VAT on services: Federal, Sindh govts undecided on mode, Key risks to revenue policy identified , Spinners also threaten to close mills , Textile units strike today on yarn crisis,

VAT on services: Federal, Sindh govts undecided on mode

By Khaleeq Kiani
Tuesday, 11 May, 2010

ISLAMABAD, May 10: The talks between federal and Sindh governments over the implementation of Value Added Tax (VAT) ended inconclusively on Monday as the provincial government submitted a fresh proposal to collect the new tax on services that was not immediately acceptable to the centre.

A source in the provincial government told Dawn that Sindh showed its willingness to the centre's proposal to introduce a unified VAT law in all the provinces but remained stuck to its stand to collect VAT on services.

"We have given an assurance that VAT collection on services would be according to the requirements of the federal government so that collection chain remain intact but collection in any case would remain within the provincial domain," he said.

He said the provincial government rejected the federal governments' proposal enabling it to collect on some major services like telecom and air-travel and allow the provincial government to collect on smaller services.

He said the fresh proposal had been handed over to the federal finance secretary who promised to get back to the provincial government after consultations with stakeholders at the federal level. "The federal government did not make an immediate commitment," he said.

Responding to a question, the provincial source said, it would not be appropriate to say that talks had ended in a deadlock. "In fact, there seemed to be new signs of hope that the federal government would accept our proposal," he said.

The sources said Sindh Chief Minister Syed Qaim Ali Shah also had interactions with the federal government including those at the finance ministry.

The sources said the Sindh government was of the firm opinion that it was constitutional right of the provinces to impose tax on services and it could not be surrendered to the federal government.

Sources in the FBR said that Sindh was the only province to press for its constitutional right over VAT on services, while the other provinces have already allowed the FBR to collect VAT on services and deduct one per cent as service charges on actual collection.

Sindh has already established a department 'Sindh Revenue Services' (SRS) for collection of VAT on services. Sindh was contributing over 40 per cent of total GST collection on services sector, but under the existing NFC distribution formula the province would only get around 20 per cent based on the population of the province.

 

 

Key risks to revenue policy identified

By Kalbe Ali
Tuesday, 11 May, 2010

ISLAMABAD, May 10: The finance ministry has identified key risks to revenue policy for fiscal year 2010-11.

The risks identified are non-implementation of Value Added Tax (VAT) from July 1, 2010, resurgence of circular debt and high commodity financing which may increase government debt.

A report on revenue policy also said that the county could face serious revenue collection problems if tax base is not broadened.

The report claims that there was no option to replace VAT and the country would be in a serious financial crisis, if it was not implemented from the next fiscal year and the implementation of VAT would also support broadening of tax base.

The finance ministry is scheduled to forward report to the federal cabinet by the end of the week.

The report said that low revenue collection in the coming fiscal year would have a severe impact on the Public Sector Development Programme (PSDP) and the federal government would not be able to invest even Rs300 billion in the development budget in the next fiscal year.

The other major risk for the revenue policy is rising circular debt in the power sector, while the government plans to clear Rs116 billion circular debt before the end of the current fiscal year.

The authorities were of the view that it might reappear to a serious limit within the first quarter of the next fiscal year.

"The problem lies with administration and management of the electricity distribution companies," said an official of the finance ministry, adding the distribution companies were failing to collect the bills.

The finance ministry expressed concern over commodity financing as it involved huge amount of borrowing by the federal government, it said that, adding the government might have to bear loss of around Rs40 billion by disposing of the wheat procured last year and much of it was still stored in rented space.

"All these issues are increasing the debt and higher amount will be required to be paid in terms of debt financing that is interest on the debt," the official said, adding high borrowing by the government has limited the flow of credit to other sectors, mainly the private sector.

The finance ministry report has identified that the federal government was under financial stress after the approval of 7th NFC award as a larger share of federal tax revenue would be transferred to provinces.

The provinces are expected to get Rs1.04 trillion in the fiscal year 2010-11 compared to the transfer of Rs662 billion in the current fiscal year, whereas the federal functions to be transferred to the provinces after approval of the 18 Amendment will be implemented from the fiscal year 2011-12.

The finance ministry has estimated that between Rs70 billion and Rs100 expenses would be incurred on development programmes and other expenditure of these ministries and departments in the next fiscal year.

 

 

Spinners also threaten to close mills

By Nasir Jamal
Tuesday, 11 May, 2010

LAHORE, May 10: Spinners have warned of complete closure of their mills if the government placed more restrictions on yarn exports under pressure from the value-added textile sector.

"If yarn export is banned or if regulatory duty is imposed to further restrict exports, the entire spinning industry will collapse," a leading spinner said while talking to Dawn on Monday.

The yarn producers and exporters are already trying to cope with quantitative restrictions the textile ministry has slapped on the export of their product.

The All Pakistan Textile Mills Association (Aptma) claimed that the domestic yarn prices were lowest in the region when global cotton prices had already soared to $0.95 per pound. The textile value chains in India, China, and Bangladesh are paying a higher price for the commodity than their Pakistani competitors, Gohar Ejaz, chairman Aptma Punjab said.

He said the commodity prices had jumped to an abnormal level worldwide and it was becoming unbearable for the spinning industry to import cotton at higher price and provide yarn to the domestic ancillary industry at subsidised rates.

It may be noted that the export figures released by the Federal Bureau of Statistics reveal that the exports of value-added sector have gone up by 20 per cent in quantitative terms during the first quarter of 2010 against 10 per cent decline in exports of yarn during the same period.

The official figures clearly show that there is no shortage of yarn in the domestic market as claimed by some value-added textile producers, Gohar said.

He noted that yarn exports figures, on the other hand, reveal that the spinning industry was passing through a difficult period after producing half a billion dollar worth of surplus yarn due to the quantitative restraints placed on its exports. Imposition of regulatory duty would force 70 per cent spinning mills to close down immediately, he warned.

