It was the first time that businessmen were asked by the government to come up with industry specific problems and their solutions. Copies of the report were recently presented to the Minister for Finance and Economic Affairs, Shaukat Aziz, Ministry of Commerce, and the CBR.
The report, that features a chapter-wise enlistment of the businessmen’s grievances, is clear and forward in its approach and content. Adopting an industry-specific approach, the report opens with details of what it refers to as a “complex, inequitable, regressive, and inelastic system of taxation. “In the present system, the clever can avoid tax, and dishonest can evade it, leaving the honest to carry the whole burden. The present tax laws contain numerous provisions that selectively benefit particular type of business activities. These provisions not only affect government exchequer but also complicate the law. The higher marginal rates aggravate imperfections in the tax laws and decrease initiative for productive activity, including investment.”
Pointing out the aberrance in the present system of taxation the report says that the governments have always been anxious to raise additional revenue.” However, their expectation that increased taxes would narrow the gap between revenue and expenditure did not work out. Expecting that an increase in taxes, beyond a certain level, would generate additional revenues for the government exchequer is simply non-productive. The policy of increasing taxes reduces incentives, creates inefficiencies, forces legitimate business to go underground, and all these factors collectively reduce the potential for taxation”.
Urging the government to curtail discretionary powers of officials, implement across the board income tax on all sectors of the economy, and bring down the sales tax to 5%, the report highlights the ‘cascading system’ which recommends that the custom duty be rationally revised. It also stresses the need for the government to adopt consistent economic policies and a system of taxation that remains in force for at least, five years. Accountability of tax authorities also formulates an important concern where it is stated that the Income Tax Ordinance, 2001 gives wide and excessive powers to various levels of tax authorities. “While exercising their discretion the authorities grossly resort to abuse of power which most of the times is tantamount to harassment”. Another chapter also enlists anomalies in the tariff system and its rationalisation.
The report also features proposals for the expected import policy, giving general suggestions for the improvement of the import scenario in the country. It is recommended that Sust Port should be developed on urgent basis, import of equipment for extraction of coal, oil and gas be exempt from custom duty, and that the government organize border markets at the Torkham and Chaman border. Cargo villages should be established at the new Lahore airport site. Propositions for the export policy include bringing down of duty on consumable items, removal of duty drawback problems, export refinance rate to be reduced to 6% for carpet, makers, and financial or human resources to introduce their products in the local or international markets. In the case of cottage industry, it is recommended that businesses having maximum labour strength of 25 persons and a turn over below 50 lakhs be considered cottage industries. A design development and prototype development centre should be established in Lahore by grants from Ministry of Science and Technology, so that the cottage industry can have their products improved at this centre. The engineering institutes of Lahore can coordinate to encourage designing development.
For the Energy sector it is advised that WAPDA reduce electricity cost and line losses, and introduce alternate sources of energy like micro hydel, wind, and solar energy, to generate electricity at lower cost. Electricity bills should be subsidized for tubewells installed for irrigation purposes. More consumer service centres of SNGPL should be established in Lahore, to cater to the requirements of consumers. The clause on petroleum prices says that they will be managed properly and abrupt price changes, will be avoided.
The agro and food processing industry must be safeguarded in the interest of the farmers. Wheat subsidy should be abolished and the Food Department should be eliminated. A targeted subsidy may be provided to the poor segment of society through a more simplified system. Bulk handling system of all raw crops should be adopted abandoning the old bandana system, and training courses should be held for the technical staff of food industry.
In the environment and science and technology sectors, it is implied that industries setting up treatment plants should be encouraged by being allowed tax credit at 25% of the investment. Cheap, special loans should also be provided, and grants given upto Rs. one million. In order to encourage research and development, technical papers and participation in conferences should be made tax deductible. To give the leather industry a boost it is advised that the government start degree management courses at the Leather Technical Institute, Gujranwala. In labour befits the report says that Employees Old Age Benefits Institutions, Social Security Institutions and Workers’ Welfare Fund be merged into one aged for eligibility for pensions should be brought down from 60 to 55 years. Discretionary powers available to the employees of Old Age benefits Institutions and Social Security Institutions, by way of penalty upto 50% of the unpaid amount of the contribution is considered to be too high. It needs to be fixed at 15% per annum.
The government, it is suggested, should not announce unilateral decisions regarding increase in wages, allowances, or contributions to the Labour Welfare and Benefit Society. All such issues should be left for negotiation between employers and employees, or through tripartite participation. New industrial units be exempted from the Trade Union Act for the first five years of operation. In order to save thousands of poultry farmers from unemployment and loss it is proposed that permission may be granted to serve one dish at wedding functions. Incentive like allotment of state land and soft loans be provided to vets to establish poultry breeding farms, and disease diagnostic labs.
Problems facing pharmaceutical and sugar industries have also been discussed in detail and their solutions listed. “According to industry analysts most of the problems facing the sugar industry are the outcome of the presence of politicians in the sugar business. The enjoy the dual advantage of owning mills and controlling sugar cane supply, hence being in a position to increase sugar-cane support price. They are not bothered about the price because even if they delay payments by years, the small farmers of their constituencies are not permitted to sell their produce to other mills”. Major suggestions proposed for the pharmaceutical industry include rationalization of registration of drugs, establishment of drug testing labs, amendment in Drug Law, and a strengthening of the role of PPMA.