Economics & Business

Response of trade bodies on Budget 2011-12

President of Khyber Pakhtunkhwa Chamber of Commerce and Industry (KPCCI) Usman Bashir Bilour on Friday welcomed reduction of GST percentage from 17 to 16 per cent and termination of special excise duty. Addressing a press conference here soon after presentation of the federal budget on Friday , Bashir Bilour also hailed increase in taxable income from Rs 300,00 to Rs 350,000, but added that this amount should have been increased to Rs 500,000.

He said that special package should have been presented in the budget for the revival of terrorism battered economy of his province. In this regard, he added ,” our recommendations for the special package for revival of the terror-hit economy of KP should have been considered”. He said measures for overcoming the deficit should have also been announced.

He said that an amount of Rs. 2 billion reserved for industrial growth was meager as the private sector was providing around 48 percent jobs in the country. He said the government should also have announced measures to overcome the power loadshedding. He said the funds reserved for PSDP are around Rs. 300 billion, but this amount should not be reduced as was done in the outgoing fiscal when a cut of Rs. 100 billion was made on PDSP.

The Lahore Chamber of Commerce & Industry has said that the government has failed to give any economic revival plan in the budget, while mainly focusing the international monetary agencies’ instructions and ignoring the proposals of the local trade bodies and other stakeholders.

Addressing a media briefing after the presentation of the federal budget, the LCCI Senior Vice President Sheikh Mohammad Arshad said that the budget can in no way help achieve the proposed GDP growth target of 4.2 percent as it seemed that the document is prepared in haste. LCCI former Presidents Mian Anjum Nisar and Shahid Hassan sheikh also spoke on the occasion and gave their input of Federal Budget.

The LCCI Senior Vice President said that despite having knowledge of the gravity of the situation, the federal government has allocated meager amount of Rs 18 billion for new dams and water reservoirs. While pointing out the discriminatory approach, he said that out of all the eight Power distribution Companies (DISCOs) three major Punjab-based DICOs including LESCO, FESCO and GEPCO will not receive even a single penny relief from total subsidy of Rs 122 billion. The KESC alone would be enjoying a subsidy of Rs 24 billion.

No plan has been given for ensuring supply of gas to the industrial sector which will ultimately bring down production, he added.

According the budget document, the government would have to make heavy borrowing the bridge budget deficit that would lead to increase in inflation rate from 15 per cent to 25 percent thus rendering all Pakistani merchandise uncompetitive in the global marketplace due to high input cost.

The LCCI Senior Vice President Sheikh Mohammad Arshad urged all the Parliamentarians to play the role for cut in non-development expenditure. Financing of the deficit will heavily rely on borrowing from banks estimated to be around Rs.561 billion and around Rs.250 billion from national saving schemes. As a result of the persistence of borrowing binge of the government, around Rs.1 trillion will be paid in debt servicing which is more than 50 percent of the tax revenue target of Rs1.952 trillion. Total revenue collection is set at Rs.2.860 trillion which is rather ambitious given the economic environment in the country.

The business community’s confidence in the budget-making process is very low. This is partly because it is neither transparent nor is it based on a consultative process. IMF and multilateral development banks are wielding far greater influence in setting priorities for budget which are supporting economic revival.

Vice President Federation of Pakistan Chamber of Commerce and Industry (FPCCI) Fazal Elahi on Saturday said budget is not as per the expectations of the business community but it offers some hope. He welcomed the announcement of adding 2.3 million people to the tax net saying that if materialized, it will resolve many problems. It is not a difficult task as we have four million commercial electricity connections and millions of commercial gas connections in the country. Fazal Elahi said that issue of energy outages has not been given due attention which will result in missed collection and export targets and add to unemployment.

Talking to Dr. Murtaza Mughal, President, Pakistan Economy Watch (PEW) he said that measures for sustainable growth were avoided which disappoints many. The Vice President of the apex chamber said that no one can deny the presence of the black money in the country which should be channeled towards industry. He said that debt servicing eats up 1972 billion rupees which is a major threat in a situation where tax-to-GDP ratio is falling and less than 1 per cent pay taxes.

Fazl Elahi expressed disappointment over absence of relaxation on machinery imports and lack of incentives to the industry that is reeling under multiple pressures. He said that 25 per cent industry has been closed in Khyber Pakhtoonkhwa province and situation is not different in other parts of the country.

At the occasion, Dr. Murtaza Mughal said that exempted sectors like agriculture, property and services have not been touched in the budget which is unfortunate. Putting education and other critical services on the back burner will not help country fight war against terror, he said. He said that poverty is increasing which is pushing millions to send their children to seminaries where they get free education, food and boarding.

Dr. Murtaza Mughal said that budget hardly offer any relief for the poor or business community and has nothing to attract investment which was critical to arrest the rising trend of lawlessness and terrorism. Govt has again failed to raise taxes on the elite to cut an unsustainable deficit which has left us reliant on debt, he said adding that serious attempts should have been made to sort out economic issues. Budgets made for political survival is one of the biggest problems Pakistan is facing.

Chairman Coordination Federation of Pakistan Chambers & Commerce Industry (FPCCI) Raza Khan has said that the Federal Budget 2011-12 is full of contradictions and based on unrealistic assumptions that would not help the country, economy or masses in any way. In a statement issued he said, “The desired targets cannot be achieved in absence of any positive steps to mobilize resources.” The budget is a gift for the elite enjoying unjustified exemptions, he said adding it promised another difficult year for the poor masses and businesses. There is no chance to restore macroeconomic stability, create jobs or improve quality of life of masses in the next fiscal, said Raza Khan.

