Home / This Week / Cover Stories / Budgetary proposals for SMEs, manufacturing, agriculture and consumer sectors

Budgetary proposals for SMEs, manufacturing, agriculture and consumer sectors

SMALL & MEDIUM ENTERPRISES (SMES)

Pakistan Stock Exchange (PSX) has proposed 20 percent corporate income tax rate for small and medium size listed companies to promote entrepreneurship. The PSX proposed amendment to Income Tax Ordinance, 2001 for reduction in the rate stating:

“Provided that where a taxpayer is small or medium sized company as defined under the Companies Ordinance, 1984 and is also listed on the registered Stock Exchange in Pakistan, the rate of tax imposed on the taxable income of such company, other than banking company shall be 20 percent for the tax year 2018 and onwards.”

Pakistan had the 10th largest labor force in the world and is well endowed with energy and minerals. The government is focusing on a number of initiatives including specialized training, incentives for extraction and value addition, development of adequate infrastructure facilities near mining sites and learning from best practices in other countries regarding development of the mineral sector.

SMEs constitute 90 percent of all enterprises in Pakistan, employing 80 percent of non-agricultural labor force and constituting around 40 percent of the GDP.

Further, according to recent study conducted by State Bank of Pakistan (SBP) lending to SMEs by banks was fairly limited with stringent conditions and collateral requirements which many SMEs are unable to provide.

The PSX in its budget proposals for 2017-18 said that a well-functioning SME segment at the stock exchanges offers a range of benefits including greater access to growth capital for innovative SMEs, documentation, good governance, new jobs through entrepreneurship, more investment opportunity for domestic portfolio investors and local venture capitalists.

There are significant fiscal tax credit benefits in Spain, Kenya, Brazil, Argentina and other parts of the world for the SMEs.

MANUFACTURING

Strengthening Secured Transactions Framework: (Establishment of Registry for Movable Assets): Secured Transaction Reform calls for existence of a modern secured transaction law that provides for establishment of registry office in the country to register charge on assets especially moveable assets of the borrowers and hence facilitate smooth flow of credit from financial institutions to manufacturing sectors.

The Financial Institutions (Secured Transactions) Act-2016 has been approved by the Parliament and notified in Official Gazette. The Ministry of Finance on the recommendations of SBP has approved way forward of this project wherein Ministry of Finance shall appoint registrar during FY 2017-18 who will lead the project of establishing secured transactions registry including drafting of registry regulations and procurement of hardware and software through DFID, UK funding.

In view of the above, Ministry of Finance & the Government of Pakistan, may earmark Rs100 million in the federal budget 2017-18 to cover salary of registrar and other allied costs.

AGRICULTURE

– Levy of sales tax on urea at reduced rate of 5%, in order to promote agriculture and alleviate the conditions of farmers.

– Ministry of National Food Security and Research has proposed exemption from sales tax on Pesticides. Keeping in view importance of pesticides for the agriculture sector, pesticides and their ingredients are being granted exemption from sales tax.

– Budgetary Support for Crop Loan Insurance Premium Subsidy: The Crop Loan Insurance Scheme (CLIS) was launched in 2008 for subsistence farmers in order to mitigate the risk of losses to farmers due to natural calamities. Under the scheme, the amount for the premium, up to a maximum of 2 percent of the loan per crop, is being borne by Government of Pakistan through budgetary support. The government enhanced the scope of CLIS up to 25 acres and all farmers obtaining loans for production of 5 major crops were made eligible to benefit from this scheme. Since the inception of this scheme, 3.882 million small farmers have benefited with the insurance premium claim of Rs 4.353 billion up to June 2016. The State Bank of Pakistan (SBP) successfully implemented the scheme on the parameter announcements in the budget. Therefore, in line with previous year practice, it is proposed that the government may continue budgetary premium subsidy support to small farmers by making the budgetary allocation of Rs1.5 billion for FY 2017-18 on account of Crop Loan Insurance Scheme.

CONSUMER

Risk Sharing Guarantee for Low Income Housing: The federal government announced in its budget for fiscal year (2014-15) the development of low-cost housing in the country. Under the scheme, the government is to provide 40 percent credit guarantee cover to the banks/DFIs for home financing up to Rs1 million. The broader features of scheme have been worked out which have been approved by the Ministry of Finance. The scheme has yet to be formally launched by the Prime Minister of Pakistan. For the purpose, the government is proposed to allocate Rs8 billion for providing 40 percent credit guarantee cover to the lending banks against the financing for low-income housing.

The SBP hopes that these proposals will be considered favorably for incorporation in the forthcoming budget. These proposals will rationalize the tax burden on the banking sector.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

Check Also

An important step for the Islamic Financial Industry of Pakistan-Senate resolution 393

An important step for the Islamic Financial Industry of Pakistan: Senate resolution 393

Over the past few years, Pakistan’s economy is facing a bad patch. Some of the …

Leave a Reply