The spinners also warn that the closure of their mills will create massive yarn shortages in the domestic market, which, in turn would play havoc with the entire textile value chain.

Aptma claims 60 per cent of the value-added exports originate from its member mills covering all sub-sectors i.e., fabric, processed clothes, towel, knitwear, bed wear and woven garments. The majority is not in favour of any restriction on yarn exports, he claimed.

An Aptma spokesman has urged the president to take serious notice of the situation and direct the ministry from taking any adverse action against the yarn exports.

 

Textile units strike today on yarn crisis

By Parvaiz Ishfaq Rana
Tuesday, 11 May, 2010

KARACHI, May 10: The downstream textile industry on Tuesday will observe a country wide strike today (Tuesday) as a market of protest against indifferent attitude of the government towards their demand to ban cotton and yarn exports.

Over 12,000 value-added units belonging to towel, cloth, hosiery, readymade garments, fabric, bedwear, looms, sizing, cotton fashion and processing will stop production throughout the country as a mark of protest against non-availability of raw material (cotton and cotton yarn).

The workers laid off by the value-added sector will bring out peaceful rallies in their respective industrial estates and industry leaders will hold press conferences in major cities to highlight problems related to shortage of raw material.

A spokesman for the industry told Dawn that in case the government dose not meet their demand of imposing total ban on export of cotton and yarn the leaders in a press conference to be held at Karachi Press Club at 3:00pm may extend the strike call even for an indefinite period.

In a joint hand bill issued by all the downstream industrial sectors an appeal has been made to the president and the prime minister to personally look into the yarn crisis lingering on for several months.

It has been pointed out that the industry had been seeking the government intervention in the yarn crisis for the last eight months but no pragmatic measures were taken. As a result of this, today there is no cotton and yarn in the domestic period to keep the textile industry moving its wheels.

Earlier only small and medium sized units of downstream textile industry were closed down but today large manufacturing set ups are also on the verge of closure in the absence of cotton yarn, the spokesman added.

He further said that the owners of the value-added sector would even like to hand over the keys of their units to the government because they could no longer run them without yarn.

However, he said, "Today we have managed to hold back workers to industrial areas but if their jobs are not ensured they will come out in a big way to hold protest rallies on roads in all the major cities.

As the country fetches around $8 billion on exports of value-added textiles per year a single day loss will come to around $22 million, which the country could not afford. Besides, he said, there will be huge revenue loss to the government and workers will also suffer.

He urged upon the president and the prime minister to immediately intervene and save the downstream textile industry from total collapse.

To a question, the spokesman said an overwhelming response has been received from big industrial establishments of the downstream industry in joining strike call and this indicates that situation has deteriorated to a greater extent.

Our Staff Correspondent adds from Faisalabad:

Sixteen associations belonging to the value added of textile sector will observe strike today by shutting their factories in protest against the yarn crisis.

This was decided in a meeting of the entrepreneurs headed by the Pakistan Textile Exporters Association chairman Khurram Mukhtar on Monday.

Talking to Dawn he said that exporters were seeking notification banning the cotton and yarn export and till issuance of this order the entrepreneurs would continue their protest drive. He said that the value-added textile associations would stage protest rallies in Karachi, Multan, Faisalabad, Jhang, Toba Tek Singh, Hafizabad, Gujranwala, and Sialkot to press the government for availability of yarn at local markets at affordable prices.

 

Subdued trading on cotton market

By Our Staff Reporter
Tuesday, 11 May, 2010

KARACHI, May 10: Trading on the cotton market on Monday resumed on dull note as spinners and mills remained conspicuous by their absence apparently awaiting some positive developments on the import front.

An idea of the prevailing sluggishness may well be had from the fact that not a single bale changed hands during the last two sessions, according to Karachi Brokers Forum, but some floor brokers claimed some of the Punjab spinners lifted stray lots from the southern Punjab ginneries.

They said ginners holding modest unsold stocks were not inclined to sell below their asking prices and sitting pretty comfortable and oblige spinners at will.

Spinners said the rebound in the New York cotton futures seemed to have changed local market perceptions amid hopes that the tight supply position could ensure further rise in prices.

There were indications that some of the ginners may opt to clear the backlog around Rs6,800 per maund but they kept to the sidelines on late recovery in the global markets, they added.

Meanwhile, reports coming in from the cotton belts indicate that the sowing of the new crop is getting pace in those areas where water is released through the canal system.

The official spot rates were again held unchanged at the weekend level of Rs6,700 per maund but no business was reported in the ready section during the last two sessions.

 

 

APTMA terms demand for duty on yarn exports irrational

Tuesday, May 11, 2010 By our correspondent LAHORE: The All Pakistan Textile Mills Association (APTMA) has opposed the demand from value-added textile sector for the imposition of Regulatory Duty on exports of cotton yarn. The APTMA spokesman in a statement warned of closure of the spinning industry immediately in the country.He said that the value-added industry's demand for imposition of Regulatory Duty on the exports of cotton yarn was irrational. The duty on yarn would adversely affect the spinning industry that was providing cheapest yarn to the textile value chain, as compared with competitors like India, China and Bangladesh in a situation when cotton prices are around $0.95 per pound in the international market. He said the exports data released by the Federal Bureau of Statistics has revealed that the exports of value-added sector were up by 20 percent in quantity terms during January - March 2010 against 10 percent decline in exports of yarn in quantity terms during the same period. The APTMA spokesman said why the value-added sector was crying for restricting exports of yarn after booking record profits in the recent past.He said the exports data shows that the spinning industry was passing through difficult period after producing half a billion dollar worth of surplus yarn due to prevailing quantitative restraints already in place. APTMA pointed out that 60 percent of the value added exports are originating from APTMA covering all sub-sectors including fabric, processed clothes, towel, knitwear, bed wear and woven garments. Majority was not in favor of any restriction on exports of yarn and only a few vested interest elements are trying to put cart before the horse. APTMA has also suggested the value-added sector to seek a direct subsidy from the government instead of pressurizing the Ministry of Textile Industry to put restrictions on exports of spinning industry.

