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May 31, 2020

Time to start planning for post-pandemic economy

Business

May 31, 2020

LAHORE: Post-pandemic economic planning needs careful deliberations to remove numerous flaws in our policies by forming different chambers for trade and industry, giving priority to value-added textile sector and giving preference to auto vendors instead of auto manufacturers.

There is a conflict of address between the trade and industry. The traders desire lower import duties, indulge in massive under-invoicing and undermine the viability of numerous domestic industries.

Since their members have conflicting interests they recommend half cooked measures that impede growth potential of the country. They are against raids by revenue officials on smugglers, under-invoicing importers and tax evaders.

Industrialists record their businesses and pay taxes accordingly (some may under report though). The traders pay their taxes on their own assessment without oversight of tax collectors and the chambers of trade and industry have more trader members than industrialists; therefore, their word carries weight.

We all know that the basic textile tycoons are eyes and ears of our policy makers. Most of their interests are in conflict with those of the value-added sectors. They want protection on import of yarn and fabric that are the basic raw materials of high valued textiles. They want protection against even those yarns and fabric that they do not produce in Pakistan, which ultimately limits the scope of Pakistani textile exports to the global market.

It is high time the government gives preference to these weak stakeholders (in economic sense, otherwise they are the main stakeholders in textiles).

In the auto sector, there is one very strong association the Pakistan Automobile Manufacturers Association. This comprises almost all the manufacturers that produce any complete auto unit for our roads, which includes passenger cars, buses, tractors, trucks, wagons, pickups, two and three wheelers.

Under the law, they are bound to procure all local auto parts duly approved by accredited international labs or their foreign principles.

If they import those parts they are subject to high punitive duties. For the parts that are not produced in Pakistan these auto manufacturers are allowed to import them at concessional duties. Some PAMA members are big and highly influential businessmen. Still on paper, all abide by these rules.

However, there are numerous loopholes that have developed overtime and they take advantage of these openings and import locally-produced parts at lower duties.

One such problem is our bureaucracy and the regulatory institutions that after issuing an SRO never think of revisiting and update them according to changed conditions.

For instance, SRO 693 (1) 2006 gives protection to the automotive parts manufacturers by imposition of CD + ACD + RD on locally-developed parts, yet intended for imports.

However, in the absence of clear PCT heading/HS coding, many parts under this SRO are exposed and can inadvertently be shifted to lower cost imports via SRO 656 or 655(I)/2006 that hurts the essence of SRO 693, rollbacks localisation and cause huge loss to the national exchequer.

Moreover, the nomenclatures of listed parts have changed, the technologies of parts have changed, many components are no longer in use, but still in the list.

In short, SRO needs upgradation. The current 693 nomenclatures/list of parts were provided by OEM with models under production at that time. EDB needs to upgrade/update SRO 693 with new localised parts/nomenclatures with a floor of current list by OEM by June 30, 2020 and subsequent upgrading each quarter.

Another point agitating auto vendors is almost suspension of localisation of auto parts under SRO 655 (I)/2006 that support localisation of parts with the government support in the form of cascading.

The OEMs are not pushed because there are no distinction of use any parts from SRO 693 and 656 that can be added to SRO 655 with lower tariffs.

This anomaly has effectively rolled back localisation and stopped further deletion of imported parts. It is unfortunate that no formal time line is determined for the local development of CKD parts imported under SRO 655.

All this is going on when the chairman of the Engineering Development Board is an auto vendor. He should not have been offered this post, as he had a conflict of interest.

The above facts have been conveyed to the EDB by the representative body of the auto vendors. Perhaps taking any action that might displease the OEMs to whom he supplies parts is preventing him from taking a strong stance.

Post-pandemic, we should get assurance in writing from all regulators that they do not have any conflict of interests in the sphere where they would act as regulators.