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Govt removes ban on furnace oil imports as energy demand rises

The government has lifted the ban on import of furnace oil for running power plants and has directed state-owned Pakistan State Oil (PSO) to place orders for bringing fuel cargoes in order to meet growing electricity demand in summer.

Talking to the source, a senior government official said the Ministry of Energy (Petroleum Division) had written to PSO, asking the oil marketing giant to resume the import of furnace oil.

“The Cabinet Committee on Energy has decided to resume import of furnace oil to meet growing demand from power plants,” he said.

“We can confirm that PSO has received instructions from the Ministry of Energy for the import of furnace oil. PSO, as a responsible corporate citizen, is committed to supporting the nation and the economy with consistent supply of petroleum products,” PSO said in response to a query. The government had imposed restrictions a few months ago on the consumption of furnace oil in power plants, preferring liquefied natural gas (LNG) in electricity production. Since then, PSO had placed no fresh orders for imports.

At present, the demand for electricity in the country stands close to 17,000 megawatts, which is expected to cross 20,000MW in the peak summer season.

On the other hand, the cheaper hydroelectric power generation has dipped to just 1,050MW because of a slowdown in water inflows into rivers compared to the generation capacity of 7,000MW from this source.

Earlier, the government had been giving verbal orders to PSO to start importing furnace oil, but it did not pay heed. However, the Petroleum Division has now given the directive in writing.

Earlier, the curbs on furnace oil use in power production had stirred serious problems for domestic refineries where stocks of the petroleum product had been piling up. They were of the view that the government had taken the decision in haste and their production of petroleum products could decline with lower furnace oil output.

The government has decided that this time power producers will make payments to PSO in advance to avoid the accumulation of circular debt. Owing to inability of the power producers to clear earlier dues of PSO, receivables of the oil marketing company have swelled beyond Rs300 billion.

The Economic Coordination Committee (ECC) had approved a circular debt settlement plan on March 7 in an attempt to immediately pay Rs80 billion to the power producers and fuel suppliers out of Rs526 billion worth of dues aimed at easing the financial strain.

According to the official, after payment of Rs80 billion, the government will be able to manage the circular debt to some extent.

As losses mount, ministry suggests shutting 1,000 USC

After Pakistan International Airlines (PIA) and Pakistan Steel Mills, another state-owned enterprise, the Utility Stores Corporation (USC), has turned into a defaulter, prompting the Ministry of Industries and Production to design a plan for shutting down 1,000 outlets and laying off 2,000 employees.

Earlier during the tenure of previous government run by the Pakistan Peoples Party, the USC had been running in profit and selling commodities to low-income families at a discount across the country.

However, now USC has switched from profit to loss that is running into billions of rupees. According to a senior government official, the Ministry of Industries has suggested that the government either announce a bailout package or shut 1,000 utility stores and lay off 2,000 staff workers.

Already, PIA and steel mills have been operating since long with critical support from bailout packages as their losses continue to mount.

USC recorded a loss of Rs1.36 billion in first quarter of the current financial year 2017-18 with negative equity of Rs1.808 billion and outstanding payments of Rs5.6 billion to vendors. Consequently, most of the vendors have stopped supplying goods to the utility stores.

In 2010-11, the USC earned Rs843.19 million whereas subsidy stood at Rs8.9 billion in order to provide commodities for consumers at concessionary rates. Its profit dropped to Rs775.28 million in 2011-12, but the subsidy rose to Rs12.4 billion.

Its profit jumped to Rs1.399 billion in 2012-13 and subsidy also increased to Rs18.53 billion.

However, after the Pakistan Muslim League-Nawaz (PML-N) government came to power in June 2013, USC’s earnings were wiped out and it incurred a loss of Rs202.32 million in 2013-14. Subsidy allocation also dropped to Rs12.544 billion.

The loss continued to swell reaching Rs3.94 billion in 2016-17. Sales also came down from Rs68.91 billion to Rs57.91 billion. The Ministry of Industries and Production blamed the nomination of private-sector members on the USC board of directors for the loss, saying they had no experience of working with utility stores.

Govt will consider abolishing regulatory duty on steel

Federal Minister for Commerce and Textile Muhammad Pervez Malik has said that the government will consider abolishing regulatory duty on steel. His statement comes as the government continues to negotiate terms with China in the second phase of the Free Trade Agreement (FTA).

While talking to Lahore Chamber of Commerce and Industry (LCCI) President Malik Tahir Javaid, in an exclusive meeting on Wednesday, the federal minister said that concrete measures are being taken to boost the country’s exports.

He urged the private sector to meet international standards and better marketing of products to compete effectively.

Talking about declining exports, LCCI President Malik Tahir Javaid said that major factors contributing to the decline of Pakistan’s exports are high cost of doing business, lack of product and market diversification, low level of technological advancement, non-compliance of international quality standards, underdeveloped human capital and unskilled labour.

He said that Pakistan has to move from low value-added to technology-intensive high-value-added manufacturing in order to get its share in the international trade.

Javaid said that Pakistan’s existing exports basket and destinations need to be enhanced. By providing a broader base of exports and diversification, Pakistan can lower instability in earnings, expand revenues, upgrade value-addition and enhance growth through many new markets and products.

He said that Pakistan needs to get free or preferential market access in Africa, Latin America, Central Asian Republics (CARs), Russia and Australia etc.

