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This year budget shows no consideration to the genuine concerns of the business and industrial community

Interview with Mr Shamim Ahmed Firpo – President, Karachi Chamber of Commerce & Industry

PAGE: KINDLY TELL US SOMETHING ABOUT YOURSELF:

SHAMIM AHMED FIRPO: Besides discharging my services as President of Karachi Chamber, I am also the Chairman of M/s Firpo Private Limited and M/s Saeed Ghani. I am also the President of Pak-Ukraine Trade & Culture Information Center. My association with Karachi Chamber dates back to 2007 when I became part of Businessmen Group being led by its Chairman Mr. Siraj Kassam Teli. I have also served the business and industrial community of Karachi as Former Senior Vice Chairman KCCI, Former Member Managing Committee KCCI and Former Chairman of Public Utilities Power & Gas Sub-Committee KCCI and Deputy Chairman of Special Committee for My Karachi Exhibition. As President KCCI, I am also posted as Member on the Board of Governors of 22 Universities and Educational Institutes.

Moreover, I have also offered my services as President of Delhi Cooperative Housing Society Limited, President of Karachi Cooperative Housing Societies Union Limited, Vice President of Societies Resident Association, Senior Vice President of Union Cooperative Club Limited Karachi, Joint Chief of Community Policing System Karachi, Former Honorary Member of Citizen Police Liaison Committee, Former Honorary Treasury of Jamiat Punjabi Saudagran-e-Delhi Karachi.

PAGE: HAVE THE RECOMMENDATIONS BY KCCI FOR THE FEDERAL BUDGET BEEN CONSIDERED?

SHAMIM AHMED FIRPO: Prior to the budget announcement, Karachi Chamber of Commerce & Industry (KCCI) had organized a convention of all major chambers and trade associations to discuss and formulate a joint strategy for resolution of issues faced by traders and industrialists across the country. After due deliberations, we agreed that we will not submit any proposals or recommendations for the Federal Budget for the fiscal year 2017-2018. We wanted the government to implement the recommendations of Tax Reforms Commission formed by the government. TRC issued a detailed report on tax rationalization after taking input from the chambers and business associations of Pakistan. It is very disappointing that the government failed to adopt the recommendations on which a complete and total consensus was evolved among stakeholders, government functionaries, FBR officials and tax professionals. We also wanted that no changes should be made in tax laws including Income Tax Ordinance 2001, Sales Tax Act 1990, Customs Act 1969 and Federal Excise Act, through the Finance Bills. Finance Bill should be confined to the budgetary and fiscal measures only. Any changes in the tax laws and provisions should be tabled through separate Bills in the parliament and passed after necessary debate and consultation with stakeholders. We wanted the Ministry of Finance and FBR to withdraw the ‘draconian’ provisions and laws which have extended immense discretionary powers to the officers of Inland Revenue. We believe it is a core issue and resulting in loss of productivity and mental torture to the business community. These laws have kept a large number of potential tax-payers out of the tax regime. In fact these laws are a deterrent to broadening of tax-base and resulted in promoting the culture of tax-evasion. However, no consideration was given to the genuine concerns of the business and industrial community in the budget this year.

PAGE: YOUR TAKE ON THE TAXATION AND SALES TAX REFUNDS IN THE BUDGET OF THE NEXT FISCAL YEAR:

SHAMIM AHMED FIRPO: In a bid to raise more and more taxes amid rising levels of debt, the government has resorted to squeeze the manufacturing sector with imposition of higher taxes. Since agriculture sector, which is 20% of GDP, is actually tax exempt, services sectors is also a provincial subject, many SMEs, cottage industries and individual businesses are either not strong enough or not in tax net to contribute much to the national exchequer, the larger industries which are capable of exporting remain on the hit list to meet the rising revenue targets. The policies are changed frequently and mostly becoming harsher for the industries and provision of unabated discretionary powers are leading to harassments of businesses.

\Broad based reforms are needed in the taxation system focused on putting in place equitable taxation policies in which every segment of the economy contributes progressively depending upon the level of income generated along with broadening of tax base, simplification of tax procedures and lowering the rates as well as number of taxes. In a bid to enhance exports of Pakistan, government reinstated the zero rating in the last federal budget 2016-17 for five export oriented sectors.

