Federal Minister for Finance and Revenue Miftah Ismail said on Saturday that if Pakistan boosts its rate of tax-to-GDP and exports-to-GDP up to 15 per cent, the government would not need to ask for aid from the world.
Talking to business community here at Lahore Chamber of Commerce and Industry (LCCI), he said that at present, there was 9.5 per cent tax-to-GDP ratio. Pakistan’s exports were US $31 billion while imports were US $80 billion. No country could afford such a large trade deficit so we have to control unnecessary imports, he added. Miftah Ismail said that government was ensuring provision of 100 per cent facilitation to export-oriented industry with an effort to enhance the country’s overall exports.
Federal Board of Revenue (FBR) Chairman Asim Ahmad, LCCI President Mian Nauman Kabir, Senior Vice President Mian Rehman Aziz Chan and Vice President Haris Ateeq, former office-bearers and executive committee members were also present, while State Bank of Pakistan (SBP) Governor Jameel Ahmad attended meeting through Zoom. Finance Minister said that when the government came into power in April 2022, there was a serious threat of default as the foreign exchange reserves were US $10.5billion while US $36billions were required for debt repayments and other expenses so tough decision, based on ground realities, were needed to avert the default. He said that no international financial institution was lending those countries that did not have three months’ foreign exchange reserves.
About the withdrawal of subsidies on petroleum products and power, he said, it was condition of IMF and was needed in order to bring Pakistan’s economy on the right track. He declared that the risk of Pakistan’s default had evaporated due to tough decisions such as an increase in energy prices and curtailment of imports, which slashed the demand for foreign exchange. He said that at present, Rs7.5 per litre and Rs37.5 per litre taxes were imposed on diesel and petrol respectively. Miftah said that unfortunately the industry could not grow at a pace, which was required added that the production of electricity doubled from 13,000MW to 25,000MW in 2013-2018, but industrial production did not grow enough to consume this energy and increase the exports of the country.
He said that per unit generation cost from Jamshoro power plant was Rs59 which reaches to Rs78 after transmitting to the consumers. Miftah said that the government had passed on just the cost of fuel and LNG to the consumers. The finance minister directed the chairman FBR and governor SBP to look into the suggestions presented by the LCCI and create conducive environment for the businesses. He had asked the top men to hold meetings with the LCCI representatives. Miftah Ismail said that the estimates of flood destruction were US $18.5 billion. He mentioned that 6,500 km of roads, 246 bridges, 1.7 million houses had been destroyed. One million animals died and 1,300 people lost their lives in the natural calamity. The entire cotton of Sindh had been destroyed which would have to be imported and two thirds of rice crop had also been destroyed.
He said that the government alone could not overcome such a huge losses due to deluge-floods and torrential rains in the country, therefore the rich and affluent people, especially the industrialists and businessmen particularly from Karachi, Lahore, Faisalabad, Sialkot, Rawalpindi and other major cities, would have to come forward for the help and support to the people affected by the floods.
LCCI President Mian Nauman Kabir said that due to economic uncertainty, private sector was facing a lot of issues, hike in cost of production for industry, manufacturing and agriculture sectors as they were heavily reliant on imports of raw materials, components, machinery, oil, food items and fertilizers etc.
About seeking prior approval from the SBP for the import of machinery under Chapter 84 and 85, he said that holding of shipping documents by commercial banks was adversely impacting the operations of the businesses and also resulting in bearing undue demurrage charges due to the delays in getting the required approval.
He also highlighted the issue of demurrage charges which were badly hurting the business community, asserting that this matter was still pending and was required to be expedited on priority. Any decision of demurrage waiver must be implemented across the board including the private shipping companies, he requested. The LCCI president said that the Ministry of Finance should take concrete measures for permanently solving the long standing issue of the misuse of tax exemptions by the industries based in FATA/PATA that resulted in heavy tax evasion. Once these exemptions get expired in June 2023, they should not be renewed.
He said that upon their continuous complaining, the authorities concerned informed them that strict action was being taken against the banks for exploiting the business community for demanding 10 to 15 rupees over and above the inter-bank dollar rate for releasing the import shipment documents.
Mian Nauman Kabir said that LCCI should be given representation on the various boards working under the Finance Ministry. To curtail dependence on textiles, he recommended to give special fiscal incentives to other potential export sectors of the economy e.g. Halal food, IT, pharmaceuticals and engineering etc. He said that a cash incentive scheme on the model of 1960s should be given to potential export sectors.
LCCI Senior Vice President Mian Rehman Aziz Chan and Vice President Haris Ateeq said that exports to potential markets like Africa, Central Asia, Iran and Russia could not be increased due to lack of banking channels and other alternate arrangements such as barter trade. SBP and other relevant authorities should be directed to take special measures in this connection. Mian Nauman Kabir said that Pakistan desperately needed to enhance the export competitiveness of its SME sector. The foremost thing to address was the issue of inadequate access to finance for SMEs as its share in private sector credit was less than six per cent. Better oversight of SBP should be ensured over the commercial banks and obligating them to create more financial space for SMEs.
He said that the tax base was still around three million taxpayers, resulting in one of the lowest Tax to GDP ratios in the world. The industry was bearing the large burden of taxes while the contribution of agriculture and services in the tax collection was not proportionate to their share in GDP. Broadening of tax base across various sectors of the economy, especially services and agriculture was the only way forward.