ECONOMIC TIMES OF PAKISTAN
CPEC business council kicks off 1st meeting
The scope of the China-Pakistan Economic Corridor (CPEC) has been expanded with focus on industrial and agricultural cooperation, socio-economic development, trade and market access, said Minister for Planning, Development and Reform Makhdoom Khusro Bakhtiar.
Co-chairing the first meeting of the CPEC Business Council on Friday, he detailed that the purpose behind the establishment of the forum was to create an interface between the government and business community besides uplifting industrial cooperation between Pakistan and China.
He elaborated that through industrial cooperation, the two nations planned to address trade imbalance, broaden market access for agricultural products and encourage business to business collaboration.
The minister reiterated that the focus was on boosting Pakistan’s industrial capacity through joint ventures in priority areas, relocation of labour-intensive export led industry, collaboration of small and medium enterprises, and enhancement of vocational training capacity.
Also co-chairing the meeting, Adviser to PM on Commerce Abdul Razak Dawood was of the view that following the implementation of early harvest projects under CPEC, the stage was now set to expedite industrial collaboration, which would help attract private investments and diversify exports.
He added that CPEC had entered its second phase where industrialisation and agriculture growth were the main goals of the current regime.
The adviser hoped that the SEZs would attract investment from diverse sources because they offer a combination of tax-and-tariff incentives, streamlined customs procedures and less regulation.
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Subsidy burden put on energy distribution companies
The Pakistan Tehreek-e-Insaf (PTI) government has shifted the burden of Rs3-per-unit subsidy being given to industrial consumers to power distribution companies, including K-Electric.
The previous Pakistan Muslim League-Nawaz (PML-N) government had announced this subsidy for the industrial sector. Following the recent development, the government will not give money through budgetary support.
The Finance Division has issued a notification informing distribution companies that any claim under the Industrial Support Package beyond June 30, 2017 would no longer be entertained. This means that the Rs3 per kilowatt-hour (kWh) subsidy being provided to industrial consumers will continue but the impact will no longer be borne by the Finance Division. The memorandum issued on March 21, 2019 states that effective June 30, 2017, the power distribution companies will now be expected to bear the impact of the subsidy and offset this through efficiency gains.
The Power Division and distribution companies have been directed to reduce ongoing losses and ensure fresh recoveries to the tune of Rs60 billion for the current fiscal year. In addition to this, the distribution companies have also been directed to ensure past recoveries to the tune of Rs80 billion.
The decision, while supporting the industrial sector, is alarming for the distribution companies, which are already facing a severe cash crunch because of the circular debt. Despite multiple efforts by various governments, the circular debt has proved to be a mammoth challenge.
K-Electric has also been conveyed to implement this decision. In Karachi, which is home to the largest number of industrial concerns in the country, the receivables of K-Electric have soared to almost Rs160 billion. Not only is this making it difficult for the power utility to keep supplying industries with uninterrupted electricity, but it has also created hurdles in the way of a number of projects, which were essential to meet growing demand.
K-Electric’s receivables have surged to Rs158.8 billion from different provincial and federal organisations, including KWSB, which owes Rs31.9 billion.
According to the utility, its receivables are nearly twice its payables, which total Rs82.2 billion. Of this, Rs13.7 billion is actual principal payment due to be paid to SSGC for gas supply, while the remaining dues relate to the NTDC and other federal and provincial entities.
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Govt’s debt surges to Pkr 27.6tr by Feb-end
The federal government’s debt has soared to Rs27.6 trillion with a net addition of Rs3.4 trillion in just eight months at a pace of nearly 14percent due to low tax revenue, high expenditure and currency depreciation.
From July through February 2018-19, the government on an average added Rs14 billion a day to its debt, which included almost six and a half months of Pakistan Tehreek-e-Insaf (PTI) government, according to the State Bank of Pakistan’s (SBP) statistics.
There was a net addition of Rs3.4 trillion from July to February, which was higher by 13.9percent when compared with June 2018 statistics.
The accumulation of debt is the direct result of the gap between expenditures and revenues, which is widening due to the inelasticity in debt servicing and defence needs and the Federal Board of Revenue’s (FBR) failure to enhance revenue collection.
In first nine months of the current fiscal year, the FBR suffered a shortfall of Rs318 billion in revenue collection.
The FBR’s tax collection grew at a pace of 2.4percent in the nine months, which was even lower than the nominal gross domestic product (GDP) growth of nearly 12percent.
Government estimates show that nearly 69percent of the total budget will go to debt servicing and defence purposes, which is higher than net revenues of the federal government. Due to this trend, the International Monetary Fund has proposed to target primary budget balance, which means that current expenditures, excluding debt servicing, should not be more than the revenues.
The overall increase in the central government debt seems not to be in line with the budget deficit requirements due to currency depreciation. An increase in interest rate by the State Bank of Pakistan (SBP) has also added at least Rs500 billion to the cost of debt servicing.
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“The cost of debt servicing in the current fiscal year will be over Rs2 trillion after the recent hike in interest rate,” said Finance Minister Asad Umar on Tuesday during an interaction with journalists.
