Govt must focus on removing economic uncertainties on domestic front

LAHORE: The present government has somehow succeeded in improving the image of the country outside, but has failed to remove economic uncertainties on the domestic front which was impeding investment and business activities.

There are two issues that the businesses are facing. The first is the announcement of short-term measures to provide relief to the manufacturing sector and the second is lack of clarity on budgetary measures announced last month.

The economic managers are still negotiating with different sectors on many of those measures that give an impression that the government might reconsider and dilute some measures.

However, in one month long dialogue, only the condition of CNIC has been waived on purchases of less than Rs50,000.

All other measures remain in force. The government should make it clear that there would be no change in the taxation and administrative measures announced in the budget to remove uncertainty.

On withdrawal of zero-rating, the FBR chairman has firmly stated that this step was going to stay and the exporters were now making their business strategy in light of this reality. Since, now there is no uncertainty in this regard.

Ambiguity still exists on the issue of documenting traders. The FBR chairman has announced that shops established in area of 240 square feet would be charged fixed tax.

The tax would be determined on the basis of power use from those operating business on above 240 but up to 1,000 square feet. This is a general statement.

No one knows what will be the basis of that tax. There are medium-sized retail outlets that may opt for solar power to reduce the power bill or even use generators to avoid taxes.

Tax assessment should be based on some solid ground. There is no ambiguity about those operating business on premises exceeding 1,000 square feet as they would have to file normal tax return.

The majority of shops fall in the first category and they should know the exact tax that would be charged from them.

This government announced to rationalise power and energy rates around the country. Punjab was at disadvantage as far as gas charges were concerned as it consumes imported gas.

A fixed tariff of $6.5 per mmcfd was announced for the five exporting sectors in Punjab that was almost three times cheaper than imported gas tariff (the federal government provided subsidy to bring prices down).

The power rates for five exporting sectors were fixed at seven cents per unit throughout the country. These rates were first announced in October 2018 till June 2019. Now the facility has been extended for another six month.

These short-term extensions are keeping the exporters under stress.

These rates are attractive for the investors and provide level playing field to all the manufacturing exporters in the country.

The investors however need a long-term commitment on power and energy tariff from the state. The rates can be subjected to change only if there is a change in the regional competitive economies.

With these conditions, the government should announce a long-term tariff for power and gas for the exporting industries. It would encourage new investments.

Our export performance last year has exposed the limitation of our manufacturers. We have limited exportable surplus available after the closure of over 120 outdated spinning mills. These mills have to be replaced with updated technology to boost exports.

The government has minimised the misuse of zero-rating by exporting manufacturers by withdrawing this facility, and imposing 17 percent sales tax refundable on the exported goods immediately after the exports are executed.

It has definitely deprived numerous exporters of an opportunity to make some extra money by retaining the 5.0 percent sales tax on local sales (besides exports most of them were also active in the domestic market). They were surviving on government subsidy on gas.

Now they know that this subsidy would not last forever. They want to bring in efficient technologies to regain their lost markets.

For this they need a long-term policy on power and energy tariff that at least guarantees them that they would be paying tariff at par with the regional competitors.

A long-term policy in this regard would not only boost production but also create jobs throughout the value chain.