Friday, 05 June 2009 10:27

LAHORE: The federal government is likely to reduce SIM activation tax by 40 per cent to Rs300 from Rs500. However, no reduction would be made in general sales tax as the government has no other way of easy collection of GST for revenue generation, The News has learnt.

All stakeholders of the telecom industry had proposed to the government to withdraw SIM activation tax in upcoming budget in order to encourage more investment in the high-growth industry. However, the government has decided to reduce the activation tax and may waive it completely later once revenues from other sectors come.

Sources in the finance ministry revealed that initially the government was considering completely removing the SIM activation tax and reducing the GST from 21 per cent to 18 per cent. However, it was prevented by the economic recession and the Supreme Court’s pressure to cut petroleum product prices, which may make it difficult for the government to achieve its revenue target.

Industry stakeholders say that high tax rates had badly affected the usage of services, leading to a sharp decline in the revenue of the cellular industry. It has also affected revenue contribution of the cellular industry to the national exchequer.

The contribution of telecom sector to the national exchequer declined by 18.7 per cent in the first half year of 2008-09 as compared to 24.6 per cent share of GST, recorded in the same period of previous fiscal year.

A Pakistan Telecommunication Authority (PTA) report also showed that the revenue of telecom sector had sharply declined in the first two quarters of fiscal year 2008-09 as compared to the previous fiscal year. In April-June 2008, the Federal Board of Revenue (FBR) received Rs12.4 billion from the telecom sector at the rate of 15 per cent GST. Whereas, its receipts in the period of July-Sept and Oct-Dec 2008 were recorded at Rs11.4 billion and Rs11.7 billion at 21 per cent GST rate, depicting contraction of eight and six per cent in indirect taxes, respectively. The cellular phone companies contributed a lion’s share to the overall GST amount of telecom sector.

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KARACHI: The State Bank of Pakistan has said agriculture sector growth will be better this financial year because of growth in major crops. In its third quarterly report (Jan-Mar 2009), the State Bank said fertiliser offtake remained low and production of sugarcane was also low, but growth was supported by minor crops along with rice and wheat.

“It could have been even better if sufficient inputs — irrigation water, fertilisers and certified seeds ñ had been used,” said the report. It said less than required irrigation water, concern over high prices and timely availability of fertilisers as well as plantation of substandard seeds restricted possible gains.

It observed that farmers did not get proper prices of paddy crop. “Following a drop in international rice prices and weaker exports, farmers did not get prices as high as anticipated earlier.” In addition, the farmers faced late start of sugarcane crushing and delayed payments despite domestic shortages of sugar. With respect to major crops, the central bank observed that despite less than required irrigation water, rice cultivation increased as the crop was supported by monsoon rains later.

It said wheat sowing area increased mainly due to the higher support price announced before sowing of the crop. Rains at the time of cultivation also helped increase non-irrigated area under wheat during fiscal year 2008-09.

Wheat harvest is provisionally estimated to have reached a record high of 23.3 million tons, slightly higher than 23.29 million tons achieved in FY07.

The State Bank noted that despite a sufficient wheat crop in recent years, there were shortages of the grain domestically because of cross-border smuggling and hoarding. It suggested that in order to provide cheaper bread to the masses checks should be applied to subsidised supply to the mills.....................

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DHAKA: Bangladeshis working abroad sent home a record 890 million dollars in May, defying warnings by international economic experts of a massive downturn in global remittances.

The May figure was up from 730 million dollars the same month a year ago and marked a record monthly high for the impoverished country which relies on remittances to help prop up its economy, said the central bank.

“This is the highest month we’ve ever had. We don’t know the reason. Many people are returning home because of the recession but many more are still leaving,” Bangladesh Bank executive director Khandakar Muzharul Haque said.

“Perhaps later this year or early in 2010 we’ll start to see a downturn.

Every day we are told to expect the worst but the monthly figures keep defying the predictions,” Haque told AFP.

The previous monthly remittance record was set in March when Bangladeshis overseas pumped 881 million dollars into the economy.

The World Bank, the International Monetary Fund and the Asian Development Bank have all forecast lower remittances in 2009.

In 2008, Bangladeshis working abroad sent home nine billion dollars accounting for more than 10 per cent of the country’s gross domestic product.

Remittances represent Bangladesh’s second-highest earner after exports.

According to government statistics, 6.3 million Bangladeshis work in other countries, although unofficial estimates put the figure at around nine million.

Bangladesh, one of the poorest countries in the world with a population of 144 million, counts on the inflow of foreign exchange to fund its imports.

Courtesy: The News

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LAHORE: The federal government is likely to reduce SIM activation tax by 40 per cent to Rs300 from Rs500. However, no reduction would be made in general sales tax as the government has no other way of easy collection of GST for revenue generation, The News has learnt.

All stakeholders of the telecom industry had proposed to the government to withdraw SIM activation tax in upcoming budget in order to encourage more investment in the high-growth industry. However, the government has decided to reduce the activation tax and may waive it completely later once revenues from other sectors come.

