The Federation of Pakistan Chambers of Commerce and Industry (FPCCI), the powerful body of the country’s business class, last week, presented its budget proposals to the government.

The 71-page voluminous document is basically a wish list of the private sector and an exercise (possibly not always in futility) which the Federation religiously carries out at about this time of the year. It is interesting to note that the proposals are so designed as to project and protect the interests, as much of the industrialists class as that of traders. Some people could well argue that there is a clear case of conflict of interest. And that the presentation betrays a lack of direction. There could also be criticism that authors of the document appear to have given little thought to long-term industrial development strategy, while expanding all their energy in quest for short term benefits.

The overwhelming feeling that one gets out of the study of the document, is that neither it is entirely pro-industry nor decisively a pro-trade endeavour. But that exactly is what it probably was meant to be. Amjad Rafi, a seasoned industrialist and the man who headed the team that prepared the FPCCI budget proposals, argues that his team has put in its best to come up with proposals that cater to demands of all types of varied business interests that the federation represents. There could be many reasons that the budget proposals do not forcefully put forward the case of either the industry or the trade, but has to do a balancing act between the two. Conceivable reasons that come immediately to mind are that most people operating in trade are the same that run industries, so whichever gets promoted, benefit would accrue to the same set of people; or it could be that the rift is not pronounced enough; or may be that both traders and industrialists have matching strength with none having an upper hand. It could also mean that since the economic interests of this class is already quite secured, so their attitude is one of indifference. There are also reasons to doubt that all industrialists fully understand their stakes or their short term outlook could have to do with the perception of an uncertain future that does not merit an effort for a long-term industrial strategic planning.

A careful study of the document shows that the private sector of the country that has developed under state patronage on borrowed capital is visibly perturbed by the gradual withdrawal of concessions. There are clear signs of anxiety in this class over several issues, such as, closer scrutiny of projects before extending support by financial institutions; demand for documentation of their activity at all stages; CBR’s drive for tax collection, etc. But it has to be admitted that the document is not entirely devoid of some very genuine concerns of the private sector which inspite of all its weaknesses and drawbacks, is being looked up to lead the country towards progress through industrial development.

Included among the budget proposals are the demand by the private sector for such measures as may allow it to pay tax without tears. They demand reduction in tax rates, simplification of tax laws and procedures, curtailment of discretionary powers of tax administrators, removal of anomalies in fiscal statutes, lowering of duties on industrial raw materials and expansion of tax base by bringing agricultural income in tax net in the federal budget 2003-4. The FPCCI feels that government needs to ensure the continuity of policies so as to enable the business class to realize its true potential.

There is no denying the fact that some of the suggestions put forward in the document carry weight and if implemented would help in making the economic environment more conducive for enhanced industrial and commercial activity. For example the long-standing demand of business class to tax income generated from agricultural sector is apt and if entertained can remove a major flaw in country’s tax regime. The total income tax collection of Rs.125 billion is shared by trade, industry and salaried classes, whereas, agriculture that contributes lion share in GDP pays nothing under this head. This demand of the business is justified and makes economic sense. In all fairness if income generating from one activity is taxed there can be no justification to leave the income of other sector outside the tax net. “Taxable income, earned from whatever source, should be equally taxed” has been the industrialists’ and traders’ demand for ages, but fallen on deaf ears and everyone knows why.

Likewise proposals regarding removal of anomalies and complicated tax procedures merit due attention of the concerned authorities. The discretionary power vested in tax collectors is a root cause of corruption in the tax department. There is a need to minimise discretion and make procedures transparent and simple.

The demand to allow import of textile machinery and spare parts from India is also economically sound. India is producing textile machinery of good standard at a price lower than its competitors. It is fair enough that industry be allowed to secure machinery for this key sector from the cheapest source. There are innumerable industrial inputs on which either total withdrawal or drastic reduction of duty is demanded. The government may consider these item-wise and decide accordingly. It is appropriate to replace industry-specific approach found in the CBR by sector-specific measures. Mr. Amjad Rafi says that the situation has improved slightly otherwise it was quite common for the CBR to issue SRO’s announcing concessions by name to companies. “It creates frustration and distrust amongst businessmen and encourages individualistic vis-a-vis collective attitude in the community”, he explained.

Through these proposals the elite class has demanded of the government to undertake judicial reform programme. Under the present circumstances a commercial dispute in court takes more than a decade to settle. It obviously acts as a deterrent. It has been proposed that the government may set a time limit for finalisation of appeals. Laws need to be amended prospectively so that contracts/agreements already concluded are not affected. Then, there are many proposals favouring sector-related amendments in income tax, sales tax and central excise duty regimes.

Small and Medium Enterprises (SMEs) are deservedly in the limelight everywhere and the FPCCI has also urged the government to take practical measures to support and encourage SMEs. It maintains that SMEs are major employment generators, accounting to about half of total employed in the world. It has listed eighteen specific measures to promote the sector.

Last portion of the paper carries specific industry-related proposals. Here it has been strongly suggested that duty on items of imported variety should be reduced to one-half or completely abolished so as to discourage smuggling and thereby give impetus to formal trade.

It is obvious that the private sector puts in money in industries and trade to earn profit; the quicker and bigger, the better. There is perhaps nothing wrong with that. It happens everywhere in the world, for why else would anyone run industries or enter trade. But it also is not entirely inappropriate to expect a slightly more mature outlook from a class that has a key role in transformation of the economy. The plight of the manufacturing sector calls for a clearly spelled out long-term strategy. A strategy that would not only increase the strength and depth of the private enterprise but if carefully formulated would go a long way in addressing pressing problems of unemployment and poverty in the country. Lowering the cost of production by rationalising cost of utilities is important to provide the competitive edge to industry but that is not enough. Expansion of local market by increasing the disposable income of people is equally important for which reduction in cost of living by reducing the share of indirect taxes is crucial. It has been acknowledged officially that the gap between the rich and poor classes is widening. It is obvious that in our situation a progressive taxation regime is not only advisable but a necessary condition for local market expansion and reversing the trend of increasing disparity between classes.

The government looks inclined to appease powerful business class. It would however, be better if it rises over its petty political gimmicks and take steps to promote interests of serious entrepreneur class willing to engineer industrial expansion instead of patronising bunch of rent seekers out to make a quick buck.