 

 

Budget proposals

OICCI for implementing VAT to promote economy's documentation Tuesday, May 11, 2010 By Salman Siddiqui KARACHI: The Overseas Investors Chamber of Commerce & Industry (OICC), in its set of budget proposals sent to the government of Pakistan on Monday, has proposed to implement the Value-Added Tax (VAT). "Shifting to VAT mode will lead to documentation of the economy and OICCI supports this step by the Federal Board of Revenue (FBR)," read the OICCI budget proposals. Mandatory documentation of all segments of the economy is essential if the government intends to broaden the tax base and reduce burden on the already taxed sectors. The government, however, should introduce VAT after incorporating the feedback of stakeholders, OICCI added. The Chamber recommended that the minimum turnover threshold be reduced to Rs2.5 million to ensure maximum inclusion in the VAT regime; review exempt list (first schedule) and zero rate such goods having manufacturing base in Pakistan; plant and machinery be VAT exempt to promote investments and technology transfer in Pakistan; and remove such clauses from proposed VAT and other laws that are against 'documentation of the economy.' "For longer-term economic growth of the country, it is critical that government should not burden further those corporate and individuals who are over taxed such as Multi-national Companies (MNCs), manufacturers and the salaried class," it said. It is recommended that Presumptive Tax Regime (PTR) be eliminated for all sectors, which are properly documented and should eventually be abolished completely. Continuation of PTR is a major bottleneck in the sustainable growth of Tax to GDP ratio. It is recommended that documentation be made mandatory for all sectors. Entities that provide documentation of their transactions or deal only with organised suppliers and customers should be given 5 percent rebate in Income Tax among other incentives to encourage wider adoption of this good practice. FBR be empowered and made responsible for ensuring that the goods intended for consumption in Afghanistan are not sold in the domestic markets. For certain smuggling prone products the government can consider adopting "revenue neutral" measures whereby varying the combination of various duties/levies/taxes so that the incentive for smuggling is reduced to a minimal. In Pakistan a reduced rate of 20 per cent for corporate taxation has been introduced for small companies. The differential of 15 percent viz-a-viz general corporate rate discourages corporatisation and expansion of companies. This differential has to be reduced to counter this disincentive towards expansion. The auto manufacturers are required to localise certain parts otherwise it would attract 50 per cent custom duty (current 32.5 per cent): It is, therefore, proposed that localisation certain parts for passenger cars and light commercial vehicles be removed from Auto Industry Development Plan (AIDP). Local production of such assemblies is required high capital cost and essentially technology collaborations. In order to promote investment by local companies in foreign oil & gas exploration & production (E&P) activities, which may result in generation of foreign source of revenue for the country, it is necessary to amend the provision of the Fifth Schedule to the ITO 2001 to cater for tax implications of investment by local E&P companies in foreign territories. Improvement in the tax base essentially requires elimination of all discriminations between taxpayers with adequate penalties for delinquents. In Pakistan this works in the opposite direction by way of Periodic Tax Amnesty Schemes offered by the government. Possibilities of whitening untaxed money by misuse of provisions provided in the law such as 'inward foreign remittance' also encourage the unorganised sector to continue with tax evasion. These provisions discourage taxpayers from making positive shifts and hence need to be abolished through constitutional amendments.

 

 

FBR advocating VAT on behalf of 'foreign masters': FPCCI

Tuesday, May 11, 2010 By our correspondent KARACHI: The countr's apex trade body on Monday slammed the role of the Federal Board of Revenue (FBR) in the implementation of the Value-Added Tax, alleging that the revenue body was advocating the controversial tax on behalf of its foreign masters. The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said that all the representatives of trade and industry have rejected the VAT bill, which would have a devastating impact on Pakistan's economy. "The provincial governments of Sindh and Punjab have also expressed concern against the levy of VAT," it said in its detailed overview of VAT and its impact on the national economy. "However, the revenue body on behalf of its foreign masters is advocating VAT, knowing it will have devastating effects on the Pakistan's economy, which had already been showing recessionary trend for the last two years due to a host of internal and external factors." Approving a standby arrangement of $7.6 billion in November 2008 that was enhanced to $11.3 billion in December last, the International Monetary Fund (IMF) had imposed certain conditions, including imposition of VAT on shares trading. "Since then, the six directors of the IMF and two directors of the World Bank are supervising revenue collection and preparation of the Federal Budget," it said. "The IMF officials in their recent visit to Pakistan have categorically warned that if VAT was not enforced the standby arrangement programme would be abolished and Pakistan would be required to refund the amount of $6.5 billion paid so far by the fund. The fifth tranche of $1.2 billion is also pending due to slow progress of VAT implementation, the FPCCI said. The decision to impose VAT was taken without taking the stakeholders into confidence, said Zakaria Usman, Vice President, FPCCI. The revenue body started consultation process just two-and-a-half-month before the announcement of the Federal Budget 2010/11. "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 giant task," he said. In such a short time, the revenue body would be unable to complete the process. "In all other countries of the world a sufficient time of two-three years is given to the stakeholders to study the advantages and disadvantages of the new law and seek their confidence, which is a prerequisite for the success of any scheme," he said, adding that the government should enforce VAT from July 1, 2011. The FPCCI has finalised proposals on VAT in consultation with the chambers and associations for the government that will reduce the negative effects of the proposed tax, Usman said, adding that under VAT, the turnover threshold has been proposed to be enhanced to Rs7.5 million, but there is no mechanism, procedure or rule 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 collectorates to determine the real annual turnover, he said. The FPCCI vice president said that the proposals, if adopted, would reduce the level of corruption and harassment and generate sizeable revenue under the VAT bill. According to the VAT bill, taxpayers are not allowed to go to any court, including the high court to seek remedy against the order passed by an officer of Inland Revenue. "A taxpayer should be allowed to go to any court of law and if the case is decided in favour of the taxpayer the tax official concerned should be penalised,î the FPCCI suggested. Unlimited power has been given to the tax officials for recovery of outstanding amount, including raid on business premises without serving prior notice. "It is a big injustice to the taxpayer and, therefore, must be removed." The FPCCI expressed reservation over discretionary powers of the tax officials to arrest anybody, not necessarily a tax defaulter under the proposed VAT law and suggested that it must be withdrawn. It is also proposed that the importers who pay advance value-added tax should be exempted from audit. The apex trade body also criticised the condition of tax invoice under which seller should provide details of buyer such as NTN, CNIC etc. "The job of business community is to undertake economic activities not collection of unnecessary information from the purchaser," it said. Low tax rate discourage tax evasion and encourage potential taxpayers to get into the tax net, the FPCCI said and suggested, "VAT rate should be reduced from 15 per cent to 10 per cent."

