Federal B Area Association of Trade and Industry (FBAATI) has urged the government to take comprehensive measures to formalise all sectors of the economy, particularly, the small businesses, as 90 per cent of them are being operated informally.
In budget proposals for the year 2009-10, Chairman FBAATI, Idrees Gigi, noted that the small units, operating in informal sector, need to be brought in the tax-net.
Most of the small traders, who though are taxable, are afraid of the harassment if once they become the tax-payers, therefore chief Idress Gigi suggested the Federal Board of Revenue (FBR) to propose a comprehensive incentive plan for them to remove their all apprehensions.
The association said that the fiscal year 2008 witnessed 5.8 per cent decline in GDP. During fiscal year 2007-08 the economic situation of Pakistan started deteriorating, after five years of continued sustainable growth rate which remained around 7 per cent, due to political uncertainty, the worsening laws order situation, the impact of high international oil prices and frequent power shortages.
Consequently, to come out of the economic crisis and to support sharp decline of foreign reserve, the government moved International Monetary Fund (IMF) for financial assistance for its stabilisation program, launched in November 2008.
The program, based on tightened fiscal and monetary policies, aimed at controlling the current account deficit, share up reserves, and cut inflation rate, instead it will have a depressing impact on growth in the short to medium terms, Idress said.
The association noted that the fiscal year 2008 witnessed the rising trend of inflation and imports, moreover, the tightened monetary policy of State Bank of Pakistan (SBP) with a cumulative increase of 250 basis points in discount rate.
Criticising IMF programme, the association pointed out that the interest rate climbed by another 300 basis points to 15 per cent (the highest in south Asia) by November 2008 under the IMF program as inflation persisted, this tightened monetary stance was apposite to that adopted in much of the developed world, which was grappling with a worsening global economic downturn.
The rise in interest rates did not subdue inflation however, since it is largely driven by supply, not demand, the association said. Energy shortages, the law and order situation, and capacity and input constraints caused by higher import prices from the large depreciation of Pak Rupee, will lower industrial performance, the association showed apprehension.
Moreover, FBAATI disclosed that large-scale manufacturing has shrunk by 5.6 per cent in the first nine months of FY 2009, therefore, Pakistan needs a comprehensive medium-term strategy and action plan for industrialisation and well-structured change to sustain economic growth, such as well-developed industrial strategy, understood as a plan for strategic collaboration between public and private sectors, will be an important tool for change. Furthermore the association proposed that there should be reduction in discount rates at least 5 percent by the end of calendar year 2009 along with reduction in the prices of petroleum products, power gas tariff.
The association stressed to end bureaucratic harassment, corruption and extortion, as these factors are damaging the investment climate, and these irritants need to be routed out as they impede growth of commercial activities.
It also proposed that recognition by the government of industrial area Associations that can pool resources to resolve reveal issues.
The association stressed on assuring federal, provincial funding and assistance that should be available for infrastructure, amenities and other developments in the industrial areas. Moreover, they proposed that duties and taxes on major raw materials should be rationalised and reduced, adding that FBR to broaden the tax base instead of levying new taxes or continuing with high tax slabs.
The reduction in tax rate and its shifting to the new sectors would help improve industrial commercial and entrepreneurial activities in the country, which will help create more employment and broaden the tax-net of the country. Pointing out key issues confronting economy the association stressed that the government needs to improve poor law and order situation.
Despite some improvements, governance in public sector lacks credibility efficiency and effectiveness. Lack of harmony between provinces poor indicators of human development are the main areas, which require special attention. The association also said 15 per cent policy discount rate is seriously effecting investment in industrial sector.
The government efforts to improve governance and financing in the electricity industry through unbundling power entities and privatisation, along with tariff reforms and measures to address the circular debt issue will help improve the situation, but only if the reforms are fully implemented, the association proposed.
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