ALL PUNJAB CHAMBERS MOVE COLLECTIVELY TO GET INTO THE BUDGET MAKING

From KHALID BUTT, Lahore
May 29 - June 04, 2006

The Lahore Chamber of Commerce and Industry has made a joint move of forwarding a set of pre-budget proposals of all the chambers in the Punjab instead of approaching the government individual chambers.

It would not only save a lot of time of the financial experts of the government but would also give strength to the voice of the business community.

There was a time when the governments were used to imposing their will without even consulting the stakeholders but now the situation is altogether different and the government has realized the importance of the corporate sector and is reportedly giving enough weightage to the suggestions of the trading community.

When the PAGE contacted the LCCI President Mian Shafqat Ali, the man on the hot seat, he said that it is not the baboos, sitting the quiet and cool atmosphere of Islamabad, but the businessmen who kept the wheel of the economy moving. He dilated upon a number of issues facing the business community, which need urgent consideration of the government.

Following is the summery of the budget proposals of the all chambers in Punjab.

UNDER INVOICING & SMUGGLING

•To control the under invoicing and smuggling it was proposed that government should formulate a strategy to share data of exports of those countries from where goods are shipped to Pakistan with different value. Especially trade data arrangements with China and Dubai can help reduce smuggling and under invoicing.

•Under invoicing and mis-declaration is damaging our local industrial base. Despite repeated requests by Chambers, the problem is still unresolved. It is proposed that government should take this issue very seriously as it is not only resulting in revenue loss but also posing a great threat to local industrial setup.

SALES TAX

•Raw materials imported by manufactures of five zero rated sectors are subject to 15 percent sales tax at import stage. But at the time of sale of finished products no sales tax is charged, which is an extra burden on manufactures. It was proposed that a system should be devised to give refund of sales tax paid at import stage.

•The manufactures are allowed to carry forward upto three months. It was proposed that time limit for carry forward facility may be enhanced to six to nine months as after three months time no mechanism is defined in the law.

•All the chambers agreed that rate of taxes in Pakistan are too high and needs to revise downward. They proposed to reduce rate of Sales Tax rate to 7 to 10 percent instead of 15 percent.

•Sales Tax system should be implemented across the country and unified rate of tax should be applies on all parts of the country.

•Procedure for Refund of sales tax should be simplified as lengthy and cumbersome procedures is causing undue pressure on taxpayers and also results in minimizing working capital.

•The presidents of all the chambers also expressed their concern over the low capacity of newly introduced electronic system known as E-filing of Sales Tax Return through NIFT. They were of the view that electronic filing system is unable to sustain on workload generated on 13, 14 and 15th of every month.

•Surgical and pharmaceutical products are exempted from sales tax but surgical cotton, which is important part of industry is subject to 15% sales tax. It is proposed that surgical cotton may also be exempted from Sales Tax.

•Sales tax refunds are a major problem for the business community. Huge amount are stuck up in sales tax refunds resulting in liquidity crunch for the businessmen. Moreover, mark up rate on export refinance has also reached to 9% with 1.5% Bank Charges and one Percent Insurance which shows that cost of working capital has been increasing day by day and if refunds can be released for a longer period of time the exporter would be in deep trouble. It is proposed that government should introduce simplified refund system and release all pending refunds within next 60 days.

•Sales Tax rate should not be more than 5 - 7% as 15% Sales Tax is very high and causing price hike. It was proposed that if immediate cut is not possible gradual reduction process might be introduced.

•Pharmaceutical Sector is exempted from sales tax but some of its raw materials are liable to tax. Due to the provision pharmaceutical companies are paying sales tax on packing material, electricity and gas, which cannot be claimed as refund nor can be adjusted against out put tax. Furthermore these companies are also filing nil returns of sales tax every month, which is a burden on Sales Tax Collectorate and Pharmaceutical companies. It is therefore, proposed that Pharmaceutical Sector may be exempted from filing of sales tax returns and its packing materials, electricity and gas should be declared as zero rate.

•Export oriented sectors were exempted from sales tax in the previous Budget which was a very positive step taken by the government. We feel that this facility could not be extended to commercial importers as it results in negative impact on local manufacturing industry. It is therefore proposed that the facility should be withdrawn from commercial importers to give manufacturers a comparative advantage.

