The Lahore Chamber of Commerce and Industry (LCCI) is an important trade body of the country and its recommendations are usually taken quite seriously at the time of budget formulation. Presenting proposals to the Federal Finance Minister, Asad Umar, for the Federal Budget 2019-20, LCCI president Almas Hyder, on behalf of all chambers of commerce and industry in the country, suggested that customs duties on all raw materials should be zero or very low. The government must also eliminate regulatory duties and additional customs duties on raw materials so that local industry can be able to compete with the smuggling and mitigate the effects of low tariff free trade agreements. Customs duties on intermediary products should be reduced so that our industry is able to import quality materials, components and machinery from the rest of the world. Non-payment of refunds is drying out liquidity from the market and refunds should be issued automatically without application or pre-audit, within 60 days as per rules. Mark-up rate should be reduced as it has made borrowings expensive. Benefit of tax holiday should not be just for new projects but also for expansions. The provincial governments should re-zone areas in and around urban centres, both for industrial and commercial use to help entrepreneurs invest in green field and other projects. Company offices should be formed for registration of new companies and registration of a company should be separated from regulating a company. There should be one tax collection authority for collecting of both federal and provincial taxes and total number of taxes should be reduced to five by clubbing frequency of tax payments. There should also be holiday for all taxes and levies for three years for the newly-registered companies, especially for SMEs. No exemption should be given on imports, if the equipment, machine or part is locally manufactured.
It may be mentioned that proposals for the next budget are usually made separately by all the chambers every year. Such a practice does not only make the budget exercise more complex and time consuming but results in unnecessary repetition of the budget proposals. By clubbing the proposals of all the chambers after various brainstorming and consultative sessions, the chambers this time have made the task of the government easier and authorities are likely to give more weight to these proposals at the time of the budget. The cooperation between the government and the private sector at all levels, including the budget preparation exercise is all the more important since the new government is relying very heavily on the private sector for growth and employment generation and the Prime Minister has reiterated at various forums that he is not against wealth creation which is made through legal means and could accelerate economic development.
Coming to various proposals of the chambers, most of the suggestions make a lot of sense and could be defended on various grounds. We are sure that the industry would be greatly facilitated if these recommendations are adopted and made part of the budget for FY20. For instance, it would greatly help the industry if customs duties and other levies on capital goods and raw materials are reduced to zero or to a very low level. Such a strategy would not only support export expansion efforts of the government but will decrease the level of smuggling in the country and could compress imports. Payment of refunds in time is an old demand of the chambers and, if accepted, could increase the level of liquidity, especially in the export sector. Since most of the demands of the chambers are reasonable, Asad Umar has agreed with them and directed his ministry to ensure early payment of refunds up to Rs 5 million. He also consented to the suggestion of automatic payment of refunds within 60 days and said that facilitation of the business community is the top priority of his government as private sector will lead the economy in the near future.
It is, however, regrettable that the chambers have made various suggestions to benefit themselves without caring much about their impact on government finances and the level of imports. Their proposals can have been accepted after due consideration if Pakistan's fiscal position is strong and there is enough space for granting concessions and exemptions. Unfortunately, however, government's budgetary position at present is extremely weak and Pakistan's fiscal deficit has crossed 2.7 percent of GDP in the first half of this fiscal year - the highest in eight years - despite austerity drive and the slashing of PSDP by the government. The government also does not appear to be serious in reducing the budget deficit by undertaking revenue mobilization efforts. In such a scenario, if the demands of the chambers are accepted, these will result in further widening of the budget deficit with all its negative implications. There is also no doubt that the acceptance of chambers' demands will increase the level of imports which the country can ill-afford at the moment. The demand of lowering the mark-up rates on advances is also not likely to be accepted since the monetary policy of the country is determined by a different set of variables. All in all, the demands of the chambers are worth consideration but their acceptance will depend on a host of other factors which do not seem to be favourable at present.