Govt must increase ease of doing business; broaden and simplify tax collection process to strengthen economy
Interview with Mr. Junaid Esmail Makda — President Karachi Chamber of Commerce & Industry
PAGE: KINDLY TELL ME ABOUT YOURSELF AND THE KCCI:
JUNAID ESMAIL MAKDA: Besides being the President of Karachi Chamber of Commerce and Industry, I am also the Chief Executive Officer of Makda Group of Companies which comprises of Makda (Pvt) Ltd, Gaseous Distribution Company (Pvt) Ltd (GDCL), Makda Industries, Makda Enterprise, Friends Real Estate, Friends Packages, Friends CNG, Fuel Star Service Station and Makda CNG Services. Since 1980, I am in knitwear and woven business, managing, administering, procuring all types of textile requirements from yarn to exports. One of my company is also engaged in sourcing and representation of international companies. I am also in CNG and Real Estate Business and one of my company imports and exports chemicals & general commodities.
Moreover, I have also offered my services from time to time as Member for Karachi Water & Sewerage Board (KW&SB), Sectoral Advisory Committee, Environment Climate Change & Coastal Development Department, Government of Sindh, Provincial Steering Committee, Services, General Administration & Coordination Department, Government of Sindh, Karachi Metropolitan Corporation (KMC), Sindh Solid Waste Management Board, Government of Sindh, Industrial Liaison Committee, Industries & Commerce Department, Government of Sindh, Coordination Committee, Labor & Human Resources Department, Government of Sindh, and National Centre for Dispute Resolution (NCDR).
Furthermore, I also worked dedicatedly for following organizations from time to time
- President, Pak Afghan Joint Chamber of Commerce & Industry (PAJCCI).
- Patron in Chief, All Pakistan CNG Forum (APF).
- Director, PHMA – Institute of Knitwear Technology, Karachi (PHMA-IKTK).
- Member International Chambers of Commerce (ICC) National Committee Pakistan Chapter.
- Chairman, KCCI’s International Affairs – Liaison with International Chambers formation of joint Chambers and MOUs implementation of Karachi Chamber of Commerce & Industry (KCCI).
- Former Executive Committee Member of Federation of Pakistan Chamber of Commerce & Industry.
- Member Advisory Committee on Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH.
- Former Chairman/Director, Pakistan Hosiery Manufacturers & Exporters Association (PHMA).
- Honorary Secretary, Dhoraji Cooperative Housing Society.
- Honorary Secretary, Dhoraji Housing & Relief Trust.
- Director, SITE Industrial Estate Limited.
- Former President, SITE Association of Industry.
- General Council Member of ICC World Chambers Federation (WCF).
- Life Member SAARC Chamber of Commerce & Industry.
- Life Member Karachi Club.
- Chairman, Special Committee Bombay-Karachi Joint Chamber of Commerce & Industry.
- Chief Coordinator, Commissioner–Karachi Chamber Liaison Committee (CCLC).
- Coordinator, Governing Body Police Chamber Liaison Committee (PCLC).
- Managing Director, Pakistan Hosiery & Textiles Manufacturers Inc., USA.
- Former Chairman, Steering Committee on Espire Project Bavarian Employers‘ Association (bfz) GmbH.
- Chief Coordinator, Pakistan Hosiery Manufacturers & Exporters Association.
- Chairman to represent on USAID Pakistan Firms Project.
- Former Director, Sindh Board of Investment SBOI.
- Former Vice-President/Director, Karachi Chamber of Commerce & Industry.
- Former Chairman, Pakistan Hosiery Manufacturers & Exporters Association.
- Former Central Chairman, All Pakistan CNG Association. (Founder Member).
- Chairman, Industry, Investment and Privatization, Karachi Chamber of Commerce & Industry.
- Chairman Sub-Committee on Estate Management, Legal Affairs and Hospital of Karachi Chamber of Commerce & Industry (KCCI).
- Chief, Governing Body Police Chamber Liaison Committee (PCLC).
- Coordinator City District Government – Chamber Liaison Committee (CGCLC).
PAGE: COULD YOU TELL US ABOUT THE PRE-BUDGET PROPOSALS SENT BY KCCI FOR THE FORTHCOMING FEDERAL BUDGET?
JUNAID ESMAIL MAKDA: KCCI’s proposals for federal budget FY20 cover a wide range of topics, including trade and industry development and its safeguards, ease of doing business, domestic and foreign investment in the economy, improving competitiveness, focus on development of domestic commerce, import substitution, and development of SMEs, among other areas. It has also asked for due share of Karachi in the federal and provincial developmental budgets. Implementation of the chambers’ growth oriented proposals would lead to fast paced economic growth through promotion of trade, business and industry in Pakistan.
KCCI has long been vouching for curbing the unbridled discretionary powers given to the tax man, which are often employed to harass the business community. It has also been demanding for rationalization of the unfair taxation system prevalent in Pakistan which instigates corrupt practices and gives undue advantage to non-payers of tax at the expense of the compliant tax payers.
