Hafeez hints at new taxes, hike in power tariff
By Khaleeq Kiani
Thursday, 13 May, 2010
Addressing his first media briefing after becoming the prime minister's adviser about two months ago, Mr Shaikh identified five challenges facing the country — preservation of macroeconomic stabilisation, securing assistance from foreign partners and domestic and international investors, getting out of the worst situation and ensuring a broad-based growth, managing energy shortages in the short term and prioritising subsidies.
He said the country had to move towards an outward-oriented economy and take advantage of a regional boom taking place in the Middle East,
In reply to a question, the adviser said that if revenue generation was not enough to meet the targets then the only option would be to go for a follow-up programme of the International Monetary Fund (IMF) for paying loans. "You may have to consider… IMF can be a source," he said and added that it did not require a finance minister to conclude that improvement in revenue was not possible overnight.
In reply to an observation that in the heat of a debate on value added tax, the government was sidestepping earlier announcements of imposing taxes on real estate, agriculture and capital markets, he said the government was going ahead with the VAT regime and would also improve the tax base through other measures and coverage of new areas.
About a six per cent increase in electricity tariff committed with lending agencies, he said the step would be taken but its timing had not been decided.
The IMF executive board will meet on Friday to review
Mr Shaikh said the imposition of the VAT was not the only but one of many conditions under the IMF programme. He expressed the hope that the remaining tranches of the IMF programme would remain unaffected.
Talking about recommendations of the Pay and Pension Commission, the adviser said it had been decided that civil servants would be compensated for increase in prices and their housing and transport allowances would be monetised from next year.
Mr Shaikh said the National Finance Commission award had stipulated that tax on services would be in the provincial domain and tax on goods in federal domain. He said the award also envisaged that a province would have the right to collect VAT on services or empower the federal government to make the collection on its behalf.
The Sindh government wanted to collect VAT on services and there was nothing unusual or unreasonable about this demand. However, there was a desire for efficiency to allow the federal government to collect VAT on services for a certain period till collection capacity was developed in the provinces, Mr Shaikh added.
Finance Secretary Salman Siddique said he was under commitment not to disclose the details of talks between Sindh and the centre on the issue, but "some breakthrough may have already been achieved".
He said the government also had backup plans and hopefully the issue would be resolved amicably.
The Federal Bureau of Revenue's Chairman Sohail Ahmed said initial estimates suggested that there might be a transaction cost of replacing the general sales tax with VAT. He said a Rs50 billion loss was expected because of reduction in tax rate from 16 to 15 per cent in case of VAT.
He said certain items of common use like wheat and its byproducts, rice, pulses, vegetables and loose milk would be exempted from VAT.
Mr Shaikh said the dimensions of fiscal management had changed after the 18th Amendment, NFC award and abolition of the concurrent list. He said provincial fiscal management would have to be improved because the provinces' responsibilities had increased.
15pc duty imposed on yarn export
By Kalbe Ali
Thursday, 13 May, 2010
Decision to this effect was taken at a meeting of the Cabinet Committee on Textile chaired by Finance Advisor Dr Abdul Hafeez Sheikh in the finance ministry.
"The apparel, linen and other sectors were drying up due to non-availability of yarn and serious reports have been received from key textile centres of the country," Textile Minister Rana Farooq Ahmed informed the committee meeting.
He said that complaints had been received that the export orders could become uncompetitive if local yarn prices continued to climb.
The committee observed the latest situation regarding the production, export trends and availability of yarn for the value-added textile industry and the effectiveness of the existing yarn quota regime and decided to withdraw all quotas.
The committee was informed that almost all the cotton stocks from 12.7 million bales produced last season had already been consumed.
Zahid Bashir, Member Karachi Cotton Association, told Dawn that due to short supply and high demand the cotton prices had risen to Rs6,700 per 40 kg from Rs3,250 in September-October last year.
Meanwhile, chairman Karachi Cotton Brokers Forum, Naseem Usman said that ginners were holding just 40,000 to 50,000 bales and due to pressure on supplies there were strong rumours in the market that the government may ban yarn exports.
"The cotton prices have declined to Rs6,700 per 40kg from Rs6,900 a few weeks back and further easing of cotton prices was expected after the government decision of imposing duty on yarn export.
An official of the textile ministry said that three categories of yarn were being exported mainly to
In wake of rumours that ban or regulatory duty might be imposed on yarn exports, its prices declined by around Rs60 per bundle during the last one week. The industry players expect yarn and cotton prices to decline further in coming days.
The committee meeting was also attended by Federal Minister for Food and Agriculture Nazar Muhammad Gondal, Federal Minister for Industries and Production Mir Hazar Khan Bijarani and Deputy Chairman Planning Commission Dr Nadeem-ul-Haq.
High inflation: No hope for easing of monetary policy
By Shahid Iqbal
Thursday, 13 May, 2010
The inflation for April as announced by the Federal Bureau of Statistics on Wednesday was 13.26 per cent, an increase of 1.73 per cent over March.
The high inflation also indicates that the State Bank would not be able to keep the main inflation within its target nor it could control the monetary expansion expanding beyond its annual target.
Oil and energy prices were the leading factors for inflating the economy but the biggest hit of inflation was the food prices, which ultimately contributed to soaring inflation.
The State Bank expects to keep main inflation (CPI) at 12 per cent for the current fiscal but the April inflation looks much higher than its expectations.
Most of the analysts said the inflation could be over 13 per cent by end of the current fiscal. There was almost consensus among the analysts that the discount rate would remain unchanged as the State Bank is not in a position to take risk at this level with high inflation coupled with greater monetary expansion.
"Due to inflation being consistently high (hovering around 13 per cent in the second half of current fiscal so far) leading to negative real returns and over 8 per cent money supply growth advocate for no cut in upcoming monetary policy statement," Khurram Shahzad, head of research at Invest Cap told Dawn.
Instead, though with low probability, the re-emergence of high government borrowing from the central bank may compel it to contemplate over extending the tightening phase, he said.
"However, external account has done lot better this year to support the local currency, which has prevented inflation from going out of hands," said Shahzad.
If the tight monetary policy prevails for another couple of months it may hurt economic growth as the high cost of borrowing forces the economic expansion to remain subdued.