Sources in the finance ministry revealed that initially the government was considering completely removing the SIM activation tax and reducing the GST from 21 per cent to 18 per cent. However, it was prevented by the economic recession and the Supreme Court’s pressure to cut petroleum product prices, which may make it difficult for the government to achieve its revenue target.

Industry stakeholders say that high tax rates had badly affected the usage of services, leading to a sharp decline in the revenue of the cellular industry. It has also affected revenue contribution of the cellular industry to the national exchequer.

The contribution of telecom sector to the national exchequer declined by 18.7 per cent in the first half year of 2008-09 as compared to 24.6 per cent share of GST, recorded in the same period of previous fiscal year.

A Pakistan Telecommunication Authority (PTA) report also showed that the revenue of telecom sector had sharply declined in the first two quarters of fiscal year 2008-09 as compared to the previous fiscal year. In April-June 2008, the Federal Board of Revenue (FBR) received Rs12.4 billion from the telecom sector at the rate of 15 per cent GST. Whereas, its receipts in the period of July-Sept and Oct-Dec 2008 were recorded at Rs11.4 billion and Rs11.7 billion at 21 per cent GST rate, depicting contraction of eight and six per cent in indirect taxes, respectively. The cellular phone companies contributed a lion’s share to the overall GST amount of telecom sector.

Sources in government quarters of telecom sector revealed that the main objective of reduction in SIM activation tax is to provide relief for the operators in order to encourage them for further direct investment. It had also proposed to reduce the GST in order to increase the use of cellular services, but this proposal was rejected due to the economic crunch, they added.

Courtesy: The News

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The week saw a number of pre-budget seminars and discussions ahead of the Federal Budget.

During one such seminar advisor to the PM on finance Shaukat Tareen made vague promises but the businessmen have no clue as to how the economy would be revived.

In fact, the Lahore Chamber of Commerce and Industry and many other trade organisations are worried because they have not been consulted in the budget making process

They say that besides general impediments faced by the industries like high mark-up and high inflation each industrial sector has specific problems that have to be addressed separately from the general economic policy.

They wonder as to how the federal government would be able to resolve these specific issues without interacting with the main stakeholders of these sectors.

“Country’s economy is at a stage where we cannot bear the further continuation of the current economic policies or introduction of a new policy without taking the stakeholders on board,” said Syed Nabeel Hashmi, former chairman of Pakistan Association of Auto Parts and Accessories Manufacturers.

He said the problems in the auto sector for instance relate more to the transparent implementation of already agreed auto-deletion policy and adjusting the tariffs on components that could be manufactured in Pakistan but are imported in the semi knocked down kit.

He said the issue of mark-up on car financing particularly on cars below 1000 cc is another matter that has not been discussed with the auto-vendors who are the main investors and employers in the auto-industry.

Vice Chairman Pakistan Hosiery Manufacturers Association Adil Butt said that the change in global scenario has severely impacted the clothing exporters of Pakistan. He said this sub-sector of textile needs immediate government help as clothing accounts for over 70 per cent of the total global textile trade.

He said the government of Pakistan should have launched a big diplomatic offensive to get market access for Pakistan clothing products instead he regretted that the economic managers of the country are silent even when the United States is about to approve legislation that would provide zero rated access to textiles from Bangladesh, Cambodia and Sri Lanka.

Former Chairman All Pakistan Contractors Association, Akber Shiekh, said that the construction boom witnessed in the past year is about to bust. He said the construction industry growth in the current fiscal declined by 11 per cent. He said this should have been an eye opener for the planners who should have consulted the stakeholders of this industry.

However, he added there has been no high level contact with the federal government to find out ways to stop this decline.

He said the construction sector is the largest provider of employment to unskilled labour force of the country. There are more unskilled unemployed workers in Pakistan than the skilled workers.

More over he added that depression in construction activities spell disaster for over four dozen industries associated with construction activities. He said decline in cement, steel, fan, cables, bricks, paints and many other industries are the direct result of decline in construction activities.

The industrialists of the city have however heaved a sigh of relief at the announcement of Shaukat Tareen that there would be no new taxes on the manufacturing sector and his assurance that there would be no increase in general sales tax.

President Lahore Chamber of Commerce and Industry, Mian Muzaffar Ali, however said that there is a need to reduce the rate of GST and bring all tax evaders into the tax net so that the tax burden on industries could be lowered.

Courtesy: The News

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KARACHI: The relative ease in inflationary pressures that began in Q2-FY09 has continued into Q3-FY09 with all price indices exhibiting a declining trend.

Meanwhile, income group-wise inflation during FY09 shows that the highest incidence of inflation has shifted from lower income groups to middle income groups since November 2008. The relative ease in inflationary pressures for the lowest income group can be attributed to declining food inflation, given that staple food accounts for a greater proportion of their total expenditure.

Income group-wise inflation data further reveals that all income groups, except the highest income group (with earnings above Rs12,000), recorded higher inflation incidence than the overall CPI inflation throughout FY09. Signs of easing inflationary pressures are also evident in the decline in persistent component of inflation, which is measured by core inflation.

