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News Clips 27 November, 2015

[ Refund claims: out of the box solution under consideration ]
[ Cotton prices remain stable ]

Refund claims: out of the box solution under consideration   [ top ]

Business Recorder, November 27, 2015
Finance Minister Ishaq Dar has said an out of the box solution is under consideration to clear all the pending refund claims of Rs 200 billion and fixed tax scheme for non-filer traders, to be divided into 3 to 4 separate categories for payment of fixed amount of tax under special block. Ishaq Dar informed the National Assembly Standing Committee on Finance here on Thursday that the government is ready to offer a fixed tax scheme for un-registered traders for which a special block would be created, non-filer businessmen would be divided into 3 to 4 categories for payment of a fixed amount of tax by filing tax returns. 

The government is actively working on an incentive package for the non-filers businessmen. "I would be very happy if around 4-5 million non-filer traders would come into the tax net under the proposed package," he remarked. Under the proposal, four different categories would be formed for the traders on the basis of city size/potential. The tax amount would be fixed on the basis of each category of traders. For example, 'A' category would cover big cities like Karachi, Lahore and Rawalpindi. 'B' category would cover comparatively medium size cities and 'C' and 'D' categories would cover small cities. The fixed amount of tax would be collected from each category of taxpayers, depending on the city-wise categorisation ie A,B,C or D. 

He showed willingness to create a separate block for the new taxpayers, who would be separately treated for tax purposes under the fixed tax scheme. The number of return filers are now close to million and we are ready to create a separate block for non-filers to bring 4 to 5 million traders into the tax net. Finance Minister said he has convened dozens of meetings with the traders community. The major concern of the business community is that they are afraid of the Federal Board of Revenue (FBR). The concerns of the business community are genuine. Non-filers are maintaining parallel bank accounts in the name of their drivers, employees, cooks to avoid taxes. The government is trying its level best to remove their concerns and bring them into the documented regime. We are ready to facilitate business community to expand the tax base. 

He stated that if non-filers are ready to become tax assessees, we are ready to resolve their issues on sectoral basis. He said the government has been able to convince non-filer traders to file their returns. Two groups are actively interacting with the Ministry of Finance/FBR. The first group is interested in regularisation of their assets through an amnesty scheme. The second group is badly affected by the 0.3 percent withholding tax on banking instruments. 

He said the government had imposed withholding tax on "Pakistan Real-time Interbank Settlement Mechanism (Prism) transactions under section 236P of the Income Tax Ordinance 2001 due to misuse of the facility. A smart loophole has been plugged by charging WHT on Prims transactions. 

On the issue of pending refund claims, Finance Minister Ishaq Dar has said an out of the box solution is under consideration to clear all the pending refund of Rs 200 billion in an effort to avoid their financial impact on federal and provincial governments' income. Earlier, FBR Chairman Nisar Muhammad Khan stated that at present Rs 88 billion sales tax refunds are pending with the FBR. The FBR has paid 13 percent higher refunds during the current fiscal year as compared to previous period despite a significant cut in revenue collection due to a decline in oil prices in the international market. 

Speaking during a meeting of National Assembly's Standing Committee on Finance, the finance minister said in case of payment of refunds from divisible pool it would cause serious consequences on federal and provincial government's income. "If such a huge amount is taken out of the divisible pool collections, the income of provinces and federal government would reduce considerably," he said adding that all the pending claims up to May 201 of textile sector were cleared. 

He said that an "out of the box solution" to clear the refunds claims is at premature stage and once it is finalised, government would share it with the committee. Dar admitted that the present cycle of refunds' clearance is not satisfactory but the government does not want to inflict any hit on the provinces. Chairman of the Finance Committee Qaiser Ahmad Sheikh observed that the blockage of refund claims is creating a liquidity crunch for the exporters. Business community is facing cash flow problems and everybody is making a hue and cry over the pending refund claims. 

Dar further stated that low oil prices have not benefited the country in terms of foreign exchange saving as there is a considerable increase in import of luxury items in the meanwhile. "State Bank of Pakistan (SBP) is concerned as imports have increased dramatically despite low oil and commodity prices in the international market. He said the expected saving of $3.5 billion in current account is not possible because of a massive increase in imports of luxury items' import. The government is considering taking preventive steps against the factors putting pressure on current account deficit and foreign exchange reserves, the minister added. 

The minister dismissed analyses that rupee was overvalued and stated that Pakistan rupee against other currencies was under valued by 12 per cent". "We have made our mind that rupee is pegged to US dollar while rupee against other currencies is appreciated by 12 percent," Dar added. He stated $900 million IDA loan for energy reform would be added to foreign exchange reserves in the current year. The tenor of loan would be 25 years with a five-year moratorium period and 2 a percent interest rate. 