The economic growth has been a victim of higher interest rate and tight monetary policy as it did not allow the private sector to play its key role in the growth. However, despite this tight monetary policy the private sector finally entered mostly in the second half of the current fiscal and borrowed heavily, which helped the Large Scale Manufacturing (LSM) to come out from negative 14 per cent growth to a positive column giving hope for a 3 per cent economic growth rate in this fiscal.
"I believe that the SBP would keep a balance between short-run inflationary shocks (mainly cost push) and economic growth," said Kamran Rehmani, researcher at First Capital Equities.
He said the increase in prices of POL products by 3-6 per cent escalated transportation and communication index notably in April 2010, which year-on-year basis surged by 20.5 per cent.
Rising transportation charges caused trickledown impact in food and vegetable prices, which fuelled the overall inflation.
He said the food index (40.34 per cent weightage in CPI basket) also grew by 201 bps month-on-month, while year-on-year basis food index is up 14.6 per cent.
No trading on cotton market
By Our Staff Reporter
Thursday, 13 May, 2010
However there was no official word on the ancillary industry's demand of banning cotton yarn exports, the market sources said.
The ministry of textile may be in the process of evolving a formula to ensure yarn availability to the industry amid feelers that the strike would continue indefinitely, they added.
Meanwhile, leaders of the textile sector were also thinking of a shutdown to press for their demands and analysts fear the situation is turning into a crisis.
"It is an ugly situation sending negative signals on the export front," they said and added that foreign buyers may switch to other supply sources if the tussle prolongs.
In the absence of any buying enquiry, the official spot rates were again held unchanged at Rs6,700 per maund.
But on the other hand the New York cotton futures were marked down by 0.51 and 1.34 cents for both the ruling July and the forward October contracts at 80.53 and 77.80 per lb respectively.
VAT has to be implemented: National Assembly body tells trade representatives
ZAHEER ABBASI
ISLAMABAD (May 13 2010): The National Assembly standing committee on finance told the representatives of the chambers of commerce and industry that the government would implement the value-added tax (VAT) because it had no other option to expand the tax net and generate required revenue to run the country.
"We all have to pay the taxes, otherwise it would become difficult to run the country" Shahid Khaqan Abbasi of PML (N) said plainly in response to the concerns expressed by the representatives of the chambers of commerce from
President of RCCI, Kashif Shabbir, said that general sale tax (GST) was major contributor to the Federal Board of Revenue collection and any change in it would have adverse effect on the revenue. He said inflation would increase about 10 percent with the implementation of VAT as a number of food items presently exempted from GST would no longer be exempted under VAT. He suggested that instead of imposing VAT the government should remove discrepancies from existing tax system, and replace PRAL with an efficient system. Shabbir said that tax on agriculture should be imposed and smuggling should be curtailed.
The representative of Karachi Chamber of Commerce of Industry said that inflationary impact of VAT on general items would be over 18 percent. He pointed out what he called that officials of the land revenue have been given the power of harassment in the VAT. According to him, for this purpose of recovery of unpaid amount of tax recoverable under this Act, the officer of Inland Revenue shall have the same powers which a
They said that the law says where any amount of tax is due from any persons, the officer of Inland Revenue authorised by the Board or Commissioner in his behalf, may take all or any of the following actions to recover such amount.
The committee members agreed to look into all issues pointed out by the business community prior to the approval of the VAT which is presently being discussed in the committee. However, all members of the committee were in agreement that there is urgent need to increase the tax-to-GDP ratio for less dependency on foreign donors.
Shahid said that it is not optional but mandatory for every citizen to pay the tax, but regretted that no one has been willing to pay tax in
Chairperson of the standing committee, Fauzia Wahab, said that the meeting with business community on VAT had been very productive, and also identified anomalies in the bill. "We will work on removing these anomalies," she said, adding that VAT will introduce a uniform tax system. She was also in agreement with the representatives of chambers of commerce over identification of exemptions, improvement in refund system, and giving incentives to small traders. She said that Public Sector Development Programs (PDSP) could be strengthened only when tax culture prevails in the country.
Copyright Business Recorder, 2010
No integrated VAT levy will be a problem: World Bank's John Wall says....
ZAFAR BHUTTA
ISLAMABAD (May 13 2010): "If the government of Pakistan fails to implement integrated Value Added Tax from next financial year, it will be a problem for us," Country Manager World Bank John Wall said during an informal press briefing, adding that, however, if Pakistan gives credible reasons for failure to implement VAT, World Bank shall continue its assistance programme.
Differences between federal government and Sindh over mode of VAT have clouded the picture, Wall added. He emphasised that VAT would assist the government enhance its low tax base. Tax to GDP ratio is very low in
He said documentation at each input/output stage would increase the number of taxpayers as was happening in other countries like
He claimed that the World Bank had suspended IBRD loan facility due to debt payment crisis faced by
"The government is required to improve market infrastructure for power sector as Pakistan Electric Power Company (Pepco) is clearly not able to do its job," he said, adding that as cash flow is a big problem for power companies, some other institution may be established to manage cash flow. He added that power tariff determined by Nepra was higher than the power tariff being charged and urged the government to improve the efficiencies of power distribution companies to reduce their losses.
There are anomalies in power sector as different ministries such as Water and Power, Petroleum and Finance are fighting each other, he said, adding that the government has to focus on ensuring smooth operation of power system. He said the government should appoint independent and competent managing directors in public sector entities having capacity to reduce losses.
"
He said the government should not intervene in price of wheat. "The government should announce the real support price keeping in view the market price," he noted. "You don't need big money for dams, you can start from farmers," he said, adding that the government of
"There is need to improve governance, make land records transparent and accessible, reform civil service, develop mineral and natural resources and put in place regulatory framework for developing mineral and natural resources in areas of Balochistan, Sindh and Punjab," he said.
He said hydropower sector in
After 9/11
Copyright Business Recorder, 2010
15 percent regulatory duty slapped on yarn export
TAHIR AMIN
The decision was taken after the fourth marathon meeting of the Cabinet Committee on Textiles held here with Hafeez Sheikh, Advisor to Prime Minister on Finance in the chair. Sources told Business Recorder that the committee deliberated upon the latest production, export and availability of yarn for value added industry.