He said that growth rate had dived to 2.4 per cent, per capita income is stagnant, fiscal deficit is at 6 per cent, investments have dried up, external capital flow has stopped, inflation stands at 14 per cent, borrowings have crossed all limits while savings are declining. The issues of energy shortages, insecurity, instability, bankrupt public sector enterprises and struggle among political parties will continue to drag economy down in the next financial year, he added.

He said that the target to reduce the budget deficit to 4 percent is a daydream as steps to make it a reality were deliberately avoided by economic managers. Government will continue to push a monetary policy that chokes the productive sectors, it will be printing more currency without considering the impact on poor masses, he said.

Raza Khan said that some steps had been taken to improve banking services but nothing has been done to safeguard the rights of depositors who are getting negative returns since long.

The pace of economic reforms has not only irked IMF to a level where it has stopped disbursement but it amounts to punishing honest tax payers and masses to please nobility which is failure of the government, he said. The government will be unable to achieve any economic target set for the next year helping us to retain the honour of one of the slowest growing countries, he said.

KARACHI: The Karachi Chamber of Commerce and Industry (KCCI) has observed that though many of the proposals recommended by it have been accepted, still there are anomalies in the Federal Budget for 2011-12. These anomalies needed to be removed for the sake of economic growth. The office bearers of KCCI including President Saeed Shafique and former presidents jointly addressed a post-budget press conference at the Chamber.

The KCCI senior members told Pakistan Times that the budget proposals of the Chamber which were accepted by the Federal Government included abolition of regulatory duty on 342 items, removal of special excise duty of 2.5 percent, removal of Federal Excise Duty (FED) from 15 items and later its complete removal in next two years.

“Moreover, the GST rate was brought down to 16 per cent from 17 per cent; duty on pharmaceutical raw materials was brought down to 5 per cent; increase in wealth statement limit from Rs 0.5 million to Rs 1 million; basic exemption limit increased from Rs 0.3 million to Rs 3.5 million,” A senior KCCI member said.

Tax incentives have been given to promote investment, removal of exemption of agricultural and defense items and reduction in tax rates on cash withdrawal were made on Chamber’s recommendations, the KCCI office bearers said. Speaking on the occasion, President, KCCI, Saeed Shafique said that budgetary targets for next fiscal year 2011-12 are too ambitious and beyond ground realities.

Referring to budget announced on June 3, he said that the external receipts of Rs 414 billion were up by 43 per cent from the revised estimates of the current year. The Stand by Arrangement of 3.2 billion dollars with the IMF has not yet been finalised and it would not be possible to meet the budgetary programme loans of Rs180 billion with the support of the Fund.

The KCCI president also slammed the revenue collection target of Rs837 billion for next fiscal, up by 28 percent compared to the current fiscal. Referring to the financing of the budget deficit, Shafique feared that it would be near to impossible to meet the target through the proposed route.

Pakistan Industrial & Traders Association Front (PIAF) has said that the government has failed to give any solid plan in the Federal Budget 2011-12 to expedite industrialization and attract foreign investment in the country. In a joint press statement issued, Chairman PIAF Engineer Sohail Lashari, Senior Vice Chairman Nadar Kamal Osman and Vice Chairman Junaid Iqbal Sheikh said that relief for the government employees and reduction of 1% sales tax were good steps but these are just peanuts.

They said that government has to bring the untaxed sector into tax net to achieve the revenue target of Rs.1952 billion set for the FY 2011-12. They said that Pakistan was passing through a critical time of the history and facing historical economic crisis. They said that government dependence on external debts was proving costly, as the government had allocated Rs. 790 for debt servicing while this huge amount could be used for a number development projects.

The PIAF office-bearers said that government had allocated very little amount for new dams despite the fact that energy crisis had jolted the foundation of industrial sector. It is a matter of concern that despite having knowledge of gravity of the situation, government has ignored the issue of energy shortage in the country.

According the budget document, the government would have to make heavy borrowing the bridge budget deficit that would lead to increase in inflation rate from 15 per cent to 25 percent thus rendering all Pakistani merchandise uncompetitive in the global marketplace due to high input cost.

They said that financing of the deficit would heavily rely on borrowing from banks estimated to be around Rs.561 billion and around Rs.250 billion from national saving schemes. As a result of the persistence of borrowing binge of the government, around Rs.1 trillion will be paid in debt servicing which is more than 50 percent of the tax revenue target of Rs1.952 trillion. Total revenue collection is set at Rs.2.860 trillion which is rather ambitious given the economic environment in the country.

The government should focus on cutting non-development expenditure and improve the transparency of public spending and efficiency of service delivery in order to promote confidence among taxpayers. Instead, Increase public spending on energy infrastructure. Privatization of loss-making public sector enterprises (PSEs) like PIA, Pakistan Steel Mills, Pakistan Railways, etc. will stop leakages of public finances. In order to improve revenue generation, tax reforms should focus on removing discretionary powers of tax officials in order to check harassment, coercion and corruption while widening the tax-net especially covering the agriculture and services sector.

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Haroon Akram Gill

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