 

 

Cotton market remains dull

Tuesday, May 11, 2010 By our correspondent KARACHI: The local cotton market witnessed dull trading on Monday as buyers stayed away because of the high prices, dealers said. The spot rate at the Karachi Cotton Exchange remained unchanged at Rs6,700 per maund (37.24kg) for base Grade 3 cotton. "Some lint was left with the ginners, but they refused to sell it below Rs7,000 per maund," an analyst said, adding that the ginners want to get benefit of the lint shortage. Experts have projected around 15 per cent more crop during the next season, but said that the situation would remain tough for the next couple of months. Market pundits are looking at the Tuesday's strike of the value-added textile sector. "Even yarn producers sold their product in a hurry and did not cover the cotton. Some yarn factories would also suspend work for two months," an analyst said. India had put some restrictions on its cotton export a few days back. Pakistani importers had already made contracts with them, but the delivery of 200,000 bales has been delayed. Federal Adviser on Textiles Mirza Ikhtiar Baig told The News, "I have talked to higher Indian authorities and I am hopeful they would allow export of cotton against the already made contracts."

 

 

 

SITE association supports value-added sector's strike

Tuesday, May 11, 2010 By our correspondent KARACHI: In support of the strike call given by value added sector for Tuesday, members of SITE Association of Trade & Industry have announced to suspend loading export shipments' containers on Tuesday. "No container of value added products will come out on streets," said Saleem Parekh, Chairman of SITE Association of Trade & Industry. The value added sector, especially the textile, has announced to observe strike on Tuesday against the export of yarn. In their solidarity, the SITE Association of Trade & Industry will suspend loading of containers to the ports on Tuesday and hold a peaceful protest on the same day. Value added textile sector would hold protest in all five zones of the city, said Parekh. Razzak Hashim Paracha, Chairman of Korangi Association of Trade & Industry (KATI), confirmed that value added sector would also hold protest in his industrial zone as well.

 

 

 

SAARC Chamber urges MFN status for India

May help Pakistan reduce import bill, increase exports Tuesday, May 11, 2010 By Shahnawaz Akhter KARACHI: The trade association of the South Asian countries has asked Islamabad to grant most-favoured nation (MFN) status to India, which would not only bring down the cost of imports, but give Pakistani exports an access to the vast Indian market. Pakistan can benefit not only by accessing a big market for its exports, but save foreign exchange by substituting its expensive imports from the rest of the world with those from India, a report prepared by the SAARC Chamber said. Granting MFN status to India should be perceived as an economic obligation instead of political obligation, the report said. However, the chamber said that granting MFN status would not work in its true perspective until India settles the protracted Kashmir issue with Pakistan under the UN resolutions. It also urged India to give a fair share of water to Pakistan to boost economic and trade ties. The office-bearers of SAARC Chamber recently welcomed the dialogue between the heads of the state of the two countries at SAARC conference in Bhutan. The report said that historically India and Pakistan should have been each other's biggest and most important trading partners. In 1948/49, Pakistan's exports to India were 56 per cent of its total exports, while imports stood at 32 per cent of the country's total imports. The trade between the two countries suffered during the two wars of 1965 and 1971, and for a period of nine years (1965-1974) the trade was almost negligible. "Since 1996, trade between the two countries has been at much higher levels than before. In that year, India granted MFN status to Pakistan. Pakistan in turn increased its list of permissible import items to 600, which in 2008 has increased to 1,968 items at eight-digit level of H.S. Code," the report said. After 1996, even though trade between the two countries has been fluctuating, the level of trade has been higher than that achieved in 1996, it said, adding that the trade stood at $180 million in 1996 and in 2004 it was $537 million. "As the result of confidence-building measures taken by the respective governments the trade between two countries crossed $1.34 billion in 2007/08, showing five times growth since 2000-01," the report said. The SAARC Chamber highlighted the reasons of illegal and third country trade between the two countries due to non-resolution of political issues. "The volume of the illegal and third country trade estimated at $2-3 billion involves goods such as chemicals, industrial machinery, spices, tyres, tea medicines, videotapes, cosmetics and viscose fibre," it said. These goods find their way either through third markets such as Dubai and Singapore or through smuggling, it added. However, the volume of unofficial trade indicates tremendous potential between the two countries. "If the illegal trade is altered into the official business, the current volume of trade may touch $6 billion-mark coupled with the huge revenue gains for the two countries." The report said that Pakistan imported on higher prices from rest of the world and suggested, "If Pakistan import items, which are not manufactured in the country and are being imported from the rest of the world from India, it can save foreign exchange of $2 billion." The SAARC Chamber identified potential of bilateral trade between the two countries, in which both Pakistan and India can complement each other's needs and, hence, produce cost-effective quality goods. It mentioned that steel prices in Pakistan could reduce to half by trading with India. "Iron-ore is an important raw material for steel industries, but on account of the lack of heavy engineering industry, Pakistan has to import iron and steel of $300-400 million per annum. By importing iron and steel from India the prices in Pakistan will be reduced to half." Likewise, rather than importing transport vehicles of over $2 billion from the rest of the world, Pakistan can import them from India, resulting in saving of 25 per cent foreign exchange, it said. Pakistan imports pharmaceutical products of over Rs350 million per annum. Indian pharmaceutical products being 30 per cent cheaper than Pakistani products can also help save foreign exchange, it said. "At present, Pakistan imports machinery, including textiles and pharma of over $3 billion per annum as there is no high-tech textile machinery industry in the country. We anticipate that the opening of trade with India would help Pakistan acquire this machinery directly at much lower prices rather than high cost machinery from Germany,î the chamber suggested. Liberalised Pakistan-India trade and establishment of joint ventures in the agriculture sector, especially in the areas of food processing and packaging is expected to generate around 0.27 million jobs in India and 0.17 million jobs in Pakistan. Since the energy demand is likely to record higher growth in the years to come, there is a potential for cooperation between the two countries in electricity generation by utilising coal, it said. India is the only country, which has naphtha cracking facilities. Pakistan can put up a naphtha cracker plant in collaboration with India. It can export the surplus to other markets in the region after meeting its own requirements of the product, the report recommended. Pakistan imports about 4.5 million tons of diesel per annum, mostly from Kuwait. The import of diesel from India will lower the cost due to lower transportation cost, it said. Highlights • Trade between two countries crossed $1.34 billion in 2007/08 • Illegal and third country trade volume estimated at $2-3 billion • SAARC Chamber identifies bilateral trade potential between the two countries • India should settle Kashmir issue