The effectiveness of the existing yarn quota regime was also assessed. It was unanimously decided that immediate measures will be taken for improving the availability of yarn in the domestic market. After careful consideration of the available options and the factors contributing to short supply of yarn affecting value added exports, the committee took following decisions:
a. A Regulatory Duty of 15 percent will be imposed on export of all types of yarn with immediate effect. This will be effective for a period of 60 days.
b. For the purpose of imposition of the Regulatory Duty, the value of exports will be assessed at the average unit value of same exports during the last three months, preceding the month of export.
c. The quota restrictions on exports of yarn imposed vide SRO No 119(I)/2010 and 279(I)/2010 will be withdrawn.
Sources revealed that the body has taken such a decision, which is likely to favour both the stakeholders and may normalise the situation to some extent. The decision is likely to resolve the on-going yarn crisis, which had compelled value-added textile sector to go on strike.
During the Cabinet body meeting thorough discussion was held on the proposals tabled by All Pakistan Textile Mills Association (Aptma) and value-added sector. Value-added sector had submitted two proposals in their last meeting to the textile ministry. They had proposed the government to impose ban and slap 25 percent RD on the export of yarn.
However, the Aptma representatives had threatened to go on strike if ban was imposed on the export of yarn. The government was left with no option but to impose RD, sources maintained.
The meeting was also attended by Rana M Farooq Saeed Khan Federal Minister for Textiles, Nazar Muhammad Gondal Federal Minister for Food & Agriculture, Mir Hazar Khan Bijarani Federal Minister for Industries & Production and Dr Nadeem-ul-Haq Deputy Chairman Planning Commission among others.
Value-added textile units' strike continues
RECORDER REPORT
Only one labour rally was taken out in the city and protestors raised slogans against the government and demanded that the export of cotton and cotton yarn should be stopped immediately to save the livelihood of the 2.5 million family members in the country.
Mushtaq Khan, central chairman and Naeem Ahmad, regional vice chairman of PHMA, led the joint protestation of workers and industrialists at Millat Road Industrial area. Addressing a meeting of action committee of value added textile sector, they said that that scarcity and non-availability of cotton yarn in the market has endangered millions of dollars worth export orders of home textile, made-ups and fabrics.
Not only the cost of finished goods has increased due to non-availability of yarn in domestic market "but also we have became uncompetitive in international markets due to high production cost," they added.
Talking to newsmen, Khurram Mukhtar, chairman of Pakistan Textile Exporters Association, said that under the garb of free trade and marketing, "we are exporting our raw material to our regional rivals while strangulating the home industry and strengthening our competitors". All over the world, smooth supply of essential raw material at cheaper rates for domestic industry is ensured in order to sustain the home industry and to provide employment to labour force of the country, he contended. For this purpose, the export of raw material is regulated and restricted, he added.
He said that Indian government has banned export of cotton to safeguard its upstream value-addition industry, and
Sohail Pasha, vice chairman of PTEA, said that value-added textile sector is the most labour-intensive textile sector employing more than 18 million workforce and also large number of ancillary sector. Hence, the survival of the value-added sector is in the greater national interest. He said that trade deficit is economy's core issue and the value-added textile industry is the only sector in
Mushtaq said that although the government had capped the export of cotton yarn, effective implementation was not monitored and desired results could not be achieved. Naeem said that the government should take cognisance of the serious situation resultant upon the closure of knitting mills and joblessness of the workers. Muhammad Shafiq of sizing sector warned the government to take immediate measures regulating the textile sector raw material otherwise large number of industrial units would be shutdown and thousands of labour and their families would be deprived of their bread and butter.
Aftab Ahmad, central chairman, and Ajmal Farooq, regional chairman of All Pakistan Textile Processing Mills Association, called upon the authorities not to ignore this important sector of the economy. Chairman of Council of Loom Owners, Waheed Khaliq Ramay, urged the government to redress the situation. The trade leaders demanded total ban on export of cotton and yarn.
In
According to Asim Shah, the meeting will recommend ban on thread export in view of hardships faced by the value-added sector. Welcoming the notice taken by the Cabinet, industrialists and labourers of value-added sector decided not to take to the streets and wait for the decision of the textile committee.
Asim said protests would be held in case no steps were taken to save the value-added sector. Civil disobedience movement is also on the cards, he added. Meanwhile, protest camps of labourers are intact outside the mills. More than 60,000 power looms and textile value added units remained closed as workers & owners of powerlooms observed strike, organised rallies and set up hunger strike camp to press the authorities for their demands.
Khaliq Qandeel Ansari Secretary General of All Pakistan Power Looms Association said that chairmen of at least 16 value added textile associations including Pakistan Apparel Forum (PAF), Towel Manufacturers Association, Council of Loom Owners Association, Pakistan Textile Exporters Association, Pakistan Cloth Merchants' Association, All Pakistan Sizing Industry Association, Pakistan Cotton Power Loom Association, All Pakistan Textile Processing Mills Association, Pakistan Knitwear and Sweater Exporters Association, Pakistan Hosiery Manufacturers Association (PHMA), Pakistan Denim Manufacturers and Exporters Association, All Pakistan Bed Sheet & Upholstery Manufacturers Association, Pakistan Readymade Garments Manufacturers and Exporters Association (Prgmea) and Pakistan Cotton Fashion Apparels Manufacturers and Exporters Association (PCFA) are unanimous in observing the strike.
Copyright Business Recorder, 2010
Hafeez doesn't rule out another IMF loan
RECORDER REPORT
"This is not unusual to go into lending programme to pay the money back," he replied to a questioner who asked whether
He said that a 6 percent increase in power tariff was imminent due to increase in production cost. However, it was not decided yet whether power tariff would be increased from April 1. Hafeez Sheikh said the delay in power tariff increase was costing Rs 8 billion per month to the exchequer.
While sharing the problems and challenges, he said the good international alignment, mature political situation in the country and successful stabilisation programme was providing a launching pad for sustainable and broad-based economic growth. How to benefit from this because without macroeconomic stabilisation is the real challenge, which means balance in revenue and government expenditure, the other things could not be done.
