Federal Minister for Finance and Revenue Miftah Ismail has said that Pakistan’s estimated flood destruction stood at $18.5 billion. The flood destroyed about 1.7 million houses, the entire cotton crop of Sindh, and two-thirds of the rice crop, besides killing 1300 people and one million animals, he said speaking at a meeting with the Lahore Chamber of Commerce & Industry (LCCI).

Miftah Ismail said at present, Pakistan’s exports stood at $31 billion while its imports were $80 billion, so unnecessary imports had to be controlled to check the trade deficit. Mentioning the present 9.5 % tax-to-GDP ratio, he said, if the rate of tax-to-GDP and Exports-to-GDP was boosted to 15%, the government would not need any international aid.

The finance minister said that when the government came into power in April, there was a serious default threat as the foreign exchange reserves had fallen to $10.5 billion while $36 billion were required for debt repayments and other expenses.

Therefore, tough decisions, based on ground realities were needed to avert the default, he said, adding that the international financial institutions extended borrowing to those countries that had foreign exchange reserves for more than three months.

About the withdrawal of subsidies on petroleum products and power, he said it was a condition of the IMF and was needed to bring Pakistan’s economy on the right track. The minister declared that the risk of Pakistan’s default had vanished due to tough decisions such as an increase in energy prices and curtailment of imports, which slashed the foreign exchange demand. He said that at present Rs. 7.5 per litre and Rs. 37.5 per litre taxes were imposed on diesel and petrol respectively.

Miftah Ismail regretted that the industrial growth could not grow at the required pace despite doubling electricity production from 13,000MGW to 25,000MGW in 2013-2018. This restricted the country’s export earnings, he added. He directed the chairman of the Federal Bureau of Revenue and the governor of the State Bank of Pakistan to look into the suggestions presented by the LCCI and create a conducive environment for the businesses.

Speaking on the occasion, LCCI President Mian Nauman Kabir said that due to economic uncertainty prevailing in the country, the private sector was facing many issues. He said that even though Pakistan had received more than $1 billion loan tranche of the IMF’s Extended Fund Facility, the currency value was yet to stabilize and the economy was experiencing another round of devaluation. The value of the dollar had crossed Rs. 228 in the interbank market, he added.

The LCCI president said that the currency devaluation was the mother of all evils and resulted in multiple economic problems such as a hike in the cost of production in the industrial, manufacturing and agriculture sectors. Pakistan was heavily dependent on imports of raw materials, components, machinery, oil, food items and fertilizers, etc.

He said that other than the IMF tranche that had been recently received, there would be some additional financial inflows in the pipeline from other donor agencies and friendly countries in the coming months. He hoped it would further strengthen the forex reserves.

About seeking prior approval from the State Bank of Pakistan for the import of machinery under chapters 84 and 85, Mian Nauman Kabir said that the holding of shipping documents by commercial banks was adversely impacting the operations of the businesses.

It was also resulting in bearing undue demurrage charges due to the delays in getting the required approval, he said, adding that for the last two months, LCCI was being approached by numerous members on daily basis in that connection.

Highlighted the demurrage charges issue, he said, it was badly hurting the business community. The matter was pending and required to be expedited on priority. He said that any decision of demurrage waiver must be implemented across the board including the private shipping companies.

The LCCI President said that the Ministry of Finance should take concrete measures to permanently solve the long-standing issue of the misuse of tax exemptions by the industries based in FATA/PATA, which resulted in heavy tax evasion. Once these exemptions expired in June 2023, they should not be renewed, he added.

Mian Nauman Kabir suggested that LCCI should be given representation on various boards working under the Ministry of Finance. To curtail Pakistan’s dependence on textiles, he recommended giving special fiscal incentives to other potential export sectors of the economy, such as Halal Food, Information Technology, Pharmaceuticals and Engineering.

Mian Nauman Kabir said that the 15% policy rate was considerably higher as compared to other regional economies, for example, India 5.4%, Bangladesh 4.75%, and China 3.7%. This has made access to credit considerably expensive for the private sector and would hinder the process of industrialization and private sector growth.

Mian Nauman Kabir said that Pakistan desperately needed to enhance the export competitiveness of its small and medium enterprises (SMEs) sector. The foremost thing to address was the issue of inadequate access to finance for SMEs, whose share in private sector credit was less than 6%. He said better oversight of the State Bank of Pakistan should be ensured over the commercial banks and obligating them to create more financial space for the SMEs.

He said that according to the State Bank’s data, the outstanding domestic debt of public sector enterprises stood at around Rs 1,800 billion as of June 2022. These losses resulted in the misallocation of taxpayers’ money and reduced the much-needed fiscal space for social sector development. He called for planning to deal with these losses.

He said that the tax base was still around 3 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 of GDP. He opined that broadening of tax base across various sectors of the economy, especially services and agriculture, was the only way forward.

Credit : Independent News Pakistan-WealthPk