The Finance Minister and committee members have agreed to have an exclusive session on the macroeconomic indicators for taking the parliamentarians into confidence on current economic situation. Dar suggested that the committee can hold a meeting in next two to three weeks to take a briefing from him on the current situation. 

Cotton prices remain stable   [ top ]

Business Recorder, November 27, 2015
Cotton prices continued to remain steady and stable and indeed recorded some increase at the beginning of this week due to sizeable decrease in output compared to earlier projection. Despite very poor performance of the domestic textile industry, cotton prices remain stable due to net shortage of lint supply, even though the mills have reportedly imported considerable quantities of cotton. 

Cotton circles say that the current cotton season (2015/2016) in Pakistan started with the anticipation that a healthy output of around 15 million bales (155 Kgs) of cotton would be reaped, which estimate has now decreased to range from 11 to 11.5 million domestic size bales. Due to rains and floods at the inception of the current season, sowing was delayed in Punjab, the larger cotton producing province in Pakistan. 

Furthermore, due to inclement weather, pests like whitefly and pink bollworm are said to have attacked the standing crop. A rough estimate is that the output is likely to go down by three to 3.5 million bales. Out of the total crop, about forty percent may be estimated to be of good quality, while nearly thirty percent may be below average. Mills may import between two and 2.5 million bales of cotton during the current season. It is now estimated that Pakistan mills may have bought up to 1.3 to 1.4 million bales up to now. Industry circles indicated that a considerable quantity of type Bola/s 1-1/16 has been sold into Pakistan comprising both current and new crop. Furthermore, a large quantity of Indian and some Brazilian styles have also been sold. 

Seed cotton (Kapas/Phutti) prices from Sindh are generally said to have been sold at Rs 2200 to Rs 2800 per 40 Kgs, according to the quality. In Punjab, seed cotton reportedly sold from Rs 2300 to Rs 3050 per 40 Kgs on Thursday. Lint from Sindh is said to have sold from Rs 4800 to Rs 5600 per maund (37.32 Kgs), according to the quality. In the Punjab, ginned cotton reportedly sold from Rs 5000 to Rs 5600 per maund on Thursday. They were also reports that the quality of cotton is decreasing increasingly. 

Yarn sales are not doing well amid reports that a number of mills are closing down, including the open end mills. Thus the Pakistani textile mills are continuously facing several difficulties, including high costs of production and low supply of utilities, while high rate of taxes and delay of refunds receivable from government departments are also hurting the industry. 

At the recent elections of the brokers of the Karachi Cotton Association (KCA), the Naseem Usman Panel has been elected as the member of the Brokers Advisory Committee of KCA. Mohammad Naseem Usman has been elected as the Chairman, Girdhari Lal Assudomal as Vice Chairman, Abdul Jaleel Khan as secretary, Faraz Muhammad Yousuf as joint secretary, Muhammad Taufiq Haroon as treasurer and Taqi Abbas as incharge of public relations. 

On the global economic and financial front, some news are trickling in pointing to better conditions in the United States which is likely to guide the Federal Reserve Bank to start raising interest rates before the end of this year. Furthermore, in case the American economy continues to stabilise during the incoming calendar year, viz. 2016, more such increases of around quarter of one percent may take place every three or four months thereafter. 

The trouble is that the United States, the economies of Europe, the emerging markets and also the developing countries are mostly performing poorly. Indeed the likes of China, Australia, Brazil, Turkey, Russia, and similar economies in other regions are not only performing poorly but remain vulnerable to aftershocks pertaining to the increasingly dangerous geopolitical situation. 

For instance soon after the shooting down of a Russian war plane by Turkey recently, the event sent equity markets plunging down. Furthermore, the continuing fall in commodity markets is debilitating the exports of raw materials from many countries depending largely in the exports of primary raw materials. Thus mining shares tumbled again when the price of iron ore, the prime ingredient for the manufacture of steel touched a new ten year low level. Since iron ore is Australia's leading export item, it hurt the Australian economy largely. 

Terrorism has now become a key factor which has put a spanner in the normal working of the global economy. Indeed growing terrorism, particularly the bombing in Paris and its connection to Brussels has alarmed the global business community while already global economy is functioning in a stagnating manner. Furthermore, fall in factory output in the United Kingdom has been recorded due to the strength of the pound which has also reverberated around the world. 

Moreover the European economy reportedly lost steam as German growth performance slowed down in the third quarter. The crash in the price of crude oil continues to keep the Eurozone is near stagnation which reportedly has resulted in the continuation of its economic weakness.

Travel and hospitality industries are experiencing a new downswing following a fall in customer demand due to the recent armed attacks in France and Mali. Brussels, which still remains on terror alert, has also reduced the functioning of the transport industry. 

In brief, the rising and widening of tensions around globe, the increased influx of refugees in Europe and Asia, and other continuing geopolitical tensions have reduced any possibility of an early global economic recovery.