The advisor said another problem is to create conducive environment to attract the private investment through rationalisation of tax, ensuring transparency and an end to red-tapism. He said there was also a challenge in terms of infrastructure and the government was working to solve the problem by taking urgent measures.
The advisor referred to the measures taken recently in this regard at energy conference. The subsidies to the inefficient institutions that are running in losses have also been a major problem holding entire economy hostage. According to him, Steel Mills is losing Rs 1 billion monthly and was operating at only 26 percent of its capacity.
Hafeez Sheikh said upcoming budget would be the first in a changed economic situation with reorientation of relations between provinces and Federation after the 7th National Finance Commission Award and passage of 18th Constitutional amendment.
He said the issue of VAT between Sindh and federal government would be resolved according to the needs of both the sides. The advisor said pay increase of government employees would be as per the recommendations of the Pay and Pension Commission.
Copyright Business Recorder, 2010
July-March LSM registers four percent growth
RIZWAN BHATTI
KARACHI (May 13 2010): Large Scale Manufacturing (LSM) posted a healthy growth of over 4 percent during the first nine months of current fiscal year mainly due to rising demand on domestic and international front. Official provisional statistics of Quantum Index Numbers of Large Scale Manufacturing Industries, issued by the Federal Bureau of Statistics, revealed that LSM sector, which presented worst performance for last two years, has started growing smoothly.
According to the FBS statistics, the LSM sector grew by 4.36 percent during the first nine months (July-March) of fiscal year 2009-10. In absolute terms, LSM posted a growth of some 8 percent during the period, as its growth was 4 percent negative by end of FY09 and now it has not only reversed the negative growth but also posted a strong growth of some 4.36 percent.
"This could be attributed to gradual easing in monetary policy and fiscal support as well as the impact of increase in farm incomes," economists said. They said healthy growth of LSM is a positive sign for the country's ailing economy besides it would also help achieve 3 percent economic growth target, set by the government, for the current fiscal year. With 4.36 percent growth, overall QIM index has reached 203.46 points in July-March of fiscal year 2009-10 from 194.96 points in same period of last fiscal year 2008-09.
Major share in this growth has been contributed by the Provincial BOS, which witnessed 7.42 percent growth from 201.13 points to 216.05 points. While, month on month basis it registered a growth of 20.63 percent in March 2010.
Industry data also presented a strong and positive outlook and overall it went up by 3.4 percent in first nine months and some 8.08 percent in March 2010. However, oil sector presented a dismal performance as the OCAC index declined by 5.9 percent to 149.39 points from 158.76 points in July-March of fiscal year 2009-10.
Month on month basis, LSM indices witnessed a growth of 12.17 percent to 222.77 points in March 2010. On cumulative basis, cement, automobiles, leather, rubber and electronics were a few sectors that recorded net improvement in production. The production of furnace oil, kerosene oil and LPG fell by 17.22 percent, 18.39 percent and 5.38 percent, respectively, while the jet fuel oil and motor sprit surged by 0.68 percent and 4.61 percent, respectively during the July-March of current fiscal year.
In addition, production of sugar, cigarettes, cotton yarn, caustic soda and billets registered a decline of 3.47 percent, 11 percent, 1.76 percent, 22.47 percent and 15.25 percent, respectively during the first nine months of current fiscal year, while soda ash, tractors, cement and motorcycles production increased by 12.31 percent, 26.87 percent, 11.21 percent and 58.23 percent, respectively. Similarly, production of vegetable ghee, wheat and beverages posted a decrease of 2.49 percent, 3.31 percent and 18.26 percent, respectively.
Copyright Business Recorder, 2010
Collection of sales tax on services: Sindh likely to become hostage to IMF diktat
IQBAL MIRZA
The award and its improper conversion into presidential order continues to remain the complaint of the government of Sindh. The vertical increase in the provincial share primarily benefits
The NFC requirement was transported as a presidential award to allow the province to generate its resources by levying and collecting the tax on services. Sindh government thought that it could increase its resources and compensate itself in the agreed accord which did not provide Sindh any advantage to claim as to its persistent claiming to be the major source of revenue generation. This source of revenue generation was on account of geographical advantage of having ports and the concentration of services in metropolitan
Sources said that the 18th Amendment also makes it clear that federal legislative list would allow federation to collect all taxes except tax on services. The constitutional position is also clear for the last four decades that tax on services is a provincial domain. However, federal government was collecting all the taxes regardless of the constitutional provisions for the provinces to collect tax on services. It was during the tenor of the government of General Pervez Musharraf that provinces were asked to issue ordinances to empower the federal government to collect tax on services on their behalf to circumvent the constitutional supply that tax on services is the exclusive purview of provinces.
The Federal government through IMF dictate has been able to convince the top politicians that insistence of Sindh to collect the tax on services will destabilise the proposed VAT bill (law) integrating goods and services for value-added tax. FBR Chairman, time and again, has been saying that if Sindh is allowed to collect tax on services, it may become difficult to implement the present VAT law. Top hierarchy, it seems, has been convinced and they appear to be least bothered with the demand of Sindh to allow it to have its own taxation machinery to collect the tax on services.
The Federal government had sent Sindh government a bill for enactment to allow the federation to collect tax on services on behalf of the province, which will become part of the distributor revenue as per NFC. The standing committee of finance in Sindh Assembly has now two bills: one from the federal government to allow FBR to collect services tax on behalf of Sindh; and the other to allow and statute the province to have taxation machinery to collect the tax on services.
One critic said that during autocratic regimes Sindh perforce had to accommodate governors, politicians and bureaucrats from the federal government to run the affairs of Sindh. It is most unfortunate that even in the democratic governments of same party at Sindh and at Federation level Sindh cannot decide to invoke its constitutional jurisdiction to levy and collect the taxes.
The Chief Minister of Sindh and the bureaucracy from Sindh is shuttling between
Independent analysts from Sindh, talking to Business Recorder , said that infact the only win-win situation for Sindh in NEC is the right recognised to collect sales tax on services. If this is denied to Sindh, then 7th NFC is meaningless. Econometrics and arithmetic says that in fact Sindh has lost 0.5 percent as such it will emerge as a major loser if it is not allowed to levy the tax on services and collect the same.