However, it is yet to be seen whether the budget actually incorporates KCCI’s business friendly proposals, and what concrete steps the government would take to provide a conducive environment to the industry. Concerns remain as to whether the forthcoming budget would be successful in increasing the tax net rather than further burdening the existing tax payers.
PAGE: HOW IS THE BUSINESS SENTIMENT AT THE MOMENT DUE TO THE CURRENT POLICIES OF THE GOVERNMENT?
JUNAID ESMAIL MAKDA: The business sentiment is on a downward spiral at the moment as recent government decisions of PKR devaluation and interest rate hike have started to play havoc. High inflation has drastically reduced the purchasing power of the public. Further, businesses are too concerned at the way the budget is shaping up under IMF dictates. Vibes about the budget indicate that well-being of businesses and the public has been totally disregarded in the budget, and give the impression that the forthcoming budget has wholly been drawn up by the IMF instead of the Finance Ministry.
Businessmen are of the view that gains achieved owing to some positive measures taken by the Commerce Ministry since the beginning of the current government are now being reversed by the Finance Ministry to generate additional revenue of PKR 1.4 trillion. Exporters have been flabbergasted by the reported withdrawal of sales tax zero-rating facility to five export-oriented sectors, as it would have a tremendous impact on the growth and development of Pakistan’s export industry, specially textile, leather, carpets, surgical and sports goods sectors. Energy prices are expected to jack up in the next fiscal, thereby making manufacturing further uncompetitive.
Hike in interest rate has further halted steps of expansion and increased cost of working capital. Instead of creating jobs which the government alluded to in its manifesto, such policies will get more people unemployed. This will once again create law and order situation, only this time it would not be political but purely economic. Government needs to soften the blow of the harsh conditions of the IMF program on both the common man and the businessman.
Farmers are also worried as government is planning to withdraw subsidies on key items which will increase the cost of agricultural inputs, leading to a new wave of food inflation across the country. The stock market has suffered losses last seen a decade ago during the global financial crises of 2008 and investors are desperately waiting for a government backed stabilization fund to revive their fortunes.
PAGE: YOUR VIEWS ON THE IMPORT AND EXPORT POLICIES?
JUNAID ESMAIL MAKDA: Pakistan’s trade policies are usually short-sighted and haphazardly implemented, if at all. A recent example is the enforcement of SRO 237 which imposed new labeling requirements on imported food stuff, with immediate effect. Importers, as a result, were made to rue and suffer financial losses after the sudden change in import policies, which also applied to goods that were in transit at the time. It was after intense lobbying by KCCI that the new rules were amended and to be implemented from the new fiscal year, leading to clearance of stuck containers at the ports, and a breathing space was given to the importers.
Cost of production is further going to increase after proposed hikes in electricity and gas prices. The government is also working on gradually phasing out the 5th Schedule of the Customs Act, which deals with items that are eligible for reduced customs duty rate. Withdrawal of zero rating on five export sectors is also on the anvil. Such steps will be catastrophic for Pakistan’s exports. With the depreciation of the rupee the cost of imports of essential raw materials for manufacturing has already gone up substantially. Sometimes one is led to think if there is any method to this madness. One can just hope that the government comes back to its senses instead of strangle holding the export industry of Pakistan with these draconian policies of the IMF.
To make matters worse, the Federal Board of Revenue (FBR) has proposed abolishment of Final Tax Regime for importers. This will increase cost of business further and will hit almost every important business. Amid this doom and gloom KCCI welcomes formation of the National Single Window to manage external trade which will be operational by 2021. The proposed window will provide a comprehensive solution for imports, exports, transit trade, trade through border customs stations and air cargo. This will help ensure transparency, reduce corruption and reduce dwell time of containers at ports besides facilitating traders. The business community has reportedly incurred more than $400 million extra cost as compared to average costs for import and exports in South Asia during last year.
PAGE: WHAT MUST THE GOVERNMENT DO TO IMPROVE THE ECONOMY OF PAKISTAN?
JUNAID ESMAIL MAKDA: The government should reduce cost of doing business, increase ease of doing business and do away with intentional tax anomalies in line with KCCI’s proposals. Furthermore, reforms should be introduced that compel taxpayers to file their returns fairly. Practices involving evasion and utilizing loopholes hurt the economy. In order to increase tax revenues, the government must first of all take measures to broaden the tax base and simplify the process of tax collection. The way tax collection is pursued in Pakistan is the main issue. Businessmen shy away from paying taxes because once they file their returns, they end up facing unnecessary questions and harassment from tax officials. In order to rectify the trade deficit, Pakistan must follow a strategy of import substitution and expand its export product base. Pakistan’s reliance on imported products is very unfortunate considering the fact that a number of countries import buy raw materials from it and export the value added products back to Pakistan. With increasing focus on technological advancements, Pakistan must try to develop industries that will produce products regularly procured through imports. This could be facilitated by the government’s increased focus on development of Special Economic Zones.