The rationale behind it was improving cost competitiveness of these sectors while eliminating backlog of refund claims to avoid liquidity crunch. Nonetheless, the situation has not been changed much by the end of FY17 where exporters are still demanding for their refund claim as billions of rupees are withheld with the FBR. This issue should be resolved sustainably at the earliest. KCCI strives to make the environment conducive for businesses and industries and competitive for exports which is in the interest of economy and all the stakeholders. We believe that harsh tax policies would not do more harm than good to the country while if businesses are growing; exports as well as investments will pick up and more economic activity will be generated which will in turn lead to higher tax collection without burdening any specific sector.

PAGE: DO YOU THINK THE TRADE POLICY WOULD BE REVISED AND SOME CONCRETE MEASURES WOULD BE TAKEN TO ENHANCE EXPORTS?

SHAMIM AHMED FIRPO: Commerce Ministry had focused on facilitating trade by way of reducing cost of doing business, standardizing products, applying regulatory measures, enhancing markets’ (China, EU, Iran & Afghanistan) and products’ (basmati rice, horticulture, meat and meat products, jewelry) diversification, improving export competitiveness and increasing exports to $ 35bn under its Strategic Trade Policy Framework (STPF) 2015-18, by the end of FY18. Targets were over ambitious and the policy failed in suggesting practical steps for achieving them. Many policy objectives remain mere part of the document. There is no mechanism to ensure the implementation of STPF or remove the bottlenecks in the way of achieving stipulated goals. As exports are still continuously declining in the ongoing fiscal year 2017, there is an urgent need of re-introducing trade policy which is more practical and all encompassing.

PAGE: HOW WOULD YOU COMMENT ON THE GDP GROWTH, FISCAL DEFICIT, TRADE DEFICIT, EXPORTS AND IMPORTS IN THE NEXT FISCAL YEAR?

SHAMIM AHMED FIRPO: There still exists serious concern on the economic front. The unabated rise in deficits – current account, trade and fiscal deficits – would provide little room for any relief rather more taxes might be imposed to meet the increased revenue target which is expected to be over Rs 4 trillion for FY18. Debt accumulation has been growing at an average rate of 16.5% in the 9 years of the two democratic rules and if the current pace continues, the loan would swell to an exorbitant level of Rs 76 trillion by 2025. It is yet to be seen how the govt. will arrange debt repayments, especially when exports are declining, FDI inflows are not picking up at the desired pace, while imports are expected to continue to rise at an increasing pace as global commodity prices inch higher, local manufacturing is reduced and dense influx Chinese products and other imported products to continue.

Exports are depicting a declining trend, where Pakistan closed FY16 at a 6-year low export figure of $ 21.97 bn. Textile, Pakistan’s mainstay having 60% share in Pakistan’s overall exports is passing through difficult time due to tough competition from India, China and Bangladesh. Since, China is looking forward to make most use of the CPEC project by development a mega textile park in Xinjiang, the outlook of textile sector of Pakistan also appear to be bleak. The efforts of export diversification would not be successful given the unfriendly business environment.

Pakistan highly depends on imported petroleum products for its energy needs, perpetually exposing itself to the risk of high oil prices and foreign currency risks. Forecasts by World Bank have projected average oil prices of $53.2/bbl. $59.9/bbl. and $62.7/bbl. for 2017, 2018 and 2019, respectively. If oil surges as per the expectations, it would increase the total oil import bill by 48% till 2019. Coupled with rising debt servicing, increased import of oil would put pressure on forex reserves unless they are either supported by further loans, increase in exports or investments. While a drop in forex reserve may also devalue local currency, further increasing the burdens of import bill, repayment of foreign loans and current account deficit.  In this case, the large industries and SMEs are the main hope of turning around the economy to sustainable growth. However, it is very unfortunate that the currently the business environment is highly unconducive and no respite is being extended to the manufacturing sector. In fact every budget adds up new taxes and tariffs on the business and industrial community leading to enormous rise in cost of doing business.

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