For too long Sindh's base has been used to finance the entire country while those living here get a small part of these revenues. Sindh realises clearly that it is only through some fiscal autonomy that it can improve its resource pool to facilitate better service for its people.
Sources said that sales tax on services is a provincial domain but for the last over 40 years this right has been encroached upon by the federation, in one way or the other. The Federal government has been levying and collecting central excise on services but subsequently realising the situation the provinces were asked to allow federal government through ordinance on sales tax on services, continued encroaching upon the rights of provinces. The Federal government retained rights to collect tax on services, which are distributed on the basis of population. Billions of rupees collected from Sindh through this provincial tax had been transferred to other provinces.
Octori and Zila Tax was abolished; Sindh used to collect 46 percent of this octori and Zila tax. However, the federation worked out the distribution of 1/6th of sales tax in such a manner that again 50 percent of the share was being given to Punjab, claimed an economist from Sindh, against the share of
A nationalist from Sindh said that we would be very happy to confirm that the People's Party itself is encroacher on the rights of its own province, and from here our politics will start to tell the people that they have selected wrong party and probably they would understand to comeback to us. The future of Sindh rests with the power invested with nationalists so that they are not under any compromising position, as presently Sindh government may be due to the same party government at Federal level.
Another economist from
"I think it is the government itself which has been misled by Federal bureaucracy. There will be backlash for People's Party on this account as it is already feeling the weaknesses due to not being up to the mark in matters of nine-point agenda of economic strengthening it had declared at the time of take over."
He said that the province would not forgive historical injustice if not allowed to collect its tax on services. No amount of commitment with donors can have more sanctity that the constitution. He said that provincial autonomy is meaningless without fiscal autonomy and the same party's governments at province and federal level are conniving for just short-term needs and not the long-term needs of the vote bank, which is already aggrieved since the hanging of Zulfikar Ali Bhutto.
He said it is shocking that federal VAT bills have been drafted in a manner which takes away from the province the right over services and under these bills role of provincial government has almost been limited to promulgation of act only, as in the case of existing provincial sales tax ordinance 2000.
Another economist, conversant with the VAT bill, said that this bill involves a very complex system of input and output adjustment in such a way that it becomes impossible to ascertain what goods are and what are services. The right of interpretation lies with the Federation. Under the garb of ancillary and incidental services many other services will be interpreted to be goods.
A source in the finance department of Sindh government said that most importantly Sindh wants to collect the tax but it is unfortunate that federation is talking about provincial autonomy but at the same time taking away from provinces what is there's since last six decades.
The 7th NFC was signed in Gawadar on December 30, 2009. President signed the NFC Awards on 18th March and Gazette was issued on 23rd March. The presidential order Gazette provided exclusion of the two most important agreements of 7th NFC. The recommendations relate to the "Multiple Criteria" and "Sales Tax on Services".
It was on tie basis of these recommendations that Sindh agreed to the overall NFC Award and hence their deletion from the President's Order is a major deviation from the NFC recommendations. "It was agreed with consensus, for the first time, to include multiple indicators in the criterion for horizontal distribution amongst the provinces.
The multiple indicators and their respective weights as agreed upon are:
i. Population; 82.0 percent
ii Poverty/backwardness: 10.3 percent
iii. Revenue collection/generation: 5.0 percent
iv. Inverse population density: 2.7 percent
On the issue of Sales tax on Services, there is a specific recommendation in the 7th NFC Award which reads: "NFC recognises that Sales Tax on Services is a provincial subject under the Constitution of Pakistan, and may be collected by respective provinces, if they so desire".
The deletion of both these recommendations is a major deviation from the entire "letter and spirit" of the NFC and is contrary to the interests of Sindh and both these need to be incorporated fully in the President's Order but months have passed and it appears that the province doesn't have any bureaucrat agents to help the province as Punjab bureaucracy is fully seized of ministry of finance which gives a reason that in the lead and economic ministries all the provinces should have equal bureaucrats so that the mindsets are helpful in retaining the interest of the provinces dispensed through most important decision making ministries.
Sindh has been chasing for inclusion of above exclusions at all levels and Dr Kaiser Bangali has been moving to capital sitting with finance ministry, law ministry and name any place which he has not visited but things remain same as of today. The formation of committee after the dashing of Chief Minister to the capital on 7th May 2010 would lead to believe that still Sindh has to structure the languages of painful complaints which have been appearing in the newspapers from time to time including walk out of the secretary finance from the meeting of revenue advisory committee.
Copyright Business Recorder, 2010
Mills inactivity, value-added units strike keep cotton market dormant
RECORDER REPORT
KARACHI (May 13 2010): Mills did not show any interest in fresh buying due to higher prices on Wednesday, dealers said. The Karachi Cotton Association (KCA) official spot was unchanged at Rs 6700, they said. In the ready business no deal was reported as ginners showed no flexibility in their attitudes. Yarn prices also came down mainly because of downward trend in the international market, they said.
Commenting on the present trend in the market, some analysts said that mills were on the sidelines due to higher prices and mainly because of strike by the value-added sector. Naseem Usman said that the world over, including Pakistan cotton sowing is being increased by 12-14 percent to meet the demand and also to bring down the prices to a certain level. He also said that Regulatory Duty on the yarn is also expected to overcome the rising crisis and to meet the local demand.
It is reported that
West African cotton production has been hard hit in recent years by slumping global market prices, which have made regional growers uncompetitive. On Tuesday the NY cotton futures settled easier on sales by small investors as the market digested release of a government crop report, analysts said. The benchmark July cotton contract slipped 0.51 cent to conclude at 80.53 cents per lb, trading from 80.50 to 81.90 cents. Volume traded in the July contract stood at 7,742 lots at 2:31 pm EDT (1831 GMT). New-crop December shed 0.10 cent to end at 76.30 cents, ranging from 76.05 to 76.67 cents.
Copyright Business Recorder, 2010
Volume traded in the July contract stood at 9,553 lots at 2:32 pm EDT (1832 GMT). New-crop December rose 0.99 cent to end at 77.29 cents, ranging from 76.30 to 77.45 cents. Jobe Moss, an analyst for brokers and merchants MCM Inc in
He said the spread business between July and December would be the main feature of market activity as players adjust their positions. The jockeying would also help shed light on how ICE Futures US certificated cotton stocks which now stand at 1.061 million (480-lb) bales would be disposed of.
