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Budget reactions.

Budget Reactions

Directors Remuneration Dispute Finance Act Hits Private Limited Firms

Private limited companies have been hit hard through drastic changes made in the Income Tax Ordinance 1979 vide Finance Act 1990, thus inflicting a grievous blow to the growth of trade and industry, President Chamber of Commerce and Industry Karachi Khawaja Qutbuddin said. He pointed out that on the one hand a limit has been imposed on the payment of salary to the working director of a private company, and on the other hand the rate of Super Tax leviable on private company has been raised from 15 per cent to 20 per cent with effective increase of 5.5 per cent inclusive of surcharge, in the rate of tax payable by private companies.

He further stated that the private companies were playing pivotal role in the development of the economy, particularly in the industrialisation of the country, requiring engagement of highly qualified and highly-paid professional directors like other public, government, and foreign companies. Therefore, the rationalise behind the discriminatory fiscal measure against the private company is not understandable.

Mr. Arshad Tanveer, Chairman, SITE Association of Industry has also expressed his disagreement with the government on the point of fixation of Director's remuneration in private corporate sector in the current budget. In his view it is dangerously disastrous for the industry. He believes that restriction imposed on Directors' remuneration will in no way help the exchequer in generating more revenue or growth of capital. On the other hand he believes that it will lead to pushing the honest economy into the black economy under pressure of this restriction, as it is very clear that none of the directors would be able to survive with zero income. He suggested, it would mean that a company with four Directors would need a minimum profit of Rs. 32 lacs to meet the minimum requirement of payment to the Directors of Rs. 20,000 p.m. The practical examination of this calculation will prove that achieving the required target would be almost impossible for all small corporate companies and thus their Directors would not be able to even draw a sum of Rs. 20,000 which is nowadays the salary being paid to middle class professionals.

He reminded that majority of the industries out of nearly 2200 units in SITE Area are managed by working professional Directors and this is one reason due to which the industry is progressing. He said that majority of the corporate sector in Pakistan would be affected and only very few registered with the stock exchange would benefit despite of their low contribution to the exchequer. It is also noteworthy to mention that the very corporate organisations, being punished with this restriction, are the only ones responsible for the economic growth of the country.

Mr. Arshad Tanveer strongly pleaded that clause inserted in Section 24 would restrict Directors' emoluments, be withdrawn and save 98% of the corporate sector which is responsible towards contribution to employment and revenue resources. He requested the Prime Minister and Federal Finance Minister to immediately withdraw the restriction imposed on Directors' remuneration.

New Tax Proposals will Push Prices up

The taxation measures announced by Minister of State for Finance Ehsanul Haq Piracha in the budget would definitely result in higher prices of essential commodities. The taxation proposals will further burden the poor. The consensus was emerged at a post-budget seminar organised by the Pakistan National Centre, Karachi which was participated by Aftab Ahmed Khan, Director Institute of Business Administration, University of Karachi, Dr. Abdul Wahab Khan, Brigadier (Retd) Abdul Rehman Siddiqui, Wahab Kazmi journalist and a lady banker from Women's Bank. Speaking on the occassion, Aftab Ahmed Khan criticising the budget said that government has failed to come up with policies which could be beneficial for the sound economy of the country. He said that rate of inflation as revealed by the official statistics has been brought down to an annualised rate of 5.7 per cent from 10.4 per cent during the year 1988-89. But there were however higher increase in price of sensitive items.

He said that our Gross Domestic Product (GDP) could have surpassed the existing rate of 5.2 if our government owned organisations which are suffering huge losses could have showed profits. He said government acquires various types of loans for the improvement of performance of public sectors but these government organisations failed to show profits because of poor policies. Government expending has been the 1/4 of our national income.

Director IBA, Dr. Wahab, while criticising the budget, said that government has allocated a small amount of money for education and health. Lamenting the literacy rate he said that our literacy rate has been falling down considerably. In our country only 17 per cent people of the population are literate and added that we should be ashamed of it. He held responsible all the previous governments for not giving attention towards education and health. He said a country which is deprived of the facilities of health and education can not march towards development.

Plea to Exempt Sodium Silicate from GST

President All Pakistan Sodium Silicate Manufacturers Association, Mian Saleemul Hassan, and other office-bearers of the association have expressed grave concern over imposition of Sales Tax on sodium silicate at the rate of 12-1/2 per cent and cautioned that this would subject the sodium silicate and laundry soap manufacturing units to a serious crisis and washing soap would go beyond the reach of the masses.

He stated that sodium silicate is a basic ingredient of laundry soap which is processed from soda ash. He argued that since soda ash manufacturers are already paying Sales Tax at the rate of Rs. 12.5. A similar levy of sodium silicate would tantamount to double taxation. He contended that as a result of imposition of proposed Sales Tax on sodium silicate thousands of units manufacturing laundry soap too would be constrained to close down their business which would throw lakhs of wage earners out of job. Furthermore, prices of washing soap would escalate to such an extent that it would go beyond the reach of common consumers. Closure of the sodium silicate units would also deprive the country of valuable foreign exchange earned through export.

ST on Knitted Fabrics Resented

Concern has been expressed over levy of 12.5 per cent Sales Tax on the knitted fabrics in the 1990-91 budget. In a statement, Chairman Pakistan Silk and Rayon Mills Association (S Circle) Gulzar Siddiq expressed grave concern over levy of Sales Tax on knitted fabrics increasing the cost and thereby affecting exports adversely. He said chances are that industries close down giving ground for unemployment. He appealed to the government to withdraw 12.5 per cent Sales Tax on the knitted fabrics to ensure smooth running of the industries.

