COVER STORY THE PROS AND CONS OF AUTOMOBILES IMPORTS

No other industry in Pakistan enjoys a stricter protection against imports than the automobile industry. The underlining objective has been to produce affordable cars for the domestic market and to earn foreign exchange through exports. The major problem of the industry is the huge under-utilization of the production capacity and sharp price increases. PAGE attempts to highlight the pros and cons of the automobile imports.

Money Market

The impact of revised regulation regarding cash reserve requirement and statutory liquidity requirement is expected to be marginal in the long run. While the dearth of quality borrowers continues, declining yield on government securities will continue to adversely affect the earnings of financial institutions.

Trade Policy

The new Trade Policy is aimed at increasing exports through diversification and reducing trade deficit. At the same time it offers additional incentives for the exporters of traditional products and re-exporters.

Tax on Reserves

According to new finance bill, the reserves of corporates, if exceed 50 per cent of paid-up capital, will be taxed. While the law is highly ambiguous, there is no logic of imposing tax on reserves as the government already collects exorbitantly high corporate tax on the earnings.

Cotton

The cotton ginners are looking at falling world prices with concern. They are fearing a market crash. The Trade Policy for 1999-2000 in which a number of demands of the textile sector have been accepted and falling cotton prices, however, have been taken as positive developments by the textile industry.