The market will be taking a look at the weekly export sales report from the US Agriculture Department, which is due out on Thursday. Cotton brokers believe total
Brokers Flanagan Trading Corp put support in the July contract at 79.60 and 78.75 cents, with resistance at 80.50 and 81.35 cents. Volume traded Tuesday reached 16,812 lots from the previous tally of 12,982 lots, according to ICE Futures.
Comments on VAT Act, 2010
ZAKARIA USMAN
ARTICLE (May 13 2010): The International Monetary Fund (IMF) approved a $7.6 billion Stand-By Arrangement (SBA) programme for
Since then the 6 directors of the IMF and 2 directors of the World Bank are supervising revenue collection and preparation of federal budget. If you compare the role of the IMF/World Bank in
The IMF officials, during their recent visit to
Besides all representatives of trade and industry, who have totally rejected the VAT Bill, the provincial governments of Sindh and
Due to ever-increasing socio-economic challenges prevailing in the country, including wide income disparity, high cost of living, poverty, increase in unemployment rate, energy crisis, slow industrial sectors' performance, low economic growth, widening trade deficit, the people have become highly sceptical about the impact of any new economic proposal.
Given below are the views and proposals on some harsh and irritant measures of the VAT Law, evolved through consensus, after holding a series of consultative meetings with the representatives of business community and high government officials, for improving its impact on trade and industry.
Enforcement of VAT from July 1st: Without infrastructure, finely crafted law may be black ink on white paper. The FBR has failed to discuss the proposed VAT bill with the stakeholders and get consensus on its measures well in time. It started the consultancy process very late, 15th March, 2010, that is about two-and-a-half months before the announcement of 2010-11 Federal budget in June 2010.
During this period, the FBR is required to hold consultative meetings with more than 150 associations and chambers, and incorporate their proposals in the act, which is a gigantic task. There are reasons to believe that the FBR will not be able to get the comprehensive feedback from trade and industry due to shortage of time and any haste in enforcement of the VAT act with effect from July 1, 2010 will serve as counter productive.
In other countries, sufficient time of 2-3 years is given to the stakeholders to study the pros and cons of the new law and seek their confidence which is a prerequisite for the success of any scheme. Therefore, the VAT act (draft) be enforced from 1st July 2011 and during this period, it should be made public for seeking their comments and observations to incorporate in the proposed act, create awareness among all the stakeholders through workshops, conferences, interaction with trade and industry etc.
Moreover, the FBR should also complete its homework and develop infrastructure for the enforcement of the VAT act, such as documentation of the economy, registration of all eligible/potential taxpayers in the supply chain from importers/manufacturers to retailers, clearance of outstanding backlog of sales tax refund claims, removal of distortions from economy etc.
The establishment of an institutional framework with reference to multiple options for policy, enforcement and relationship between various stakeholders is most serious challenge for the FBR, at the time of introducing the VAT in order to achieve the VAT aims without creating any friction with taxpayers.
In the absence of an effective monitoring system, the FBR will also find it difficult to collect the tax. Under the VAT, the threshold turnover has been proposed to be enhanced to Rs 7.5 million, but there is no mechanism, procedures or rules in place to determine the actual turnover. One of the troublesome areas is rampant smuggling. The smuggled items are flooded and sold at both, small and big retail outlets without any invoice or legal import permits and makes it almost impossible for the tax collectorate to determine the real annual turnover, due to widespread under reporting.
During the current year, only 857 retailers so far have submitted their quarterly sales tax return out of which just 307 retailers have deposited sales tax amounting to Rs 90.86 million along with return. It means that too many retailers and wholesalers escaped the reporting system, mainly due to loopholes in the law, especially the turnover ceiling, after palm greasing of tax officials. As long as such loopholes are there in the law, no plan or scheme to raise the tax-to-GDP ratio can succeed. It is, therefore, again emphasised that the government must first ensure proper documentation of the system and removal of loopholes from the system.
However, given below are some harsh and irritant measures of the proposed bill and suggestions thereof, identified after a series of consultative meetings with the representatives of trade and industry. These proposals, if adapted, will reduce the level of corruption and harassment without compromising the ability and power of the bill to generate the potential revenue.
Bar of suit, precaution and other legal proceeding (U/S 87): Under this section, taxpayers are not allowed to go to any court, including the high court, to seek remedy or justice against the order passed, assessment made, tax levied, penalty imposed, audit etc, against any action taken by an officer of Inland Revenue. This measure is against all norms of justice and tantamount to denying a taxpayer of his basic right of justice, given in the Constitution of Pakistan. It is proposed that a taxpayer be allowed to go any court of law and if the case is decided in his favour, the concerned tax official should be penalised. If the case is not decided within 6 months, it shall deemed to be decided in favour of the taxpayer.
Recovery or payment of tax (U/S 61): Unlimited powers have been given to the official for recovery of amounts, including raiding the business premises without serving prior notice etc. The powers granted are too harsh. All these powers can be applied at one time and at once without giving any time notice to the taxpayer. Moreover, no distinction is made between admitted tax not paid and the disputed tax imposed by the department, which is a big injustice to the taxpayer and, therefore, must be removed.
Discretionary powers U/S 72: Section 72 of the bill grants arbitrary power to arrest anybody, not necessarily a tax defaulter, who, in the opinion of the low-ranking officer of the FBR, is suspected (just only suspected) of any offence or is believed to commit offence liable to prosecution. The arrest can be made even of a person against whom no tax demand is outstanding. It must be deleted.
Concept of supply (U/S 4, 6 and 8): The concept of supply, based on open market price, is proposed to be introduced according to which the price can be challenged on the basis of evidence. These are harsh measures and against the business practice where the bargain in price is made on the basis of quantity and value of supply/order, credibility of party etc.
Advance payment at import stage U/S 35: At present, under Special Procedure Rules, advance tax on value addition is paid by various categories of taxpayer such as commercial importers, and gets exemption from the audit. Now the taxpayers will pay advance tax but they will not be immune from the audit. It is proposed that the importers, on payment of advance value added tax should be exempted from audit.