The Non-Food Non-Energy (NFNE), and 20 per cent trimmed mean, core inflation measures have both shown signs of relative ease since March 2009. A major contributory factor to this was the tight monetary posture of the central bank throughout 2008. The SBP raised its policy discount rate four times during 2008, for a cumulative increase of 500 basis points, taking the discount rate to 15 per cent.

The subsequent improvement in fiscal discipline, and plunge in international commodity prices paved the way for containing excess demand and inflationary expectations. Accordingly, SBP reduced its policy discount rate by 100 basis points to 14 per cent on April 20, 2009. In case of month-on-month (MoM) inflation, all inflation measures have also declined from their peak levels.

Inflationary pressures are likely to continue easing in Q4-FY09. While the annual inflation for FY09 is expected to be well above its annual target of 11 per cent, given that inflation measured by 12 month moving average for April 2009 is still 22 per cent.

Consumer Price Index (CPI): After peaking in August 2008, headline inflation (YoY) declined to 17.2 per cent in April 2009. The recent downtrend in CPI inflation (YoY) was mainly attributed to declining domestic food inflation, principally a reflection of fall in international prices and smooth domestic supply of key staples. Encouragingly, CPI non-food group has also shown signs of relative easing during H2-FY09; however, this decline is not as prominent as in CPI food group.

Going forward, CPI non-food inflation is expected to ease further as lagged impact of tight monetary stance, declining international commodity prices, subdued inflationary expectations amidst weaker domestic demand, and the absence of second-round effects due to a relative slowdown in food inflation.

CPI Food Inflation: After peaking at 34.1 percent in August 2008, CPI food inflation has retreated to reach 17.0 percent YoY in April 2009. This was mainly due to better supply management, as well as a gloomy global scenario for growth and commodity prices.

CPI Non-food Inflation: The uptrend in CPI non-food inflation that started during H1-FY08 witnessed a reversal during FY09 as YoY inflation of the sub-group reached 17.3 per cent during April 2009 against a local peak of 20.2 per cent reached during November 2008.

All sub-indices in the non-food group, except house rent index, have witnessed relative ease in YoY inflation during Q3-FY09. In particular, the transport & communication sub-index has declined at a higher pace as compared to other sub-indices mainly reflecting the impact of downward adjustment in fuel prices and transportation charges, partially responding to the larger decline in international fuel prices.


Courtesy: The News


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KARACHI: The State Bank of Pakistan (SBP) has once again revised down the country’s economic growth projections on Thursday to just 2.0 to 3.0 per cent from last 2.5-3.5pc following incessant fall in industrial output and slowdown in services sector. The central bank released the third (Jan-Mar) quarterly economic review report for fiscal 2008-09 with warnings that economic recovery is not possible

if underlying weaknesses which are hampering growth are not addressed.

“Growth in large scale manufacturing (LSM) has been negative for the tenth consecutive month in March 2009, the longest period in which production continued to shrink,” it said, listing weak domestic demand, power shortages and poor security environment as responsible factors.

The LSM growth dropped 7.6 percent during Jul-Mar 2008-09 compared with a 5 percent rise in corresponding period of fiscal 2007-08, it said.

The consumer durables and automobiles sub-sectors of LSM have been battered by rollback of consumer financing by risk-conscious local banks, it said.

Growth of services sector, which contributes biggest share of 53 percent to GDP, will also fall short of target as result of overall economic slowdown.

Targeted growth of services sector is 6.1 per cent in fiscal 2009 down from 8.2 per cent of previous year.

The agriculture sector, on the other hand, is expected to perform relatively better on back of record wheat and rice harvests. However, SBP said the growth could have been even better if sufficient inputs such as irrigation water, fertilisers and certified seeds were used.

But Pakistan’s increasing expenditure on war with extremist militants and resultant mass displacement of people might put the government in tight position as it scrambles to find sources of funding, SBP cautioned on Thursday.

Up till now the government easily borrowed from commercial banks to plug fiscal deficit without causing interest rates to go up or crowding out the private sector but that room is fast eroding, it said.

“Fiscal deficit for July-Mar FY09 is reported at 3.1 percent of GDP which is consistent with annual target, but there are significant issues with both the sustainability of this trend over full year and the quality of this reduction in deficit,” it said.

The reasons are embedded in projections that tax revenues will slow down in the last quarter of April-June amid a slowing economy.

And resurgence in hitherto lower international oil price exhausts option of collecting differential vis-a-vis relatively higher domestic petroleum product prices as development levy.

But, the SBP said, in its effort to contain fiscal deficit, government has cut development expenditure, which is not desirable.

“Particularly in context of socio-economic conditions that support extremist militants, it is crucial that government increase spending on health, education and strengthening social safety nets.”

The only solution out of this problem is to increase the tax net as decreasing current expenditure, which covers daily expenses of civil and military administrations, is not possible without shrinking the size of government machinery. Whereas, raising the tax rate might encourage tax evasion.

This fiscal year’s original GDP growth target was 5.5 percent. SBP revised it to 2.5-3.5pc in last quarter from 3.5-4.5pc.

Courtesy: The News

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