KARACHI, Sept 3: The Federation of Pakistan Chambers of Commerce and Industry has strongly reacted to the government's decision to increase power tariff by 31 per cent.

President FPCCI Tanvir A. Sheikh in a statement on Wednesday said the increase in electricity charges will ultimately escalate the cost of production of the industrial sector.

This decision will have a bad impact on the overall economy in general and textile and cement sectors in particular as electricity accounts for a substantial cost of these sectors.

The profit margin of these industries is not more than 3-6 per cent. If the price of electricity increases by 31 per cent, they have to increase the prices of their products, which will no longer be able to compete in the international market.

He said that the decision to increase electricity tariff had been taken on the advice of the World Bank, which does not want the developing countries to grow.

He pointed out that the industrial sector, especially the large scale manufacturing one, consumes more than 40 per cent of the total electricity in Pakistan and with the increase in tariff it will be hurt the most. The raise in energy prices will ultimately increase the Consumer Price Index (CPI) leading the inflation to rise further, which can result into massive public unrest.

Mr Sheikh has also shown concern on amendment in the policy for zero rated industries. It is notable that in the federal budget 2008-09, zero rated industries were exempted from 10 per cent withholding tax on electricity bills. Now the government has changed its stance and indicated that only manufacturers-cum-exporters having minimum 80 per cent export will be exempted from withholding tax on electricity bills.

He said that it is against macro economic justification because on the basis of economic participation principle which provides that products manufactured by a company may be exported by another company.

For instance in case of ginning industry, which is zero rated, factories sell their products to textile mills, which are ultimate exporters of cotton products. However, according to the present policy ginning factories, which are an important part of the export chain, have been denied the exemption from 10 per cent withholding tax.

The FPCCI chief demanded that higher authorities should immediately intervene and take urgent actions to rectify these anomalies as this decision has created severe problems for the industries, the business community and the general public at large. —APP