ISLAMABAD, July 4: The government is expected to re-introduce exchange risk cover for machinery imports for enhancing the country’s exports and allow utilization of foreign exchange reserves for project financing.

These measures have been proposed by the committee on export-led growth led by Commerce Minister Humayun Akhtar Khan. Most of the recommendations of the committee are expected to be announced in the trade policy 2003-04 later this month, sources in the Ministry of Commerce told Dawn.

The committee also comprised ministers for finance, industries, food and agriculture and the State Bank governor.

The recommendations are expected to be submitted to the federal cabinet for approval to promote investment in the productive sectors, particularly export oriented categories as part of the government’s policy of export-led growth, the sources said.

The plan seeks complete revival of 1997 investment policy that also includes 90 per cent and 75 per cent allowances on industrial investment both in new and modernized plans.

The committee, the sources said, had formulated special strategy for relocation of industries from abroad to attract investors from developed countries besides re-introduction of exchange risk cover for import of machinery.

In view of the financial problems faced by the investors in the establishment of new industry, the committee has suggested to reduce spread of banks i.e difference between borrowing and lending rates.

The sources said that tax credit should be kept at up to 25 per cent of difference between gross income and cost of funds, to banks/DFIs for long-term new project financing and BMR (balancing, modernization and replacement).

The SBP will be asked to re-introduce exchange risk cover for projects to import machinery and rates charged should be closer to market rates without involving any subsidy. The exchange risk cover scheme was last introduced to launch independent power producers (IPPs) during the 2nd PPP government but was later withdrawn because of its heavy costs.

The committee is recommending to create a technology upgradation fund for selected sectors like, textile, engineering, sports goods, etc., that will be sponsored jointly by the government through bilateral and multilateral sources and private sector.

The committee has suggested to amend laws to encourage the creation of large holding companies. It has also proposed to reduce levies to three federal taxes — income tax, sales tax/customs duty and excise duty, one provincial tax and one local bodies tax — in addition to single window collection of federal and provincial government levies and taxes like Employees Oldage Benefit Institution, social security, etc.

The committee has discussed the ways to reduce up-front investment costs through zero-rating of import duty on import of plant, machinery and equipment for value added export sectors high-tech industries, agro-based industries, infrastructure and social sectors, besides restoration of 90 per cent and 75 per cent first year allowance (FYA) as per 1997 investment policy for priority sectors.

It suggests that equity restrictions from service sector investment should be removed and higher rates of DDBs (duty drawbacks) should be given to selected export sectors to compensate exchange rate appreciation.

Determination by the Engineering Development Board (EDB), the Board of Investment and the Central Board of Revenue will complete all necessary arrangements before the opening of letters of credit and import of plants and machinery under concessionary regime.

The government will formulate positive list with detailed specifications of locally manufactured machinery by the EDB reviewed on six months basis.

The committee noted the present rules for the import of used machinery were too old and should be reviewed on the basis of a 3-5 year custom tariff regime to encourage future planning by investors.

Trade remedy laws i.e. anti-dumping laws and countervailing duties will be used more effectively. The government will incentivize through tax relief for investment in Human Rights and R&D by the corporate sector (individual through associations, universities) for improving skills and productivity.

The government will launch a campaign in the United States, the EU and Japan for image building of Pakistan’s brand.