 

 

Unavailability of yarn

Value-added textile sector to observe strike today Tuesday, May 11, 2010 By Shahid Shah KARACHI: The value-added textile sector has announced a countrywide strike on Tuesday against the unavailability and high prices of cotton yarn. At least 14 value-added textile associations have formed Value-Added Textile Forum, which appealed the government last week to impose a ban on the export of cotton yarn and raw cotton. The forum says that the entire value-added textile sector would be forced to close if the government did not impose a ban on the yarn exports. The government is giving 'lollypops' for the last nine months, Mohsin Ayub Mirza, Chairman, Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) told The News. "Only two months are left in the arrival of the new crop, but we are still awaiting some relief," he said, adding that only he suffered a loss of $1.8 million during the last nine months due to unavailability of yarn. Another leader of the forum, Jawed Bilwani said, "I have talked to the president and the prime minister on the issue and they can take action as soon as possible."During a meeting with the top officials a few days ago, the leaders of the value-added textile sector had requested a 25 per cent duty on cotton yarn exports. In a leaflet, the forum appealed the prime minister that imposition of a ban will save the livelihood of 18 million people who are employed in the textile sector.After negotiations for three months, the Textile Ministry had imposed yarn quota of 50,000 tons per month in January, which was later reduced to 35,000 tons per month. Officials said as non-cotton yarn was not included in the quota, the overall yarn exports increased by over 60,000 tons, therefore, it was capped at 35,000 tons per month. However, some cotton yarn exporters went to the high courts of Sindh, Lahore and Peshawar, which allowed them unrestricted exports. According to the Federal Bureau of Statistics, 41,777 tons of cotton yarn was exported in March this year against the quota of 35,000 tons. However, it was less than the exports of 46,512 tons last year. The textile sector representatives claimed that their factories were shut because of the yarn shortage. "I can recall 40 such factories on finger tips," said Bilwani. There are several others who do not disclose their closure.

 

 

2,000MW coal power projects to be operational within 3 years: Pepco

Published: May 11, 2010

LAHORE (APP) - Pakistan Electric Power Company (PEPCO) and Sindh government in collaboration with Engro Limited are initiating two coal power projects of 1000 MW each in Ther area.
Briefing Media at Wapda House here Monday, the PEPCO Director General (Energy Management and Conservation) Engineer Muhammad Khalid said both the projects would be operational within next three year, while a hydel project of 960MW capacity at Neelum-Jelhum River would be completed in five years.
The DG said that power generation has substantially improved with raising of water level in dams and supply of 183 mmcft additional gas, as agreed in the Energy Summit Islamabad, to thermal power plants in the country. The provision of adequate supply of gas also help reduced the PEPCO's cost of service on power generation, he said, adding, this financial relief would accordingly be given to electricity consumers in power bills under Fuel Adjustment Charges (FAC) this month.
The PEPCO is passing the enhanced power generation benefits on to its consumers especially the domestic, he said, citing, the power distribution companies (Discos) expect the QESCO (Quetta), and KESC, which does not fall in PEPCO domain, had lifted load-shedding from 11:30pm (Sunday night) to 6:00am (Monday morning). During last 24 hour, the generation level scaled up to 12433MW against the demand of 14269MW, showing a steep decline in the shortfall figure from 3210MW last week to 1836MW at present, while the PEPCO exported 330MW in day time and 620MW at night to Karachi.
Giving the power generation break-up, he said, hydel power plants produced 4422MW, thermal 2558MW, IPPs 5377MW and 76MW generated from Rental Power Plant Bhikki. To a question, he said, the electricity export from PEPCO to Karachi would be decreased at around 350MW in a few days, as KESC's Bin Qasim Power Plant has restarted generation, thus reducing its dependency on PEPCO

 

 

VAT on services: Sindh won't give up its right to collect tax
ZAHEER ABBASI

ISLAMABAD (May 11 2010): Sindh has assured the federal government to implement value-added tax (VAT) on services in line with the requirements of Finance Ministry, but would not give up its right of collection, Business Recorder has learnt. Sources said that Sindh has prepared its own proposals to collect VAT on services, meeting the requirements of the Finance Ministry as per its commitment with International Monetary Fund (IMF).

