June 04 - 10, 2007

The Karachi Chamber of Commerce & Industry (KCCI) has submitted its proposals for the budget 2007-2008. The objectives on which these proposals have been devised can be broadly seen as follows:

1. Making Pakistan a regional trade and energy corridor through free trade zones and creating a shipping and transit trade hub.

2. Achieving real progress in SME (Small Medium Enterprise) sector

3. Broadening the tax base by bringing non-tax paying sectors into national tax regime, reducing the number of taxes and to have greater focus on GST and Income Tax.

4. Reducing cost of doing business through measures in order to lower costs of utilities, infrastructure and lower tax rates.

The recommendations also discussed the general policy issues that are the main concern of the business and industrial zone, without which the economic growth may stall and if catered to can greatly enhance the capability of the commerce of our country. The issues comprising the following points:

(a) The present narrow tax base of less than 1% of total population can only be broadened through rapid expansion of the SME sector.

(b) Pakistan has virtually no re-export trade, due to antiquated and obsolete trade policies and procedures. Pakistan's business community is nonetheless very enterprising and capable of handling such trade and earning foreign exchange.

(c) A Free trade zone needs to be established at Port Qasim or existing EPZ needs to get converted to free trade zone to facilitate trading and warehousing on an international scale.

(d) Custom duty, 15% sales tax and withholding tax on import of industrial raw material substantially increase the cost of finished goods. In principle all raw materials imported for industrial consumption must have zero rate of duty and lower rate of sales tax to reduce cost of production and expand industrial output.

(e) As the cost of doing business is already high in Pakistan due to factors like high prices of land, high cost of utilities as well as others and it is recommended that the taxes other than GST and Income Tax should be phased out to reduce number of taxes and cost of collection. Port charges need to be substantially reduced to reduce cost of raw materials. Tax incentives need to be given to establish basic industries such as chemicals, petrochemicals etc to enhance competitiveness.

(f) To increase the number of registered tax payers, national tax number should be encouraged for all sectors and a three years amnesty should be given from audit for new tax payers.

(g) Excepting the textile industry, there has not been any development of value added manufactured products for exports mainly due to cumbersome duty and sales tax policies. It is proposed that all categories of industries which import raw material/accessories and are registered with the sales tax for three years should be allowed import of raw materials and accessories at zero rating of custom duty, sales tax and withholding tax.

KCCI has also proposed the government understand that the rate of sales tax (15%) is too high and acts as an incentive for evasion and smuggling and burdens the existing tax base. They proposed that the rate should be reduced to 10% to encourage tax culture and expand the tax base. On account of the Income Tax, KCCI proposed that the concept of tax credit should be introduced in place of exemption in tax policy. Several other detailed proposals are also supplied in the categories of Customs, Sales Tax, Federal Excise Duty and Income Tax.

The current proposal of rationalization of industry seems to be the right way to proceed. It states that the industrial policy should be formulated in the light of our aspiration for a sustainable and dynamic economic growth and our commitment under WTO. We need to develop strategy to get the maximum benefit from globalization. The country urgently needs to build and strengthen its local industry to protect it from measures such as anti- dumping, countervailing duties and subsidies by foreign governments hence creating unfair competition. An enhancement and improvement in the physical infrastructure needs to be fast tracked as well as a foreign direct investment strategy that encourages regular transfers of new technologies, modern management methods and practices and sustainable links to international markets. Government should assist in increasing research and development expenditure in public private partnership. R&D remains a major weakness in Pakistan and it is in this area that urgent focus is required. Measures need to be taken to rectify the dreadful conditions of the industrial estates, power shortages and breakdowns, water shortage, broken roads and overflowing sewerage lines.

In view of the above mentioned proposals which the KCCI has formulated, it is hoped that the government will look into the requirements and needs of the trade and industrial sectors and will follow the policies that will strengthen the base of our economy in future.