The minister said there were no chances of a sharp reduction in debt as a percentage of gross domestic product (GDP) and it would gradually come down. Over the next five years, the debt would still remain above the statutory limit of 60percent of GDP, he said.
The central bank raised the key interest rate by another 50 basis points to 10.75percent last week despite a decline in core inflation for the first time in 13 months. This puts a question mark over the SBP’s strategy.
The external debt of the central government increased 18.42percent to Rs9.23 trillion in first eight months of the current fiscal year. There was a net increase of Rs1.44 trillion in the external debt, largely due to currency depreciation.
In June 2018, the value of a dollar was equal to Rs121.54, which reached Rs139.055 by the end of February, according to the central bank. Since then, the rupee has further shed its value and was traded at Rs141.20 in the inter-bank market on Friday.
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Government mulling 75percent rebate for benami asset holders
Prime Minister Imran Khan has endorsed, in principle, the Assets Declaration Scheme wherein the government is considering offering Benami asset holders an opportunity to regularise their properties by paying 25 per cent of the total worth of the assets.
The government is also considering compulsory jail for tax evasion which may be announced in the upcoming budget that will be presented on May 24.
It plans announcing the tax amnesty in the third week of this month before an anticipated visit of the International Monetary Fund team for a staff-level agreement.
In a meeting that took place at the PM Imran’s Bani Gala residence, Finance Minister Asad Umar briefed the PM on the initial sketch of the proposed tax amnesty scheme, sources told.
“The government is considering setting different tax rates for different types of assets, with a maximum rate of around 25percent,” they said.
It was considering setting the rates in the range of 10percent to 25percent for offshore, domestic and Benami assets but no final decision has been taken, they added. The authorities were not very keen to offer the tax amnesty scheme on the offshore assets.
The PM would give his final decision about the tax rates, its applicability on offshore assets and the period of the scheme after consulting his advisers.
“The prime minister has made it clear that this will be the first and last tax amnesty scheme during his government’s term,” said Information Minister Fawad Chaudhry.
Sources said there was also no decision whether the scheme would be offered by June 30 or it would continue for some time in the new fiscal year.
However, the IMF may not allow the government to continue the scheme under its umbrella, if both the sides reach an agreement.
The finance minister on Friday said the deal with the IMF could be closed during his next week’s visit to Washington. “It is almost a done deal,” said Umar while speaking to the media.
“If both the sides sign the agreement, it is expected to take effect from new fiscal year, starting from July,” said Umar. “Every aspect of the tax amnesty scheme is still being processed and the prime minister has been informed about major points that have so far emerged in discussions.”
The Ministry of Finance wanted to announce the scheme on Friday but due to reservations of the prime minister during the meeting it has been decided to announce it in the third week of this month.
Umar on Tuesday announced to give the first tax amnesty scheme by the Pakistan Tehreek-e-Insaf government on hidden domestic and offshore assets. This would be the Federal Board of Revenue’s (FBR) 11th tax amnesty scheme. All the past tax amnesty schemes have failed to achieve the desired results.
The initial discussions suggest that the government wanted to allow three types of assets to be declared under the tax amnesty scheme. The lowest tax rates will be offered on those offshore movable assets that will be repatriated to Pakistan. The second category of tax rates will be for the domestic assets while the third category will be for Benami assets.
Under the Benami Transactions Prohibition Act, the Benami assets are subject to confiscation and the Benami assets holders are liable to seven years imprisonment. The government expects that maximum people would declare their Benami assets under the tax amnesty scheme.
Umar said people were facing problems because of the application of various laws, including the Benami Transactions Prohibition Act.
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Government abolishes statistics division
The government has abolished the Statistics Division, transferred the function of holding population census and given administrative control of the Pakistan Bureau of Statistics (PBS) to the Ministry of Planning and Development.
The decision to place the PBS under the Ministry of Planning has been taken hardly a month before the National Accounts Committee (NAC) meeting that will approve next year’s provisional economic growth figures. Earlier, the statistics division secretary used to chair the NAC meeting that the planning secretary will now chair.
The PBS is also responsible for calculating the inflation reading – a responsibility that will now be undertaken under the supervision of the minister for planning, development and reform. The government has already expressed its displeasure over the poor state of affairs of the PBS.
The Statistics Division may be renamed Social Protection and Poverty Alleviation Division and may be made part of the Cabinet Secretariat, according to the Cabinet Division. All functions of the Statistics Division have also been transferred to the Planning, Development and Reform Division.
The decision to abolish the Statistics Division has been taken on the recommendation of the institutional reforms task force, headed by Adviser to Prime Minister on Institutional Reforms and Austerity Dr Ishrat Husain.
The Planning Division will now be responsible for preparation of an overall integrated plan for development and improvement of statistics in Pakistan. It will also prepare the annual programme in accordance with the agreed priorities and will assign responsibilities for its execution.
The Planning Division has also been tasked with formulating a policy regarding general statistics and adapting the statistical system of Pakistan to the policy.