KARACHI, Aug 28: Prime Minister Shaukat Aziz has approved a merger scheme for industrial units to create economies of scale and encourage capital formation.

On the recommendations of the Planning Commission, the prime minister approved merger tax credit at 15 per cent on merger assets value for units opting for the merger scheme.

Beside, other factors the production cost which was making exportable goods uncompetitive in the world market induced the government to take an initiative.It is believed that the merger of inefficient units with efficient ones could help reduce cost and meet economies of scale, thus giving required space and margin for becoming competitive in the world market.

The government had been working on many options for reducing cost of doing business, and merger could be an effective tool not only to achieve economies of scale, but also help in capital formation in the country, observed a tax consultant.

It would also immensely help textile sector to become cost-effective because sub-sectors of value chain have a large number of small stand alone units finding difficult to survive in the globalised environment.

It has been assumed that most of such units are smaller than the size required for economic viability and it would be better if some of them could merge together to create economies of scale and increase proficiency.

Mergers and takeovers have played a key role in bringing efficiency and professionalism in the banking sector where small banks were merged or taken over by large banks. This also assisted in capital formation in the banking sector. The ministry would be giving fiscal and monetary incentives in this regard.