Hostile tax system pushes trade deficit to record high: KCCI

KARACHI: The hostile tax system and frequent policy changes have badly affected exports, as the country is bracing for largest-ever trade deficit, estimated at $32 billion in the fiscal year 2016/17.

The Karachi Chamber of Commerce and Industry (KCCI) in a report on declining exports of the country issued on Wednesday said the country would face mounting pressures on its external side at the end of the current fiscal year.

The exports are mere $18 billion in the first 10 months of the current fiscal year with imports at alarmingly high trajectory of $43 billion.

“… future increase in oil prices and enhanced CPEC-related machinery imports would make the largest import bill to hit $52 billion, while exports would hardly make it to $20 billion, making the country register the huge trade gap of around $32 billion in 2016/17,” it added.

The report also said the government had resorted to squeeze the manufacturing sector with the imposition of higher taxes. Since agriculture sector, which is 20 percent of GDP, is actually tax exempted and services sector is also a provincial subject, many small and medium enterprises (SMEs), cottage industries and individual businesses are either not strong enough or not in the tax net to contribute much to the national exchequer.

“The larger industries, which are capable of exports remains on the hit list to meet the rising revenue targets,” the report added.

“The policies are changed frequently and mostly becoming harsher for the industries and provision of unabated discretionary powers are leading to harassments of businesses,” it said.

The report is also not hopeful of any uplift in exports under the prime minister’s export package worth Rs180 billion announced in January 2017.

“This measure has been adopted for the period of January 2017 to June 2018, which is very short and; therefore, would not help uplift exports,” it said.

The finance ministry’s failure to release funds on time remained another obstacle, which comes in the way of boosting exports through such packages, the report said.

The KCCI report also rejected the claims of government authorities that exports had declined due to fall in international commodity prices, especially crude oil. Regional competitors such as China, India, Bangladesh and Vietnam have grabbed good chunk of Pakistan’s market share in various export categories in the past few years.

“Bangladesh and Vietnam experienced continuous rise in global exports share even when the international commodity prices were at their lows,” the report added.

Since UK is one of the largest export partner of Pakistan, which would not be the part of the EU any longer after Brexit, tariff relief extended under the GSP Plus Scheme would be ended and; therefore, greatly hit the exports quantum of Pakistan. After UK exits the bloc, the EU’s share would be reduced to 24 percent from 31 percent, it added.

The report said CPEC would result in improved Pakistan’s infrastructure by laying down road and railway networks, setting up power projects, industrial economic zones and deep sea port, which bodes well for exports and manufacturing.