DISILLUSIONED with the governments’ policies over the past four years, industrialists have now stepped up efforts to persuade policymakers to accept their demands before the election year budget 2012-13 is finalised.
Many believe that it is the best time to make a move as the government is keen on wooing wide support.
The industrialists complain they have been neglected and even official commitments have not been honoured at times. Frustrated, they publicly demanded last week the removal of Deputy Chairman of Planning Commission Dr Nadeemul Haq and urged Finance Minister Dr Hafeez Shaikh not to finalise budget proposals without seriously consulting industry representatives.
“Unfortunately, Finance Minister Dr Hafeez Shaikh had set his own priorities and was unable to take interest in issues confronting industry and exports,” stated a business leader at a press briefing with business heads at the FPCCI last week.
The participants of the assembly, which was chaired by FPCCI President Haji Fazal Kadir Khan Sherani, were critical of the role being played by the deputy chairman of the Planning Commission as they believed that he was advocating policies which could only work in developed economies.
Rejecting Dr Haq’s notion “that food outlets bring more employment than industry,” the business representatives said that the manufacturing sector provides employment to more than 13 per cent of the labour force in the country, supports the growth of the services sector and generates 65 per cent taxes while contributing 20 per cent towards the GDP.
They also opposed Dr Haq’s desire to modify tariffs and end the SRO culture. While outrightly rejecting his ‘imported Western theories’, the participants were of the view that if domestic manufacturers are going to be subject to competition from foreign goods, then they should get some relief in customs duty on import of raw material.
The industry had previously demanded that the State Bank policy rate be brought down to a single digit.
The demand had not been accepted and inflation rates were soaring and non-performing loans were mounting.
Similarly, the industrialists demand that their sector be put in second position on the gas priority list, after domestic consumers but before the fertiliser sector (which gets gas on heavy subsidy), had not been accepted. A large number of textile processing units in Faisalabad and Karachi have closed down for want of gas, and industrial activity has seriously been reduced by prolonged and unscheduled outages.
The industry leaders also questioned the wisdom of putting upfront cost on import of capital goods by imposing sales tax and duty on import of plant and machinery as this was indirectly discouraging investment.
They however assured the government that no support will be ever given from the FPCCI or any other trade body platform to an individual or a group involved in tax evasion, unethical business practice or acts that hurt the documented economy.
Policy makers were additionally asked to revisit the sales tax (ST) regime. The double digit sales tax was believed to not only be encouraging tax evasion but also promoting corruption and providing momentum to the growth of the informal economy. It was said the high rate of sales tax was causing inflation, making domestic manufacturing activity uncompetitive and encouraging smuggling of cheaper consumer goods.
It was suggested that the ST rate be brought down from 16 per cent to a single digit. The multiple high rates of sales tax (starting from 16 per cent to 24 per cent) were considered more damaging to the national exchequer than to any one else.
Much of it went in refunds and fake invoices and hardly four to five per cent in real terms is collected by the Federal Board of Revenue (FBR).
Furthermore, participants opined that all eligible incomes should be taxed with no exemptions if the country’s economic sovereignty and national security have to be ensured. The tax-to-GDP ratio could not improve with tax exemptions to such sectors like agriculture with a share of 21 per cent in the GDP, they said.
Referring to the data collected by the FBR where a potential 0.7 million taxpayers were identified, business leaders asked why the FBR was not collecting tax when it had the details of evaders, adding that it suspected that the FBR was reluctant to do so as there must be politicians and bureaucrats on that list.
Another major issue which keeps the business community cash-starved is refunds and payments in exports, participants said. The government admits the entire export trade is zero rated but it fails to pay exporters sales tax refund and drawback on local taxes and levies (DLTL).
This not only reduces working capital but also hurts exports because export contracts cannot be met by a cash-stripped industry, says Shabir Ahmed, chairman of the Pakistan Bedwear Exporters Association.
“Under the Textile Policy 2009, for example, the government allowed DLTL of two and three per cent on bed wear and garments respectively,” he said, “but after two years it stopped giving drawback on local taxes and levies. The law says exports are zero rated but the government does not want to give our dues.”