‘Suggestions of trade unions can spur growth’

LAHORE: Every year trade associations send recommendations to the Finance Ministry that would generate growth in respective sectors but ministry rejects these assuming vested interests, experts have said.
Some of these recommendations are based on vested interests but a number of recommendations have a rationale for growth in these sectors and further job creation, they added.
The business community is perplexed these days thinking whether the upcoming budget would carry the signature of the bureaucracy or based on rational approach to spur sustained growth.
Senior economist Naveed Anwar Khan said the budget exercise does not include input from economic experts. The government is routinely short of funds and the bureaucracy puts forward taxation measures that are easy to implement and do not need tax collectors’ efforts.
He said sales tax for instance has been gradually increased from 12 percent to 17 percent as its collection at the import and manufacturing level does not require extra efforts by them.
Similarly, increasing central excise duty is an easy measure but these indirect measures are not limited to indirect taxes, as even the income tax is generated as withholding tax at import or manufacturing stage.
Since this also does not require efforts from tax collectors the rate of withholding tax is also periodically increased whenever additional taxes are required, Khan added.
Economist Faisal Qamar said increasing taxes is essential to running the affairs of country. However, higher taxes could still be collected if the businesses grow without any increase in tax rates. For instance, the tiles manufacturers have pointed out time and again that tiles from China are being imported at highly under invoiced value.
He said China enjoys duty concessions on tiles under the FTA and now the government is planning to further cut duties on tiles. ‘In presence of uncontrolled under invoicing the local production of tiles would further suffer and cost few thousand jobs,’ Qamar said, adding that if under invoicing is controlled with the assistance of technology the local production would double and jobs would be added in the sector.
He said poultry sector is in turmoil because the processed chicken meat is being imported at concessional rates from China and Malaysia and at the same time the domestic poultry processors are being subjected to heavy taxes on the imported inputs needed to process meat.
This, he added, is an anomaly that has existed since 2012. This has encouraged the multinational fast food chains to import meat instead of buying it locally.
Three years back these food chains were buying the meat from local manufacturers.
Market Analyst Amina Usman said that banks are lending money to the government and buying treasury bonds at KIBOR plus two percent, adding that this has crowded out credit for the private sector.
She said there should be a limit up to which the banks could tie their resources in government bonds that are risk free. In the presence of risk free treasury bonds they do not need to take any risk as they are guaranteed a hefty profit, she added.
Usman said few years ago banks heavily indulged their resources in the stock market and were restricted by the central bank to reduce stocks exposure to 20 percent of their deposits. Similar restriction should be imposed on exposure to government bonds, she added.
Pakistani industry needs access to finance but large scale industries have withheld investments as they are not happy with the government policies. On the other hand, Small and Medium Enterprises (SMEs) that are the backbone of any economy are denied access to credit because of huge investment in government of Pakistan bonds.
A limit on exposure to government bonds would spare finance for SMEs that are the largest providers of jobs in the country, Usman added.