The LCCI president said that there is a need to renegotiate the already signed free or preferential trade agreements of Pakistan by thorough consultations with the business community.

 

Govt planning taxing ‘gifts’ among non-family members

The government is considering levying a tax on ‘gifts’ given by taxpayers to non-family members after wealthy Pakistanis gave away Rs102 billion under the scheme last tax year, which the Federal Board of Revenue (FBR) initially claimed was an act of money laundering.

The gifts to family members are still proposed to remain exempted from income tax, according to a budget proposal of the FBR for the fiscal year 2018-19, starting from July. The money that a taxpayer will show as gift from or for non-family members in his wealth statement would be treated as his income, according to sources in the FBR. The amount will be charged at standard income tax rates, according to the sources.

The gifts valuing above a minimum threshold should be subject to the tax, said the sources. The proposal was to fix the minimum taxable limit of a gift in the range of Rs1 million to Rs1.5 million, the sources said. The budget proposal still has to go through final scrutiny.

The FBR is currently in the process of scrutinising tax proposals that will be announced in the budget to be unveiled on April 27. However, it faces challenges to keep its tax collection intact, as the government plans to offer major reliefs ahead of general elections.

Special Assistant to Prime Minister on Revenue Haroon Akthar Khan has said that the government would not levy a new tax in the upcoming budget. But the tax on gift will be deemed a new tax.

The FBR’s budget proposal carries political implications, as influential Pakistanis including former prime minister Nawaz Sharif have remained beneficiaries of the legal lacuna that allowed people to give or receive gifts. The former PM received Rs1.12 billion as gift from his son Hussain Nawaz, according to the Joint Investigation Team report in Panama Leaks case.

Under the Income Tax Ordinance, gifts are exempted from taxes and about 2,800 Pakistanis exploited this lacuna in tax year 2016 alone. Out of 2,785 cases to be precise, 966 pertained to Karachi, 1,062 to Lahore, 388 to Islamabad, 144 to Faisalabad, 72 to Peshawar, 120 to Multan and 33 to Hyderabad, according to the FBR statement in a parliamentary committee.

The FBR believes that wealthy individuals are using the tax-exempted gifts to transfer incomes, assets and wealth without contributing to the exchequer. The window is also being used for transferring their assets abroad to avoid falling into the tax net.

The FBR’s Directorate of Intelligence & Investigation of Inland Revenue found that about 2,800 individuals declared receipt of gifts in their wealth statements, aggregating around Rs102 billion in tax year 2016 alone. An individual from Karachi declared the highest amount of Rs1.7 billion given away as gift, according to the FBR’s statistics that it had submitted in the Senate Standing Committee on Finance.

Focus only on boosting exports is a bad policy

Pakistan’s export earnings have declined 20% over the period FY2011-17 and market share has been contracting by 1.45% annually.

The government is about to launch new Strategic Trade Policy Framework (STPF) 2018-23 to boost trade performance and enhance exports. Two major think tanks organised wide-ranging consultations in the last few weeks and there is a need to revisit some of these recommendations.

First set of recommendations came from a World Bank-funded series of consultations with private-sector representatives in provincial capitals organised by the Sustainable Development Policy Institute (SDPI).

Small traders: fixed tax would enlarge tax net

Islamabad Chamber of Commerce and Industry (ICCI) President Sheikh Amir Waheed has called upon the government to focus on introducing a fixed tax for small traders as well as provide them special incentives in the upcoming budget.

The ICCI president, along with a delegation, visited G-10 Markaz, Islamabad and congratulated the newly-elected president Kamran Kakakhel and other office bearers of the Traders Welfare Association of the area.

Waheed said that introduction of fixed tax for small traders would help in expanding the tax net and enhancing tax revenue of the country.

Traders irked at increased withholding tax proposal

Traders, industrialists and exporters have sharply reacted to the government’s proposal to increase withholding tax rates for non-filers of income tax returns, describing it to be an unwise act. They said that the present regime should waive this tax immediately to win over the business community.

Local traders said that the present regime has no right to approve the next budget for 2018-19, when its term is ending in May 2018. It may be recalled that an aide to the prime minister said that withholding tax rates for non-filers of income tax returns would go up further from July.

He further said the government would ensure that it widens the difference between rates for filers and non-filers of income tax returns. His statement comes amid questions over the government’s moral authority to present the budget a month before its term ends.

Govt plans $75 mn fund for borrowers

The government has decided to set up a $75-million fund at the State Bank of Pakistan for borrowers interested in setting up small businesses, which is also expected to attract people to vote for the ruling Pakistan Muslim League-Nawaz (PML-N) in the upcoming general elections. With the help of this fund, the rupee equivalent of $75 million will be disbursed to microfinance banks and microfinance institutions, which will, in turn, provide credit lines to eligible small borrowers including micro-entrepreneurs.

Planning ministry wants PKR 1.1 trillion as development budget

As budget meetings begin in earnest to assess financial needs of various arms of the government, the planning ministry has demanded Rs1.1 trillion for upcoming fiscal year’s development budget, which is 37.5% higher than the ceiling indicated to it. The Ministry of Planning, Development and Reform is not satisfied with the finance ministry’s decision to allocate only Rs800 billion for Public Sector Development Program (PSDP) for fiscal year 2018-19. It has sent a communiqué to the finance ministry, demanding Rs1.1 trillion instead, according to sources in the ministry.

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