While expressing deep concerns over Rs170 billion taxation measures announced in the Mini Budget in a bid to implement IMF’s prior action to resume IMF-EFF program for subsequent release of $1.2 billion tranche which, under the current serious crises of balance of payment, might be a step that cannot be averted but at the same time, President Karachi Chamber of Commerce & Industry (KCCI) Mohammed Tariq Yousuf stated that this Mini Budget along with upsurges in petroleum and gas prices would further worsen the inflation and the economy, besides exerting unbearable pressure on common man and the businesses who will go into severe crises due to one percent increase in GST, swelling petroleum products’ prices and massive hike in gas tariff.
“The decision to raise GST from 17 percent to 18 percent would make all the goods expensive for poor masses who were battling every day to earn some bread and butter whereas the industries and businesses, which were already underperforming due to various issues, will not be able to sustain the impact of anti-business measures announced in the mini budget”, he said in a statement issued.
Tariq Yousuf feared that the economic slowdown would further deepen on account of massive hikes in petroleum and electricity prices, especially for export-oriented sector the withdrawal of subsidies would raise electricity prices by around 80 to 85 percent which for the export industry would be lethal. “This definitely needs to be revisited by visualizing the injury it can cause to the export-oriented sector.”
“Federal Govt has already notified a massive hike in gas prices by up to 112 percent and even, gas price for general industry has been increased by 35 percent, which will inflate the cost of doing business in Pakistan’s manufacturing sector. The large-scale Manufacturing has already nosedived to 3.5 percent in Dec 2022, marking the sixth monthly fall in the current fiscal year”, he said, adding that consequently, Pakistan’s Regional Competitiveness has been deteriorating as compared to India and Bangladesh, negatively affecting Pakistan’s economic growth which has been predicted by international agencies to go below the 2 percent mark in FY23 as compared to 5.97 percent last year.
He was of view that the situation would lead to a massive hike in the inflationary pressure, which is likely to be countered through an increase in the interest rates to 19-20 percent by the State Bank. As a result, the country experiences the worst phase of stagflation, leading to a hit on Pakistan’s macroeconomic and revenue growth negatively & exposing vulnerabilities going forward in FY23.
“Consequently, it is unlikely that such measures could bridge the net tax collection as tax collection is in terms of rupee which has depreciated by 20 percent so at the import, FBR would be able to collect 20 percent more in rupee terms so if they even succeed in surpassing the target, the actual tax collection would be lower. As this is not the budgeted revenue which has come out of rupee depreciation, we would like to request that this revenue should not be treated as tax revenue for FBR and the government should seal the dollar value at import stage for evaluating duties let’s say for example at Rs230 which would certainly help in controlling the inflationary trends.
President KCCI pointed out that CPI inflation has already skyrocketed to 27.55 percent for January 2023 as compared to 13 percent last year and now with increase in GST, POL and Gas prices, the domestic food prices would go up to the next unbearable level which would increase the hardships for the masses. “Keeping in view the current development, we hear that the inflation may even jump up to somewhere in between 35 to 40 percent in FY23 which would negatively affect the purchasing power of the public.”
He said that the Federal Govt has proposed an increase of GST to 18 percent sales tax on locally produced coal and increase in FED by Rs0.5 on cement from Rs1.5 per kg to Rs2 per kg which will obviously be passed on to final consumers and would negatively affect industrial & construction activities and the economic growth.
Commenting on federal Government’s proposal to increase 20 percent or Rs 50,000 (whichever is higher) tax on one business or a first-class air ticket, he said that this needs to be clarified.
He appreciated government’s move to increase funds to Rs400 billion for Benazir Income Support Program (BISP) and keeping the wheat prices intact under difficult financial conditions and limited fiscal space. Referring to the decision to enhance Federal Excise Duty (FED) rates on cigarettes, he said that this was also a welcome step which will raise around Rs115 billion. “The increase in FED by 10 percent on Sugary fruit juices, syrups, squashes, artificial sweeteners, etc. and 25 percent GST on the imported luxury items also need to be appreciated which will restrict the country’s unproductive imports and save the desperately needed dollars”, he said.
He said that the Karachi Chamber fully supports Finance Minister Ishaq Dar’s remarks about the need for Charter of Economy in which all the political leaders should sit together and vow to play role in strengthening the economy irrespective of their party affiliations.
“At the same time, when we understand the requirement of this mini budget, we also would like to see some positive pragmatic and futuristic steps for short, medium and long term. Our savior lies only in increasing the exports and home remittance. Export can only increase if we have competitive edge and this competitive edge can only be achieved if the exporters are supported in terms of cashflow, long term investments, BMR and in terms of efficient productivity and for that purpose, energy, which is the basic raw material for any industry, needs rationalization”, said President KCCI, “In order to make exports competitive in the world market and win the price-war, it is imperative that we make policies which can make exporters of Pakistan competitive.”
He suggested that that Sales Tax Refunds should be given within 72 hours as implemented under FAST System and the rates of refinance and long term financing facility should also be reduced while a special window for cashflow should also be initiated and in order to increase the home remittances which are the biggest source for foreign exchange, the government should follow the footsteps of other countries where higher rates than the normal market rates are offered to those who send remittances from abroad which would actually enhance inflow of remittance by US$5 to US$10 billion.
Similarly, the import-substitution industry needs to be supported and so that import is curtailed and of course the conservation measures to reduce the oil bill also need to be taken on urgent basis. Conservation of electricity and conservation of fuel is also required in such a manner that fuel given to bureaucracy and others be curtailed to half and even and odd number vehicles should be allowed each day on the roads and green energy should be promoted to reduce the import bill of fossil fuels in a medium term, he added.