PBC denounces govt’s ‘knee-jerk U-turns’ on economic policy

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KARACHI: The Pakistan Business Council (PBC) issued a strongly worded statement denouncing the government’s stance on surcharges and taxes, and dubbing its current economic policies nothing more than ‘knee-jerk U-turns’.

“If not reversed, this threatens Pakistan’s exports and will discourage investment in capacity and capability,” the PBC said in a statement released on Thursday and tweeted on Friday.

Established in 2005, PBC is a business policy advocacy platform made up of 81 of Pakistan’s largest conglomerates and corporations.

Earlier on January 1, 2019, the government had announced an all-inclusive tariff of 7.5 cents/KWh for five export sectors.

“However, barely a year later on January 13, 2020, the energy ministry instructed power distribution companies (DISCOs) to charge add-ons and surcharges amounting to 70pc, raising the aggregate cost to 13 cents/KWh,” the PBC said. “To make matters worse, the add-ons and surcharges will apply retrospectively from January 1, 2019.”

According to the council, this increased price of 13 cents stands in sharp contrast to the much lower cost of power in India and Bangladesh (7-9 cents), and in China, (7.5-10 cents).

“Why should exporters be encumbered by legacy, inefficiency and idle capacity costs of our poorly managed energy complex?” the PBC posited. “The 7.5 cents/KWh cost already included a margin of 5.27 cents to cover distribution and fixed costs.”

In addition to the above taxes, the PBC also took issue with other ‘retrogressive’ government policies.

First, the group pointed to the Finance Act 2019, which cut the tax credit on investment in plant and machinery in half, for up to June 2020, and totally withdrew the credit for between July 2020 and June 2021. “This is worrisome since the investment level in Pakistan is half than that of Bangladesh and India,” the statement read.

Second, the group pointed to the reduction in import duty on mobile phones. Noting that the import duty had been raised to encourage local production, leading to several investments, the PBC now said that their feasibility was in question. “This is not how import substitution is encouraged,” it maintained.

The PBC reiterated its commitment to its policy of ‘Make-in-Pakistan’, which is to promote value-added exports, encourage import substitution and create jobs in the country. “Policy U-turns, especially with retrospective effect, run counter to these objectives,” the counsel argued.

Instead, the PBC urged the government to review each of these U-turns, restore the competitiveness of Pakistan’s industry and promote investment.

It also asked for a more holistic and long-term approach to policy. “Often policy reversals arise from the ministries working in silos. A prime example is chasing revenue to meet a ministry’s short-term target, in the process sacrificing the long term health of business and economy, defeating the government’s objectives.”

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