The proposal was handed over to Sindh Chief Minister Qaim Ali Shah, who came to Islamabad to attend the review meeting on implementation status of Energy Summit decisions. They said that no meeting has been scheduled on the issue in near future. The Sindh government would wait for the response of the federation to its proposals.

Sources said that Sindh government, during talks with Ministry of Finance, remained firm on its stance to collect sale tax on services. Thus provinces were given the option under the new NFC award to collect sales tax on services - an option that Sindh insists on while the other provinces have agreed to allow the FBR to collect it on their behalf on payment of a one percent fee. The reason for Sindh's insistence is largely based on its concern that the tax so collected would become part of the divisible pool and allocated on the basis of the NFC award.

The VAT on services is a provincial issue, but there was an understanding that Federal Board of Revenue (FBR) would collect the tax on behalf of provinces and would return them after charging one percent collection fee. The reason for this understanding was that only integrated application of VAT could be feasible. The IMF has delayed Board meetings, without whose approval the subsequent tranche cannot be released, till the certification by Pakistan that VAT would be implemented in a broad-based integrated form as drafted by the FBR.

Copyright Business Recorder, 2010

 

Due to rupee depreciation: government may face higher debt servicing expenditure
SARAH HASAN

ISLAMABAD (May 11 2010): Pakistan is likely to face higher debt servicing expenditure in the coming fiscal year due to depreciation of rupee against dollar. Servicing of both domestic and external debt may cost the national kitty Rs 672 billion during fiscal year 2010-11. This was stated in finance ministry budget strategy paper.

The revised estimation of debt servicing in the ongoing fiscal year is Rs 664 billion and additional Rs 8 billion is to be allocated for debt servicing in next fiscal year. Prime Minister Yousaf Raza Gilani is the final authority to approve the budget paper draft, and finance ministry paper has not been presented to the Prime Minister for his formal approval. The Budget paper 2010-11 is scheduled to be presented to the Prime Minister by the end of this week.

However, that document may not be presented to the Prime Minister because of unavailability of Advisor to PM on Finance Dr Abdul Hafeez Shaikh as he is dashing to United States on his personal visit and would be back after Friday. The Finance Ministry is yet to brief National Assembly standing committee for finance on upcoming budget estimates.

The Budget strategy paper 2010-11 shows that domestic debt servicing estimation is less than the corresponding year and interest expenditure on domestic debt Rs 578 billion. However, downward estimates suggest that unfunded debt servicing would be reduced from Rs 283 billion to Rs 259 billion in coming fiscal year.

The paper said that interest payment for permanent debt is estimated at Rs 77 billion in 2010-11. The debt servicing cost on Pakistan Investment Bond is Rs 55 billion; Rs 17 billion on Prize Bond; Rs 3 billion on other bonds (issued to HBL and Ijara Sukuk).

In the coming fiscal year, floating debts servicing estimation includes treasury bill through auction and treasury bills purchased by State Bank of Pakistan is around Rs 243 billion, higher than revised estimates Rs 233 billion for ongoing fiscal year.

In the strategy paper prepared by the finance ministry it had been estimated that foreign debt servicing cost in the next fiscal year would be $1.50 billion. However, the cost of servicing of external liabilities and foreign debts has increased due to depreciation of the rupee.

The finance ministry also sees further fall in rupee value to around Rs 89 to a dollar in 2010-11. Total interest payment for coming fiscal year is 4.03 percentage of GDP (at market price) which comprises of domestic debts interest payments 3.47 percent and external interest payments 0.56 percent of GDP, the finance ministry strategy paper said.

According to State Bank's financial data, volume of foreign debts is $53 billion, and domestic debts is Rs 4490.9 billion, till the end of third quarter of this year.

As per the Fiscal Responsibility and Debt Limitations Act (FRDL), total government debt has to be less than 60 percent of GDP. The strategy paper said that the Prudent Debt Management techniques had to be adopted to reduce the burden of debt servicing over the medium term.

Copyright Business Recorder, 2010

 

Reduction in evening peak demand upto 1,100 megawatts
RECORDER REPORT

ISLAMABAD (May 11 2010): The measures proposed by the Energy Summit have resulted in reduction in evening peak demand upto 1100 MW besides curtailing demand for Saturdays upto 600-800 MW. The Ministry of Water and Power told the meeting, held on Monday to review the implementation of the decisions of the Energy Summit, that reduction of lights up to 50 percent in President's, PM's Secretariat, Federal Ministries, Governor, CM Houses, all provincial ministers and government offices and induction of energy savers had been enforced.

Similarly, the decision regarding use of air conditioners by authorised officers only after 11am is also being observed. Five-day a week for government departments and affiliated institutions has also been enforced. The decision to ban commercial decorative lights and staggering of weekly holiday for industry is in the process of implementation.

Decisions regarding supply of power to tubewells, closure of markets and shops at sunset and provision of at least two continuous spells of power supply during day time is largely being implemented. In this regard, modalities have been worked out separately with each market association. Evening marriage halls usage, restricted to three hours during peak hours, is also largely being implemented.

The meeting was informed that unscheduled loadshedding has almost been eliminated. Textile mills and continuous process industries are being provided uninterrupted power and loadshedding of industrial dominated feeders has been reduced by two hours. Furthermore, two spells of four hours each continuous power supply to the commercial consumers is being ensured.

About the financial impact of the saving of 1000 MW, the meeting was informed that it has saved capital costs of around $1.5 billion for this generation, saved transmission and distribution of capital costs of around $500 million, saving of $250 million fuel costs per month, substantial, consequential benefits to industry and the economy.

