Interview with LCCI President
But no policy announced to reduce energy cost
LAHORE: The government has presented a good trade and industry friendly Budget 2020-21 in really challenging times when the economy has been adversely hit by the COVID-19 outbreak. However, no policy has been announced to reduce the energy cost that is one of the biggest reasons for high input cost. Demands for interest-free loans for registered small businesses and removal of withholding tax and end to advance tax at import stage have not been accepted.
Lahore Chamber of Commerce and Industry (LCCI) President Irfan Iqbal Sheikh expressed these views in an interview with THE CONSUL. Excerpts from the interview reproduced below:
Question: How do you perceive the Federal Budget 2020-21?
Ans: Federal Budget 2020-21 would pave way for collective efforts to cope with the ongoing and post-COVID-19 economic challenges. The government has presented a good trade and industry friendly Budget 2020-21 in really challenging times when the economy has been adversely hit by the COVID-19
outbreak. Various measures have been taken in the Federal Budget 2020-21 which would have a profound impact on the Economy and Businesses. The business community applauds the government for showing clear intent of promoting industrialization in the country because in the budget, custom duty has been reduced on 40 raw materials of various industries. Furthermore, the Government has reduced customs duty on 90 tariff lines from 11% to 3% and 0%. The
Government has also exempted additional custom duties on those tariff lines which are at 0% customs duty. In order to enhance the competitiveness of the Iron and Steel Industry in the country, the Government has reduced the regulatory duty from 12.5% and 17.5% to 6% and 11% respectively on Hot Rolled Coils. These measures are in line with LCCI’s Budget proposals and would help in making the local industry more competitive by reducing its input cost. The reduction in Federal Excise Duty on cement from Rs. 2 per kg to Rs. 1.75 per kg will help to boost the construction sector which would be the main source of employment generation in the post-covid-19 economic scenario as more than 40 allied industries are related to the construction industry.
Question: Exports play an important role in economic development and growth. Do you see any special measures taken by the government in the Budget?
Ans: Exports are the lifeline of Pakistan’s economy. A strong narrative for enhancing exports has been missing in the Federal Budget 2020-21. The Budget should be export centric, containing strong incentives for our industry to fetch more export revenues.
Before the Budget passed by the parliament, major allocations for the formation of testing labs for our export oriented sectors should be made. Also needed are special incentive for IT and Halal Food sectors as they can play an instrumental role in enhancing our exports.
Q:The government has increased the limit of purchase on CNIC from Rs 50000 to 100000. What do you say about it?
Ans: The CNIC condition has not been abolished as per the demand of the Business Community. CNIC conditions should be abolished in the future to facilitate the businesses.
Q:What is there for the SMEs in the budgets?
Ans: SMEs are the backbone of our economy. Some strong relief measures for the small & micro businesses are needed, including support for markup payments, rents for shopkeepers and extension in credit limits of existing businesses etc. These relief measures should be incorporated before the Budget is approved by the parliament. The Budget has also remained silent on reducing the energy tariff for businesses in Pakistan which is the highest in the region. We recommend that energy tariff for all the businesses should be capped at 7.5 cent per kwh in order to reduce their cost of doing business. The policy rate should be reduced further to 5% in line with the regional economies (e.g. India 4%, Bangladesh 6%, China 3.85%, Sri Lanka 5.5% and Malaysia 2%).
Q: What is your opinion about the revenue and economic growth rate targets set in the budget?
Ans: Unrealistic targets of 2.1% GDP growth and 27% growth in revenue without any no new tax has been given in the Budget, which cannot be achieved. No financial plan has been placed for the Covid-19-hit domestic trade and industry, importers, exporters, small and medium enterprises who have been severely affected due to the prolonged lockdown.
Q: Are you fully satisfied with the budget amid COVID-19?
Ans: The fundamental demand of reduction in sales tax from 17 percent to single digit was not accepted, as not a single percent cut in ST has been proposed in the budget. LCCI had submitted proposals with the federal government, urging it to come up with a relief-focused and tax-free budget in the face of Covid-19, but unfortunately no such announcement in this regard was made. No policy has been announced to reduce the energy cost that is one of the biggest reasons for high input cost. Demands of interest-free loans for registered small businesses and removal of withholding tax and end to advance tax at import stage have not been accepted.
However, reduction in regulatory duty on some smuggling prone items to keep these goods under legal imports is good, regulatory duty on several industrial inputs is also being reduced to reduce cost of doing business, tariff protection for domestic industry by increasing regulatory duty on import of those items which are also locally manufactured, incentivizing soap manufacturing industry by reducing rate of additional customs duty and enhancing scope of concessions available to Special Economic Zones.
Q: Has the government passed the relief extended by IMF and G-20 countries to Pakistan in the budget?
Ans: IMF and G-20 countries have already provided relief to Pakistan by deferring loans, but the government failed to pass on this benefit to the public. The government GDP target is not achievable as the entire world including Pakistan is going through an economic downturn, due to Covid-19. The government will have to revisit its calculations, as the virus keeps on spreading for the next few months.
The budget document did not give any solution to the business community for their tax refund issues, which must have to be resolved on priority basis. Such initiatives also result in job creation. Such financing helps businessmen enhance their working capital and better manage their inventory. The decrease in borrowing costs coupled with the decline in energy price may raise the exports in days to come. The cost of doing business and cost of production have shot up to the level of non-competitiveness. The cost of borrowing was huge and capital financing had become more expensive. A significant cut in discount rate would inject fresh blood into the industrial sector, which is facing a number of internal and external challenges.