KARACHI, Dec 1: The industry is seeking moratorium on non-revenue taxes, levies and surcharges to make the products competitive in the world market and help arrest the rapidly falling exports of core products, including textiles, leather and leather goods, surgical, sports goods, etc.

At present trade and industry is paying various taxes, levies and surcharges towards labour welfare, medical and surcharge for the promotion of exports. The net impact of these taxes and levies, including around 0.5 to 2 per cent withholding tax at the export stage, comes to around four per cent and this leaves very little profit margin for the export trade which is faced with tough competition under the free trade regime the world over.

If the government agrees to the demand of the industry for postponement of these taxes for a couple of years or till such time when the world market stabilises this may help avert the unpopular decision of devaluation of the rupee.

After recording a decline of around 9.47 per cent in exports of core products during October to $1.282 billion when compared with September 2006 at $1.416 billion and by 3.24 per cent as compared to October 2005 at $1.325 billion, both the industry and policy-markers were unnerved.

This substantiated industry’s argument that the cost of doing business in the country is higher than other regional countries and this was making their products uncompetitive in the world market. However, the policy-makers have been arguing that the industry should learn to live on its own and should not demand for any government support in the shape of subsidy or other concessions.

Immediately after the release of export figures by the Federal Bureau of Statistics shock wave did not only hit exporters and industry but also Islamabad and the prime minister immediately called meetings with leading industrialists of the country to have first-hand information and find ways and means of resolving the grim problem confronting the export trade, sources close to such meeting told Dawn on Friday.

Already frustrated with the situation on losing their markets to their competitors, exporters and industry took the opportunity to give their suggestion and solution to the prime minister.

From the very beginning of the current fiscal exporters have been trying to draw the attention of the policy-makers towards negative development taking place on the export front. Ultimately, this became evident from the fact that country’s imports during July-Oct surged by 7.69 per cent to $9.560 billion while exports recorded only 1.3 per cent rise to $5.551 billion over the same period last year.

During these meetings with Prime Minister Shaukat Aziz, the trade and industry looked divided over the issue because a section was in support of devaluation of the rupee and the other was in favour of getting moratorium from such taxes which do not directly become part of the national kitty or revenue budget.

Sources privy to the meetings told Dawn that those demanded moratorium were of the opinion that devaluation of the rupee would trigger fresh inflation and would not benefit export trade as it would be directly taken away by foreign buyers.

The sources said further that those in favour of getting postponement from non-revenue taxes felt that this could be easily carried out without damaging the entire economy. They said that such levies were collected by social organisations for workers and had amassed huge funds with no proper use.

The sources said that the industry and trade was presently paying around seven per cent of workers’ wages to the Employees Old Age Benefit Institute (EOBI) and similarly a fairly large amount is given to the Sindh Employees Social Security Institute (SESSI). The EOBI is reported to have become the strongest and largest institute in terms of funds which have swelled close to Rs100 billion.

Furthermore, the export trade is paying 0.25 per cent towards the Export Development Surcharge (EDS) and in the range of one to two per cent income tax (withholding tax), the sources added. In total a net impact of around four per cent falls upon the export trade. Against this, the industry and export trade is presently surviving on 1.5 to 2 per cent as profit margins have dwindled as per unit price came down after the quote free market began from January 1, 2005.

The world over there is no tax on exports and if the government withdraws withholding tax and also stop collecting EDS which used to go to the defunct Export Promotion Bureau (EPB), now Trade Development Authority of Pakistan (TDAP), the national exchequer or for that matter government’s revenue budget will not be affected.

The business leaders have been complaining about other negative factors such as high interest rates, high POL prices and of course high inflation.

The sources said that the business leaders even suggested to the prime minister to move in the footsteps of India and give refund to industry on use of furnace oil. They also complained about high price of polyester fibre being supplied by local manufacturers and withdrawal of its import from DTRE.

A source privy to these meetings said that if the government would take any decision with regard to devaluation it would not be before the next month because there were heavy payments towards debt servicing as well as outflow of remittances against profits of multinational companies operations in the country during the month of December.