INCOME TAX

•It was also resolved that rate of tax on companies should be cut down to 30 percent instead to 35 percent by year 2007 as proposed by the government. They also suggested 25 percent slab for companies listed on the stock exchange. Basic exemption limit may also be enhanced to Rs. 250,000/- from 100,000/-.

•They also criticised that Adjustment Advices are not issued with 10 days resulting in huge amount of difficulty in adjusting the input output tax. They demanded of the government that system should automatically generate Adjustment Advice to reduce burden on taxpayers.

•Basic tax exemption limit should be increased to Rs. 2,50,000/- and highest tax slab should not be more then 20%.

•Age limited for Senior Citizen should be reduced to 58 years for entitlement of concession under the law.

•Withholding tax imposed on cash withdrawal from banks above Rs.25000/- should be withdrawn.

•Government could fix a target of Rs. 1000 billion as revenue collection but to achieve this goal it should give complete free hand to the business community. We should adopt a strategy of first generate business activity and then impose tax. In China electricity is free for export-oriented industries with 28% rebate on exports. Whereas, in Pakistan knitwear industry is collapsing due to non-availability of incentives. And if some sort of relief is not announced immediately this sector will close down. In comparison India, China and Bangladesh are giving 20 to 25% rebate to their knitwear industries.

•Another factor which has contributed in decline of local industries is increasing Interest rate which has doubled in last six months and has gone up from 7% to 14% .Gas prices have also been increased by 15% recently and it will further increase by 15% in next few months. Keeping in view the recent developments the local industry is facing difficult situation, and it seems that government wants to close down industry. It is proposed that Budget Government should give free hand to local industrialists. Allow our local industry to develop. In last Government has promised to reduce rate of duty on pharmaceutical raw material but 70% raw material are still at 10% rate of duty which should be immediately reduce to 5%.

•He said that bank monopoly regarding withholding tax should finish because we had 60 days cotton season and cash transactions were made during this season.

•Tax Facilitation Centres must increase in number for convenience of members.

•Minimize tax ratio and reduce number of taxes.

ELECTRICITY AND GAS

•Chambers Presidents also expressed concern over the increasing rate of energy input costs, especially frequent increase in prices of electricity, gas and petroleum products which results in increasing cost of doing business.

•Electricity and gas subsidies must be extended to promote industries working in Sheikhupura.

•Natural gas is imperative for industrial development in Sahiwal which should be provided on priority basis as the gas is available just across the road.

•For provision of Gas connection to local industries in Gujrat, a Prime Minister directive was issue during Ch. Shujaat's Government but after change in government the issue was disappeared in files. It is strongly proposed that Sui gas being important input for wood seasoning plant should be provided on priority basis.

•To survive in the international market, cost of production should be minimize and to achieve this objective energy prices should be reduced or being provided on subsidized rates to the export oriented industries. Due to higher cost of production and tough competition with China and India, 11 percent and 33 percent decline has been recorded in garment and bed-lenin sectors respectively. It is proposed that government should immediately look into the issue and announce special measures for recapturing of these lost markets.

CUSTOM DUTY

•The meeting demanded to reduce rate of duty to zero on all raw materials not produced locally to enable the local industries to compete in international market.

•In bounding charges is a federal tax charged on goods parked at Bounded warehouse at the rate of one percent of C&F value of goods. This rate of tax was justified when rate of duty was around 100% to 150%. Now the rate of one percent on C&F value is very high and unjustified as the rate of duties have been reduced to 25% maximum. It is proposed that during first three months there should be no changes and incase goods are not cleared/released within three month then quarter percent tax may be charged.

•Some raw materials are highly over protected because of their strong lobby in Islamabad. Numbers of basic raw materials are still at 20% to 25% custom duty. According to cascading formula goods are divided into four categories for imposition of custom duty. It is proposed that formula should be applied in its letter and spirit large number of downstream industry could be benefited.

•Duty on agriculture machinery should be reduced to 0%.

PUNJAB ECONOMIC FORUM

•All the chambers agreed to constitute Punjab Economic Forum to communicate with government on issues being faced by trade and Industry. They unanimously elected Mian Anjum Nisal, Former LCCI President as their Chairman and Presidents of Faisalabad and Multan Chamber of Commerce and Industry were elected as vice chairmen.