Budget Termed as Purely Bureaucratic

Munawar Khan President Sukkur Chamber of Commerce and Industry while delivering his presidential speech at the seminar on Federal Budget 1990-91 held under the auspices of Faran Club International Sukkur, said that Sukkur Chamber of Commerce and Industry has already expressed its utter dissatisfaction on the budgetary measures announced in Federal Budget 1990-91. He said that it was also correct to say that this budget was prepared by the bureaucrats under the advice and pressure of IMF hence it is purely a bureaucrats budget. As such the trade and industry circles of this country are confidently expecting mini-budgets later on in piecemeals, as was the practice in the past.

He said that the Federation of Pakistan Chambers of Commerce and Industry is compiling the views of all the trade bodies so as to prepare a comprehensive memorandum on it to be presented to Federal Government. He criticised that due to increase in the electricity tariff (FAC), import licence fee, super tax-labour wages, sales tax and other direct and indirect taxation to the tune of about Rs. 13 billion will hit the common man. He said that it appears that the textile industry which was the only leading industry earning 3/4 foreign exchange has been victimised and made prey of its advertisement demanding restoration of peace. He said that the government has all along been propagating that the inflationary pressure has been reduced to 5 to 6 per cent but the economists are of the opinion that it has gone up to 12.5 per cent and would further increase due to heavy taxation and the price hike would be raised to at least 30 per cent. He was also critical of the withdrawal of additional duty on palm oil and shown apprehension that it would cause to create malpractices. Likewise, he said that restoration of self assessment scheme was being appreciated but the conditions to qualify this scheme are quite cumbersome and would defeat the very spirit of the scheme. Similarly, expenses exceeding Rs. 25,000 would not be accepted unless made through crossed cheques and bank drafts. The abrupt increase in wages to Rs. 1100 without taking into consideration the efficiency of particular labour is also a point of dispute.

Mubashar lashes out at Government policies

Pakistan has failed to develop any worthwhile industrial and social infrastructure in almost 43 years of its independence and its economy is at the verge of a collapse, requiring radical reforms to save the country from virtual bankruptcy. This was the general consensus, evolved at a Post-Budget Seminar arranged recently by the Pakistan Institute of National Affairs and attended by people from different walks of life including a couple of economists. Critical of the way the budgets are planned, drafted and presented, the participants not only charged those at the helm of affairs with incompetence but also accused the business community of evading taxes to weny the country its share of their income.

Seminar Chairman Dr. Mubashar Hassan went as far as to say that the 40-year picnic of the rulers in this country was now over and that Pakistan needed new assemblies which were capable of implementing land reforms. He held that land reforms at this stage were the only solution to the economic problems being faced by the country. Dr. Mubashar was also highly critical of the Pakistan foreign policy and termed it "foolish" to have strained relations with four out of five immediate neighbours of the country.

Dr. Parvez Hassan aptly pointed out that most of the problems, being faced by Pakistan emanated due to a high population growth rate and a low literacy rate. He said that latest figures show that there are only 20 universities, 514 colleges and 72,093 primary schools in Pakistan while there is only one doctor for every 1880 persons and one hospital bed for every 1610 persons. He told the participants there was a housing backlog of three million units and 53 per cent of the total population was living without electricity.

A former Lahore Stock Exchange President Qayyum Bhatti said it was high time that the businessmen started considering tax payment a national responsibility and stopped agitating against budgetary measures without any reason. He said he did not wish to take names but textile was one industry which yielded maximum profits due to the low cost of production in Pakistan. Despite this, he observed, the textile industries showed a loss every year.

A professor of Economic and Chief of the LCCI Research Cell, Prof. Sajjad Haider, said it would be wrong to say that the country's business community did not pay any taxes. He said that the corporate sector payed almost all of the taxes while the rest of the Pakistanis were exempted from the payment of income tax. He observed that one could not conceive of any industrial progress without consistency of state policies. He attributed frequent policy reversals as the biggest impediment in the way of industrialisation and presented the case of Chunian industrial estate to support his argument.

TAAP critical of Budgetary Proposals

An emergent meeting of Travel Agents Association of Pakistan, was held at Karachi to consider and discuss the import of the budgetary proposals that directly concern travel agents. After a detailed discussion the house came to the conclusion that the following tax proposals, amongst others that adversely affect the trade and industry of the country in general, if implemented, are going to prove extremely detrimental and unduly burdensome to the trade of travel agents.

That the requirement of obtaining a licence for excisable services, the prescribed fee for which is Rs. 10,000, is not only arbitrary but is very much oppressive. It is against all norms of natural justice that travel agents who are already working under one licence issued by the Department of Tourist Services, with liability of providing huge bank guarantees for the government, the national carrier and international airlines by paying heavy sums as bank charges, should be compelled to obtain an additional government licence at a highly exorbitant and unreasonable fee.

That the levy of 5 per cent of excise duty on "charges", (which term has not been defined anywhere in the proposals) is an import that is likely to pose serious financial problems to the travel agents. If the "charges" are analogous to those as defined for such levy to freight forwarding agencies, i.e., on total freight charges, travel agents will have to pay their entire income to the government in taxes. Even if it is levied on their earned income travel agent will have little left to run their establishments. The undefined term "charges" has, however, left travel agents in the lurch. That the increase of excise duty of a further 10 per cent on domestic air transportation, which since last year was already levied a 10 per cent excise duty, is undoubtedly harmful to the tourism industry, which was recently declared as such by the government.
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Title Annotation:Pakistani officials react to budget for 1990-91
Publication:Economic Review
Date:Jul 1, 1990
Previous Article:An economic evaluation of budget 1990.
Next Article:France.

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