Daily The Business

Government doing all good things in bad ways, says LCCI SVP Khwaja Shahzad Nasir

M Jahangir Hayat

LAHORE: The government is doing all the good things in bad ways that has played havoc with the economic health of the country bringing the business activities to a grinding halt. No doubt the documentation of the economy, taxation and other structural reforms are a must in the long run, but the in the short-run the government should also be vigilant of the abrupt adverse effect of the reform policy.

In the first place the government should have extended relief to the masses including businessmen industrialist and traders and simultaneously it should have push up its reform agenda.

The recent hue and cry over the Rs 228 billion waivers to fertilizer,
CNG, power sectors also has spoken the volume of the transparency in the business of the government. In order to dismantle the impact of the impression the PM has cancelled the ordinance which is good but the question remains that how come the PM was ill-informed with the major happening in running the affairs of the government.

These views were shared by the Lahore Chamber of Commerce and Industry senior vice president (SVP) Khwaja Shahzad Nasir while talking to Daily The Business here at his office the other day.

He expressing reservations on taxation system said that fixed taxation regime and revival of self-assessment scheme should immediately be introduced.

Nasir said that Pakistan’s economy is at a critical juncture while the legacy of misaligned economic policies and the decision to enter IMF package recently, have resulted in significant economic challenges including devaluation, hike in Policy rate, soaring Inflation and shrinking of Economy in FY 2019.

“The structural weaknesses like burgeoning Fiscal Deficit, weak Tax Administration, loss making State Owned Enterprises (SOEs) and difficult business environment remain largely unaddressed. The Federal Budget does not talk about jobs, growth and the vision of a large economy. This scenario has created an environment of uncertainty for businesses and deterred them from working freely,” he added.

Without urgent policy action, economic and financial stability could be at risk, and growth prospects will be insufficient. In this
context, it is imperative to discuss reasons of uncertainty in the
economy and recommend viable policy actions to the government for removing this element of uncertainty and letting businesses work
freely.

He stated that that rupee devaluation, policy rate, inflation,
taxation System, elimination of SRO 1125 & Refunds to exporters, State
Owned Enterprises, investment and regulatory environment and gap
between revenue & expenditure are the most important areas to focus
on.

The government has to come up with a clear plan about outlook of
economy, especially the exchange rate to remove uncertainty among the
businesses.

He said that all raw materials must attract zero or low Custom Duties.

The government must eliminate Regulatory Duties (RD) and Additional
Custom Duty (AD) on Raw materials, so that local industry is able to
compete with smuggling and mitigate the effect of low tariff FTAs, the
LCCI SVP reiterated, custom duties (CD) on intermediary products
should be reduced so that the industry is able to import quality
materials, components and machinery from the rest of the world at the
same duty rate at which it imports through different FTAs.

The measures should be taken to make sure that Tax Collection from all
sectors is commensurate to their contribution in GDP, Nasir added,
highlighting the Agriculture Sector which is around 19% of GDP
contributes just 0.6% to Tax Collection while Services Sector which is
around 70 percent of GDP contributes only 30% to Tax Collection.

Sales Tax Rate of 17% is exorbitantly high and must be reduced,
pointed out adding that “overall, there is a need for overhauling of
Taxation System with competitive Tariff Regime that promotes
Industrialization, Tax Holidays for new Entrepreneurs, Tax exemptions
for BMRE, reduction in frequency & number of Taxes and Equality in
Taxation System where all incomes are treated and taxed equally”.

Nasir stated that the decision of the elimination of SRO 1125 should
be put in abeyance till an efficient system of Refunds is made, tested
and implemented.

The Government must lay down a clear plan about State Owned
Enterprises (SOEs) as they are eating up over Rs.400 billions annually
and this huge amount is being paid by the taxpayers, he suggested,
there is a need to review old regulations with a regulatory guillotine
and replace them with smart/prudent regulations for facilitating
Investors in overcoming persistent business regulatory environment
challenges e.g. registering a company, getting industrial electricity
connection, getting construction permits, resolving insolvency and
registering property etc.

While talking about the government revenue and spending a mechanism
has to be devised to measure the effectiveness of specific
expenditures and determine that which expenses are unnecessary and can be shifted to Private sector.

