ECC decisions

The Economic Co-ordination Committee of the cabinet, the highest economic decision-making body in the country, under the chairmanship of the Federal Finance Minister Ishaq Dar approved the textile policy as well as a regulatory duty on non-essentials and luxury items. The objective of the textile policy was to increase exports of our largest contributor to the total exports with minimal outlay while that of the latter decision was to generate additional resources. The question is whether the ECC would succeed in achieving these objectives.
The textile policy envisages doubling of exports of the sector - from 13 billion dollars to 26 billion dollars per annum - in the next five years as well as creating 3 million jobs. In other words, the target remains unchanged as this was the target last year too. In this context, it is relevant to note that the policy lacks details of how this would be achieved, for example the tariff structure for the supply chain is still to be reviewed in line with the effective protection rates and an authentic and accredited testing system is yet to be established to determine man-made fibre content in exported products and the time period to complete this task has not been identified. In addition, the policy notes that the drawback rates would be determined by input-output coefficient and here too the criteria is yet to be developed as consultations with the stakeholders on this matter have not yet taken place. Duty drawback would be given to exporters on an incremental basis if the increase is beyond 10 percent over previous year's exports, a good policy, but given that stakeholders complain about inordinate delays in tax refunds due partly to the government requirement to show higher than actual revenues, it would have been more helpful to clear the refund issue promptly. And finally, given the paucity of government revenue the development export fund would no longer receive any government disbursement. In other words, the policy lacks a time-bound action plan and can be dismissed as nothing but a rehash of the previous one, therefore just a wish list. Further, the textile industry needs government support for energy supply. As such, they are being truthful about the policy - which is just cut and paste of the past policy.
The ECC's approval of 5 percent regulatory duty is in line with reports that the federal government committed to the International Monetary Fund (IMF) during the recently-completed sixth review under the 6.64 billion dollars Extended Fund Facility (EFF) to retrieve the reduction in government revenue due to a decline in the international price of petroleum and products by: (i) levying a regulatory duty on luxuries and non-essentials including cosmetics, chocolates and electric appliances and metal scrap forecast to generate 15 to 20 billion rupees; and (ii) not passing on the price reduction entirely to the consumers necessitating a 5 percent regulatory duty on furnace oil. There are, of course, pros and cons with respect to these two levies, however, one would be compelled to support the government in levying the regulatory duty on non-essentials and luxuries given the rise in external borrowing as well as short-term borrowing from domestic commercial banking sector to finance the growing budget deficit. Metal scrap, however, does not meet the criteria and for the ECC to accept the argument that the duty has been levied because the decline in the international price of scrap is not being passed on to the consumers brings to mind the rationale provided by the government in not passing on the entire reduction in the international price of petroleum products as revenue is prioritised as opposed to reducing the cost of energy and thereby of domestic output.
The ECC also approved enhancing rates of withholding tax on non-filers. The distinction between filers and non-filers in withholding tax according to reports was made to lure the non-filers into the tax net. Withholding taxes are withheld by those designated as withholding agents and not the Federal Board of Revenue. In this context, concerns continue to be voiced by withholding agents for example withholding tax on vehicle transfers, they argue, may compel a purchase/buyer not to transfer the vehicle and use it on an authority letter; while the Pakistan Banks Association claimed that charging enhanced rates of withholding tax from non-filers of income tax returns is practically impossible in the existing banking system. Be that as it may, the FBR maintains that collection of withholding tax from non-filers under the new regimen have increased significantly, though there is no supporting data that distinguishes between taxes collected from filers and non-filers.