Carry-forward and refund (U/S 37): Excess amount will be carried forward and may be deducted in the following six tax periods and thereafter will be refunded. It will create hardship for the taxpayers, particularly for those who pay advance tax, in getting refund.
Cancellation and suspension of registration (U/S 46 and 47): After serving the notice, the taxpayer's registration will either be suspended or included in the blacklist or cancellation whether the notice is received or not. The task of serving the notice should also be assigned to the concerned associations and it should be consulted before blacklisting or cancelling registration.
Tax invoice (U/S 49): A tax invoice will be prepared to contain a plethora of information about the buyer such as NTN, CNIC etc. However, the supplier will be implicated/penalised if he is given fake or forge CNIC. Moreover, nowhere in the world such information is given by the supplier/buyer. The job of business community is to undertake economic activities not collection of unnecessary information from the purchaser.
Sales receipt (U/S 50): In case a registered person, who makes taxable supply of a value not more than Rs 25,000 to an unregistered person, will issue a sales receipt for the price of supply containing a lot of unnecessary information. The measure will consume a lot of time of the supplier unnecessarily.
Record-keeping (U/S 54): This section proposes to keep records and accounts for at least 6 years, which is too long and should be reduced to 2 years for the sake of simplicity of law.
IRS to act as court (U/S 62): The IRS will have the same powers as enjoyed by civil court for recovery of unpaid amount which tantamount to create a state within state.
Audit and special audit by IR officer (U/S 69 and U/S 70): Conduction of audit, including forensic audit etc by the Inland Revenue officer will enhance their discretionary powers for harassment and interaction between a taxpayers and tax collector, which will be resulted in corruption and tax evasion. It is suggested that audit should be conducted once in three years after giving 30 days' notice, but the audit objection should be finalised by the officer above the officer conducting the audit after receiving the viewpoint of the taxpayer.
Adjustment of input tax (U/S 96 (a) and (c)): A taxpayer may claim a decreasing adjustment to any amount of input tax, incurred, but within 12 month. It means that input adjustment will not be available on imports (say) made 1.5 years ago. Similarly, U/S 96 (c) there is no provision of automatic carry forward of input tax amount. It is proposed that section 96 of the VAT Act be abolished altogether.
Rate of 15 percent: Low tax rate discourages tax evasion and encourages potential taxpayers to get into the tax net, therefore, the VAT rate be reduced from 15 percent to 10 percent.
Abolishing of zero-rating: The facility available on domestic supply chain of five export oriented sectors and reverting to refund regime under which refunds were more than the collection, will again open floodgate of corruption as it will increase interaction between taxpayer and tax official and encourage Bawan Shah-like scandals. Therefore, the zero rating facility on domestic supply chain for five export oriented industrial sectors is resorted. Moreover, the delay in refund will create liquidity for the exporters, who will be constraint to take loan form bank at higher mark-up rate. This will be resulted in reduction of competitive edge of our products both in local and foreign markets, against the foreign product.
Penalties (U/S 89): Heavy penalties, ranging from Rs 5,000 to 50,000, will be levied on a person who will commit an offence as described in Third Schedule to VAT Act.
Powers to reopen cases U/S 78: As per VAT, the FBR and commissioner have been empowered to examine the record (to reopen) even if the appeal is pending before the commissioner, appeals. No such powers exist in ST. This may increase the hassle of double audit, hence section 78 (1) be amended as ST section 45.
Power of commissioner appeal U/S 79(4): As per section 79 (4) of the bill, it has been made compulsory for the commissioner, appeal, to decide the taxpayer's appeal in 90 days, therefore, it can be provided in section 61 that the recovery proceedings as provided in clause (c) to (h) of Section 61 will become applicable only after the decision of the first appeal of the taxpayer.
Appeals to tribunal U/S 80 (6): It is suggested that the condition of expiry of stay after six months be removed by amending section 80 (6).
Appeals to high court U/S 81 (8): It is proposed that section 81 (8) be deleted that requires stay to the extent of 6 months only.
Proposed addition of new section to VAT: A new section be introduced to the effect that any issue decided by the customs, excise and sales tax appellate tribunal, high court or the Supreme Court will be given effect in the returns/orders for the subsequent period. If that order or decision is reversed, then such assessment/returns be revised to that effect. This section should in principle be in line with section 124A of the Income Tax Ordinance, 2001. It may be noted that absence of similar provision leads to unwarranted litigation.
Default surcharge U/S 88 and 89: It should be clarified in the VAT that in case of past cases (cases related to all preceding years) additional tax/default surcharge will be levied at the rate presently applicable as default surcharge.
Simultaneous levy of penalty and additional Tax under the Act may need to be removed, being unjustified, since both the provisions are of punitive nature. There should be only one penalty on a single default. Moreover, default surcharge should not be charged on an inadvertent error as was the case of additional tax.
Recovery of tax not levied or short levied or erroneously refunded U/S 90: It should be clarified that Section 90 will apply in case of 'tax fraud' only. Service of orders, decisions etc U/S 56 of ST: There is no section in the VAT regarding service of notice, order and decision etc ie pari material of Section 56 of Sales Tax Act, 1990 is missing.
One-window operation on Federal and provincial level: The VAT must have one-window operation, instead of implementing VAT separately on Federal and provincial levels. This is essential as the registered person should not be burdened by two separate bills, procedures and audits! One widow method will not prevent the federal government from distributing to provinces after it has collected the VAT and finalised all refund claims.
Manufacturer under provincial VAT bill: The provincial VAT bill does not cover manufacturer, who other than consuming zero rated inputs, also uses inputs attracting VAT. There is no satisfactory refund procedure given in these bills! How does one adjust/claim refunds if the manufactured product is zero rated but the inputs are liable to VAT?
Establishment of new provincial and Federal status for export-oriented industries: It comes as a complete surprise that Federal and Provincial VAT Bills require that industries and products, already established as export oriented industries and having obtained zero rated status, after lengthy investigation, will now have to re-establish this new provincial and federal status! To quote:
-- It is specified as a zero-rated supply or import in the Second Schedule of this Act or it is a supply of a right or option to receive a supply that will be a zero-rated supply.
-- It is specified as a zero-rated supply under a Provincial Value Added Tax law.