The meeting was also briefed about short and medium term power generation measures. Directives have been issued and between 10 and 147 mmcfd additional gas is being supplied to the public sector to produce 300-460 MW.

Regarding the early commissioning of 10 IPPs, the meeting was informed that 5 rental, 3 IPPs projects namely Gulf (62 MW), Engro (225 MW), and Saif (225 MW) already achieved commercial operation date (CoD), whereas Orient, Techno Samundari and Nishat are already under trial production and likely to achieve CoD in May 2010.

Similarly, the regular and adequate supply of oil to Gencos is largely achieved. On the point of settlement of circular debt and clearance of outstanding dues, the meeting was informed that Rs 20 billion have been released by the Ministry of Finance on April 28, 2010 and the balance is scheduled to be released by June 30, 2010. Efforts are being made for early recoveries from provincial governments.

Copyright Business Recorder, 2010

 

Failure to meet LTFF projection: SBP to impose penalty on exporters
RIZWAN BHATTI

KARACHI (May 11 2010): The State Bank of Pakistan (SBP) has announced that it would impose fine on exporters who fail to meet the projections made in respect of export sales under Long Term Financing Facility (LTFF). Sources in banking sector told Business Recorder on Monday that at the time of obtaining financing for export-oriented projects under LTFF, exporters are required to submit a projected export target to the banks, or DFIs.

However, it had been noticed that a large number of exporters failed to achieve their projected export sales, and their actual exports were less than projected exports committed with banks/DFIs while availing the financing under LTFF. Therefore, the SBP has decided to take serious action against exporters not achieving their export targets and, after several complaints against exporters, the central bank has announced to impose penalty on exporters who fail to achieve their committed export targets.

LTFF was launched in December 2007. However, there was no fine under the scheme and for the first time now the SBP has announced such type of penalty on the exporters. In this regard, the SME Finance Department of SBP has formally instructed banks and DFIs to impose fines on exporters, whose actual exports are less than projections.

SBP has advised that in case projections made by the borrowers in respect of export sales are not met, 28 to 37 paisa per day per Rs 1,000 fine will be applicable on the exporters. However, there will be no fine on exporters in case actual exports sales are short up to 10 percent of projected exports, which has been reported by the borrowers, to the financing bank/DFI, at the time of obtaining financing under LTFF Scheme.

In cases in which actual exports sales are less than 50 percent of projected exports, exporters/borrowers will have to pay paisa 37 per day per Rs 1,000 or part thereof on adjusted value of outstanding refinance under LTFF Scheme. In addition, in case actual exports sales are 50 percent or more than 50 percent of projected exports, borrowers have to pay paisa 28 per day per Rs 1,000 or part thereof, on adjusted value of outstanding refinance under LTFF Scheme.

The SBP in its circular clarified that in case of penalty, it would be imposed on shortfall of exports and not on the complete financing. "Adjusted value will be derived by multiplying the percentage of shortfall in export sales with outstanding amount of refinance under the Scheme. E.g. outstanding refinance as of 30-06-2010 is Rs 500 million and borrower exported equivalent to $2.5 million during FY 2009-10, instead of projected exports of US $5 million, the adjusted value of outstanding refinance would be Rs 250 million," the circular explained.

However, no fine would be charged in case the borrower achieves minimum export target prescribed under LTFF scheme (viz 50 percent of annual sales or $5 million, whichever is lower). The central bank has also asked banks DFIs to continue keep track of borrower's export performance and submit the position to the inspection teams of SBP's Banking Inspection Department at the time of their inspection, if so desired. All other terms & conditions of the Scheme shall remain unchanged.

The SBP in December 2007 introduced a long term financing facility to promote export-led industrial growth in the country. The facility is providing necessary finance to exporters for adoption of new technologies and modernising their plant and machinery in line with the international competitive environment.

Exporters (including SMEs) can avail financing under this facility through participating financing institutions (PFIs) for new imported and locally manufactured plant and machinery. The facility is available to export-oriented projects with at least 50 percent of their sales constituting exports, or if their annual exports are equivalent to $5 million, whichever is lower.

Launching the scheme the SBP had mentioned in its terms and conditions that in case the projections made by the borrowers in respect of export sales were not met, the State Bank would consider to impose a fine on the borrower at a rate to be determined by the State Bank provided the borrowers failed to provide justification for the same.

Copyright Business Recorder, 2010

 

 

No transaction seen on cotton market
RECORDER REPORT

KARACHI (May 11 2010): Wait-and-see mood prevailed on the local cotton market on Monday as participants were on the sidelines ahead of a strike, called by value-added sector, dealers said. The Karachi Cotton Association (KCA) official spot was unchanged at Rs 6700, they said.

In the ready business, not a single deal took place as the ginners did not lower the asking prices. The Phutti prices in both the Punjab and Sindh were at Rs 2500-2600, they said. Tug of war continued between buyers and sellers amid expectations of better production for the coming season as the sowing is on full swing.

The government has set a target of 14 million bales of cotton for the next season, which would begin in the month of June, they added. The value-added sector is going on strike against the exports of cotton yarn because this factor is causing unemployment in the country, they said.

=========================================================== The KCA Official Spot Rate for Local Dealings in Pak Rupees ----------------------------------------------------------- FOR BASE GRADE 3 STAPLE LENGTH 1-1/32" MICRONAIRE VALUE BETWEEN 3.8 TO 4.9 NCL =========================================================== Rate Ex-Gin Upcountry Spot Rate Ex-Karachi for Price Sales Tax @ 15% =========================================================== 37.324 Kgs 6,700.00 100 6,800.00 ----------------------------------------------------------- Equivalent ----------------------------------------------------------- 40 Kgs 7,180.00 100 7,280.00 ===========================================================

Copyright Business Recorder, 2010

 

Rs 7.4 billion WHT collected in recovery drive
RECORDER REPORT

ISLAMABAD (May 11 2010): The Federal Board of Revenue (FBR) has recovered over Rs 7.4 billion withholding tax from 12,450 registered persons during tax year 2009, reflecting large-scale recovery drive on national level to improve collection in the last quarter of current fiscal year 2009-10.

