope that apart from revising the tax rates, the number of taxes will also be reduced by the government. “We expect that the number of taxes will reduce as part of the ease of doing business initiative under the current circumstances. In Punjab, the government has imposed about 130 different taxes,” Almas Hyder, an industrialist and former president of the Lahore Chamber of Commerce and Industry (LCCI), told Arab News.
“The government must expedite the refund process,” she continued, adding: “I say this because this has impacted the cash flow of companies.”
Muhammad Ahmed, President of the Islamabad Chamber of Commerce and Industry (ICCI), concurred with Hyder, saying: “There is no doubt that refunds are being paid, but income tax refunds have not been issued. We should be given permission to adjust that money with the government in the shape of customs duties or sales tax.”
The ICCI president called for measures to make the upcoming budget business-friendly in the prevailing environment.
“The budget should be business-friendly since that will help us make the economy flourish. If new businesses cannot be set up, at least the existing ones that have suffered setbacks should be allowed to survive and sustain in these difficult times,” he added.
As business community demands relief in the upcoming budget, the country’s economists predict that the government is likely to face major revenue constraints due to a decline in the collection rate within the current economic framework. “If you have no income, you will not be able to make expenditures,” Dr. Abdul Qayyum Suleri, member of the government’s Economic Advisory Council (EAC), told Arab News.
“The second major challenge the government is facing is the locust attack which is going to cost the country about Rs 1 trillion in the worst case scenario. If the damage is contained, the loss will be about Rs 250 billion,” he added.
However, Dr. Khaqan Najeeb, who was part of the budget-making process last year since he worked as an adviser with the finance ministry, suggested that the next budget could be crafted with a different approach, keeping in mind resource generation through tax compliance, deficit reduction by curtailing expenditures, and deficit financing by shifting to non-debt creating instruments.
“Shifting the financing of budget to non-debt creating instruments is the only way to flatten the curve on debt build-up. Divestment, past recoveries, collecting dividends from state-owned companies, arrears of taxes and energy, all can contribute in financing the deficit. This can restore the public’s flagging faith in the integrity of the policymakers to break the debt cycle,” he added.
Dr. Suleri said that apart from debt servicing, defense and administrative costs and development expenditure’s additional resources would be required to fund the health sector and locust control operations.
“Pakistan will need about $15 billion of additional borrowing amid remittance, foreign investment and export decline,” he noted while observing: “Two sectors – energy and loss making public sector enterprises – will be under pressure since the International Monetary Fund may object to budget allocations. Increase in salaries and pensions may fall into this category.”
Economists expect that few ongoing development projects will be financed while major share of funds is likely to be diverted to the health sector in the current situation.


Pakistan to establish 18 markets on Afghanistan, Iran borders to boost trade, curb smuggling

Updated 18 September 2020

Pakistan to establish 18 markets on Afghanistan, Iran borders to boost trade, curb smuggling

  • Under the plan, the government will set up 12 markets along the border with Afghanistan and six along the Iran frontier
  • Prime minister approves setting up two border markets in Balochistan and one in Khyber Pakhtunkhwa by February next year

ISLAMABAD: The Pakistan government has decided to set up markets along its borders with neighboring Afghanistan and Iran to boost trade opportunities, foster peace and check smuggling, the commerce ministry said on Friday.
Main crossing point into Pakistan for both goods and people from Iran and Afghan also serve as major smuggling routes.
“The border markets will help create job opportunities and establish a peaceful relationship with the neighboring countries,” Aisha Humera Moriani, joint-secretary at the Ministry of Commerce, told Arab News.
Under the plan, the government is establishing 18 markets: 12 along the border with Afghanistan and six along the Iran frontier.
In a meeting on Thursday, Prime Minister Imran Khan approved setting up two border markets in Balochistan and one in Khyber Pakhtunkhwa province as a pilot project, to be functional by February next year.
Moriani said the markets would contribute to local development and help the government address “smuggling and boost legal trade across the border.”
Pakistan is fencing its borders with Afghanistan and Iran to check cross-border militancy, illegal movement of people and smuggling, which is a major source of income for people living along border towns and villages.
Sardar Shoukat Popalzai, President Balochistan Economic Forum, said the government should have built “common markets” along the Afghanistan and Iran borders with the mutual consent of the neighboring governments to maximize benefits for people on both sides of the borders.
“The government has not released a feasibility report, if there is any, of these markets as to how are they going to help the local population,” he told Arab News.
Popalzai said Balochistan border areas were sparsely populated and establishment of a few shopping terminals would “hardly make any difference in the lives of the people.”
He said cross-border smuggling was a major source of income for people living in the frontier areas of Balochistan and Khyber Pakhtunkhwa, so “this requires a lot more effort than mere setting up of markets to check this undocumented economy.”
Zubair Motiwala, chairman of the Pak-Afghan Joint Chamber of Commerce and Industry, said the government should establish cold storages and warehouses in the border markets to boost the export of perishable and other items to the neighboring countries.
“The taxation system on the exports and imports of different items through the land routes should be well defined to encourage businessmen and locals to boost the legal trade with Afghanistan and Iran,” he said.