“The aforementioned mechanism should also allow Government to
determine which expenses can be undertaken efficiently by Federal
Government and which can be undertaken by the Provincial government,”
he believed.

Massive devaluation has resulted in confusion in private sector as it
is not aware of the extent to which Government would interfere to
stabilize the exchange rate, especially after entering IMF Program. In
this scenario, future planning is difficult for businesses he noted,
saying if the exchange rate is left on the market, it would have
negative repercussions for the economy.

He also talked about the hike in interest rates, by next year, would
push up borrowing cost to around 18-20% which would retard investment, capacity generation and hence exports.

“This scenario will trap our economy in a vicious circle. The
government should take steps to reduce the interest rate to a single
digit,” he urged the government.

To a query about inflation he replied that the Inflation rate has
increased exorbitantly in recent times i.e. from 5.8% in July 2018 to
10.3% in July 2019, owing majorly to hike in electricity and gas
tariff, devaluation and surge in fuel prices.

Nasir said that the Taxation System in Pakistan is complicated where
even the salaried people need advice to fill out their Tax Returns.
The Number of Tax Filers in the country is around 2.5 Million which is
just 4 percent of the Total employed Labour Force of 61.71 Million,
6.5% of the Non-Agriculture employed labour force of 37.95 Million
and23% of the Non-Agriculture employed Labour Force working in Formal Sector (10.62 Million).

The Tariff Structure is not competitive owing to exorbitant duties on
raw materials/industrial inputs, he said, saying further this promotes
De-industrialization and also hampers our export competitiveness. As a
result, the businesses community struggles to keep their nose above
water.

The elimination of SRO 1125 has created an uncertainty among exporters that their Refunds from 1st July onwards would be stuck for a long time as government has not put up an efficient system of refund
payments in place. This would result in squeezing of working capital
and make it difficult for businesses to even pay their salaries
prompting unemployment on a larger scale.

The condition of CNIC card for the business transaction should
immediately be removed to restart the wheels of the economic
activities in the country as most of the people have quitted business
and trade for the fear of uncalled for impediments at the hand of the
bureaucracy, LCCI SVP Khawaja Shahzad Nasir explained.

While  highlighting the importance of Lahore in Pakistan’s economy the
LCCI SVP said that the contribution of Lahore in the national GDP is
around 11 percent and it contributes around 20 percent to the economy
of Punjab while its contribution in Income Tax, Sales Tax and Federal
Excise collection is around 16%, 15% and 19

% respectively.

He said that as Pakistan aims to become a competitive economy in the
region and achieve a growth rate of above 7% to ensure sufficient
revenue generation and employment creation, it is imperative for us to
appreciate and honour the business community as they would be having a significant role in achieving this target.

He said that the Lahore Chamber is the premier business support
organization of the country with a diversified and dynamic membership
base.

He said that the LCCI members are actively engaged in socio-economic
uplift of our country through supply expansion, investments,
industrialization, employment generation and export growth.

He said that the Lahore Chamber is widely respected for taking a
number of steps for facilitating the business community and at the
same time organizing business supporting activities. He added that
Lahore Chamber houses NADRA Facilitation Center, LESCO Help Desk,
SMEDA Help Desk, Excise Help Desk, Driving License Center etc. where
members are provided all these facilities under one roof.

Nasir also said that Lahore Chamber has launched Employment Portal
which is proving helpful to our member firms for meeting their human
capital needs. He said that complete information about all the
registered exporters is uploaded onLCCI website so that firsthand
information like ‘who is exporting what’ could be obtained online.

The LCCI SVP also highlighted the role of Lahore Chamber in carrying
out Corporate Social Responsibility as LCCI has been generously
contributing for serving the humanity. He said that Lahore Chamber
regularly donates to hospitals and educational institutes and it also
patronizes an NGO called LABARD which focuses on rehabilitation of
disabled persons.

The LCCI SVP stated that Lahore Chamber has commenced the drive of
planting one hundred thousand trees through a Green Lahore Campaign in response to Prime Minister’s Initiative of Clean and Green Pakistan.
LCCI has signed MoU with Parks & Horticulture Authority to execute its
plan in a befitting manner, he concluded.

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