Sources told Business Recorder on Monday that the FBR has compiled a report on the overall results of the enforcement actions taken in the field formations during 2009-10. According to FBR data compiled in May 2010, the FBR collected over and above Rs 2.8 billion from 1,819 enlisted withholding agents, who had withheld sales tax on supplies and other deduction of sales tax. Over Rs 2.8 billion was recovered from those withholding agents, who were required to deduct/withhold sales tax.

The board recovered Rs 600.17 million as penalty in 75 cases of minimum tax liability on indirect tax side. Within the category of sales tax/federal excise, the FBR identified 120,702 short-filers, null-filers and short payers during current fiscal year. Out of 1,603 short-filers and null-filers who were served notices, only 101 filed sales tax and federal excise returns. Thus, 1502 short-filers failed to deposit due amount of tax during this period.

The FBR recovered Rs 385.60 million from registered persons with the sales tax department. In case of direct taxes, the FBR detected 31,397 short-filers of income tax returns for tax year 2009. Resultantly, it issued notices to 20,765 registered short-filers and short-payers during this period. Around 6,335 short-filers filed returns and deposited Rs 2.312 million as tax, penalty and default surcharge.

The data further showed that FBR detected 138,503 non-filers and stop filers of sales tax returns. Out of 22,638 notices served to the non-filers and stop-filers, only 860 responded to these notices. The sales tax and federal excise, paid with the returns, stood at nearly Rs 3.44 billion. The non-compliance level in the sales tax regime was evident from the fact that 21,778 non-filers failed to respond to the notices issued by the sales tax department. The same trend was observed on the direct tax side where total 226,565 non-filers and stop filers were detected during 2009. Out of 85,456 notices issued to the non-filers, 22,034 non-filers filed returns along with payment of tax to the tune of Rs 3.422 million.

This data clearly reflects an alarming situation as 63,422 non-filers of returns did not comply with the notices. The data of 63,422 registered non-filers reflects the fact that field offices had failed to enforce the return filing even in case of registered units during tax year 2009.

The data for the tax year 2009 further showed that the FBR detected 4,056 non-registered non-filers of sales tax and federal excise returns. Through e-enrolment, the FBR registered 8,922 persons. This showed that FBR e-filing system had registered double number of taxpayers with the FBR Web-Portal as compared to detection of 4,506 non-registered non-filers of sales tax. The sales tax/excise paid along with the returns stood at Rs 432.60 million during the period under review.

As far as direct tax is concerned, the FBR detected 184,349 non-registered taxpayers during 2009. The new taxpayers, registered electronically, stood at 77,384. The FBR received 16,182 returns from the newly registered taxpayers as compared to total 77,384 registrations. Total amount deposited along with tax was Rs 30.22 million.

The data of 2008 also showed the same trend. The registration data showed that out of 4,124 non-registered persons, only 1,244 obtained registration with the sales tax department. There were 102,825 non-registered persons on direct tax side, and 37,483 persons were registered with the tax department.

The FBR identified 107,335 non-filers of sales tax returns during 2008. Out of 71,026 notices issued to the non-filers, only 888 filed returns during this period. In case of direct taxes, 336,129 non-filers were identified and only 49,906 filed returns.

Copyright Business Recorder, 2010

 

Aptma warns of countrywide closure of mills
RECORDER REPORT

LAHORE (May 11 2010): Spokesman All Pakistan Textile Mills Association (Aptma) has reacted strongly to irrational demand from value-added sector to impose Regulatory Duty on exports of cotton yarn and warned of closure of the spinning industry immediately in the country.

He deplored that the value-added industry was actually asking for miracle by demanding imposition of Regulatory Duty on exports of cotton yarn, as the most efficient spinning industry was already providing cheapest yarn to the domestic ancillary industry as compared to its immediate competitors ie India, China and Bangladesh in a situation when cotton prices are already at the level of $0.95 per pound in the international market.

He said it was already an open secret that commodity prices have jumped to abnormal levels world-wide and it was becoming unbearable for the spinning industry to import cotton at higher price and provide yarn to the domestic ancillary industry at subsidised rates. According to him, a few vested interest elements in the ancillary industry were misguiding the Ministry by providing it with wrong facts and figures.

It may be noted that the exports data released by the Federal Bureau of Statistics has revealed that the exports of value-added sector are gone up by 20 percent in quantity terms during January - March 2010 against 10 percent decline in exports of yarn in quantity terms during the same period. According to the Aptma spokesman, it was quite amazing that why the value-added sector was crying for restricting exports of yarn after booking record profits in the recent past.

He further said the exports data shows that the spinning industry was passing through difficult period after producing half a billion dollar worth of surplus yarn due to prevailing quantitative restraints already in place.

The Aptma spokesman said imposition of Regulatory Duty would render 70 percent of the spinning industry immediate closure. The Aptma spokesman pointed out that 60 percent of the value added exports are originating from Aptma covering all sub-sectors including fabric, processed clothes, towel, knitwear, bed wear and woven garments. Majority is not in favour of any restriction on exports of yarn and only a few vested interest elements are trying to put cart before the horse.

He has urged the President Asif Ali Zardari to take notice of the situation and avoid any situation leading to a chaotic situation in textile industry, already suffering heavily due to unfriendly attitude of international market amidst unprecedented energy crisis. Spokesman Aptma has also suggested the value-added sector to seek a direct subsidy from the government instead of pressurising the Ministry of Textile Industry to put restrictions on exports of spinning industry.

Copyright Business Recorder, 2010