It is proposed that these new requirements be applicable only to new entrants to the zero regimes and that a clear procedure be given on how to achieve zero rating; this should also be a one-window system. Those industries and products already on zero rated status should automatically be carries forward into this new system. There should not be any surprise on July the first 2010!
Refund of input under federal and provincial VAT bills: There should be only one format, agency and law applicable to VAT. However, in case of two separate bills and authorities; it is proposed that the total refund on VAT input levied for the production of zero rated output is refunded to the manufacturer, from a combination of both. The refund process should be unambiguous and rapid.
(The writer is Vice-President of the Federation of
Copyright Business Recorder, 2010
| IMF seen flexible, likely to release $1.15bn tranche | |
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| Textile sector continues protest, plans rally on 15th |
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| Thursday, May 13, 2010 |
| April inflation rises by 13.26pc |
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| SBP unlikely to cut discount rate: analysts |
VAT imposition inevitable: WB
By: Afzal Bajwa | Published: May 13, 2010
Wall who assumed charge on Wednesday as the Country Manager talking to a selected group of journalists on Wednesday said, "I am optimistic that the current economic situation will get much better. But it should not be left to an automated pilot," he rushed to add. "It needs close watch on both monetary as well as fiscal side."
Answering a question about possible delays in imposition of the Value Added Tax he said, "we would continue with the assistance to
He attributed the current economic situation in
He said that low interest rates are necessary for the growth of business activities in the country. But the monetary policy needs to be tightened timely if the economy gets overheated as happened in 2005.
Thus, he stressed the need for low inflation and low current account deficit besides creating fiscal space for expenditure in social sector development.
Asked how the Government should curtail its expenditures, he said, a mammoth amount of Rs 3.5 trillion was stuck-up in throw-forward head of a variety of projects lingering at any stage much before completion. "
Regarding implementation of Value Added Tax (VAT), he said, it was not just tax mobilisation but it would provide documentation of the economy and broaden the tax base. "A lot of countries have implemented the VAT in their respective countries", he remarked.
He also recommended that the Government should come up with a clear policy for promotion of small hydel power projects by the private sector. Private investments in power sector especially in hydropower were essential to generate low cost electricity.
He also called for improving the efficiency and workings of the state owned enterprises like PIA, Pakistan Railways to improve their performance in terms of profit and services. According to the World Bank's Country Manager, the line losses and power tariff were directly linked, therefore, the Government should try to reduce them.
Answering a question, he said that the World Bank was open for extending loans to the Diamer-Basha Dam to
15pc duty slapped on yarn export
By: Imran Ali Kundi | Published: May 13, 2010
ISLAMABAD – In order to resolve the ongoing yarn crisis, the Cabinet Committee on Textiles on Wednesday decided to slap 15 percent Regulatory Duty (R&D) on its export.
Due to the yarn shortage caused by its massive export to the other countries, the value-added sector of textile is observing a complete strike in the country for the last two days. However, the Federal Cabinet's Committee on Textiles called an emergency meeting on Wednesday to discuss the demands of this sector.
The meeting, chaired by Advisor to PM on Finance Dr Hafeez Sheikh, discussed the ongoing yarn crisis with stakeholders. The meeting later decided to impose duty on the yarn export.
Sources in the value added sector informed TheNation that the ongoing yarn crisis has drastically slashed the exports besides rendering thousands of people unemployed in the country during the last six months. The sources believed that the government should fulfil the demand of local industries instead of exporting the yarn.
They were of the view that the yarn crisis was worsening day by day and the value-added sector had launched a protest movement throughout the country including
According to the sources, the government was considering two options for the solution of the crisis including imposition of 25 percent R&D or complete ban on export of yarn as proposed by the value-added sector, however, the committee decided to impose 15 R&D on the yarn export.
It is worth mentioning here that in the present year production of yarn was not sufficient in
Power tariff again jacked up by 6pc
Published: May 13, 2010
Prime Minister's Advisor on Finance Abdul Hafeez Sheikh during his first interaction with the media reluctantly confirmed this horrible news for consumers that were already playing seesaw with the electricity. The notification in this regard, he said, would be issued at an appropriate time.
He said the Board of the IFM would be meeting on May 14 to consider
To a question about revision in pays and pensions in the next budget, he said, the civil servants have to be compensated against the price hike or what is called is erosion in nominal income. "We are examining which elements of the pay and pension commission's report could be implemented but one thing is clear that the monetisation of perks should be done. Monetisation of perks was both cost effective and also ensures parity amongst the civil servants.
Consensus on economic policy reforms a must
Published: May 13, 2010
He was presiding over National Workshop on Structural Transformation and Inclusive Growth on Wednesday. He highlighted the need to seriously review the current paradigm of Plan-Project-Policy Reform in
He stressed that policy analysis and consensus building should precede policy preparation and the planning process and preparation of projects should follow.
He stressed the need to focus on unleashing the power of endogenous growth based on Ainnovative ideas and entrepreneurship with scientific underpinnings. He said that the real constraint to unleashing growth was the dearth of innovative ideas and a supportive regulatory and economic environment. This required broad based ownership of a clear long-term economic vision.
He advocated the need for a serious process of informed debate on economic policy making at all levels and particularly with the political representatives in order to develop a broad based consensus for reform.
This he said was the necessary foundation for any long-term sustainable growth initiatives with a key focus on improving implementation.
The other speakers in workshop were Dr Hafiz Pasha, Chairperson of Prime Minister of Pakistan's Panel of Economic Advisors, Dr Jesus Felipe and Ramesh Subramaniam from the Asian Development Bank, Dr Hamid Mukhtar from the World Bank and Dr Ali Cheema, Head of the Economics Department at the Lahore University of Management Sciences.
Dr Pasha's presentation focused on the recommendations of the final report of the Panel of Economists, the ADB team focused on the need for structural transformation and how that process has evolved in emerging economies.
Dr Mukhtar's presentation dealt in detail on the key issue of public expenditure reform.
Advisor to the Prime Minister on Social Sectors Shahnaz Wazir Ali while highlighting the Government's commitment to protecting the vulnerable in society reaffirmed the importance of strengthening the analytical basis of all Government Policies and Programs and brining about a consensus for reform.
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