•Engr. Sohail Lashari, Former SVP LCCI said that we should arrange trade fairs collectively and he appreciated the idea of Punjab Economic Forum and suggested Mian Anjum Nisar, as its Chairman. Two Vice Chairman from Central and Southern Punjab's would be included as office bearers. Presidents of Chambers would be executive committee members of the Punjab Economic Forum.

•Joint website of Punjab Economic Forum would be launch.

MINI BUDGETS

•Budget should be once in a year. Mini-budget, consistent revision of prices should be avoided, as businessmen cannot adjust its feasibility if government keeps on changing rules of game.

INFRASTRUCTURE

•Goods cleared from Lahore Dry Port could not be transported in daytime from Lahore to Sheikhupura, which results in delay of consignments. It was proposed that special arrangements should be made for transportation of consignments during day time.

•To encourage local industry and generate employment in the country government should ban export of wet blue leather. With proper planning and infrastructure more foreign exchange could be earned after its value addition.

•Industrial estate was established in Sahiwal during 1982 and many auto parts, foundries, motorcycle units are working without gas. It was proposed that proper infrastructure development plan may be chalked out and government should provide necessary funds for uplift of area.

•Rice Industry is progressing in Sahiwal and more than 100 factories have been set up during last two to three years. These units are also exporting rice to different countries. It is suggested that proper facilities should be provided to these rice exporters and funds from EDF could be allocated to these industries for infrastructure development.

•To improve food & packaging industry infrastructure facilities and subsidy may be extended.

TOOL TAX

•FWO has started changing Tool Tax near Kot Abdul Malik, this tax should be withdrawn as it is creating undue burden on industries working in Sheikhupura.

FAKE PRODUCTS

•Government should take immediate measures against producers of fake products as it is damaging the image of local industry. Strict implementation of rules must be ensured and laws should be amended to stop production and marketing of fake products.

EXPORT PROCESSING ZONE

•Export Processing Zone (EPZ) may also be planned at Sahiwal to promote local industries and encourage export based units.

•PSIC should expedite working on Industrial Estate in Gujrat, which was planned 15 years ago and extend support to pottery industry by installing new killans at Ceramic Institute at Gujrat, as present technology used is very old and waste a lot of energy.

AREA SPECIFIC PROPOSALS

•Electric Fan, Pottery and Furniture are three major industries working in Gujrat. All three are facing different types of problems. Engineering Industry is confronting with custom tariff and Sales Tax related issues, whereas furniture industry despite is high quality products needs support in exports sector. Keeping in view the potential of these industries it was proposed that proper incentives could be provided to furniture industry in shape of freight subsidy. Commercial Councilor can also play vital role in promotion of furniture industry. They may be requested to identify potential areas along with potential buyers in their respective countries.

•Furniture industry has big potential in international market. But due to lake of incentives it is not performing, as it should be. It is proposed that government should announce freight subsidy for the promotion of furniture industry. This industry also uses seasoning plants to improve quality of wood, which require natural gas. It is therefore proposed that Natural gas should be provided on priority basis.

MARRIAGE ORDINANCE

•Government through Marriage Ordinance excluded 450 billion rupees from circulation, which has resulted in industrial decline in the country. To revive industrial development, government should allow one dish in marriages.

ENVIRONMENT

•Effluent treatment plants are necessary to increase exports share in international markets as international buyers demands conformity of environmental issues. It is proposed that Government should allocate funds for treatment plants in Faisalabad and other important cities.

WORKERS WELFARE FUND

•Present limit of three lakh rupees for workers welfare fund should be increased to one million rupees.

CORPORATE TAX

•Corporate tax in China is 25% maximum, whereas, in Pakistan rate of tax is as high as 37%, which will come down to 35% in 2007. It is proposed that government should conduct a study to determine cost of doing business in our neighbour countries like India, China and Bangladesh and provide level playing field to industries working in Pakistan.

INFLATION

•Government increased mark up rate to control inflation in the country. But it is unfortunate to say that Inflation is still out of control and has reached to 18 percent according to unofficial figures, where its negative impact of industry has been very visible and hurting industrial progress. It is proposed that government should review its policy and reduce mark up rate to give the much-needed working capital to local industries.

TRADE POLICY

•Clear policy on trade with India under SAFTA should be adopted, the issue of Water reservoirs and up stream dams on Punjab Rivers must be taken up with India.