Wednesday, April 15, 2015

Serena Hotel, Faisalabad

Vice President and Chairman, Research and Publications

ICMA Pakistan

Presented By : Mohammad Iqbal Ghori

The world suffers a lot.

Not because of the

violence of bad people,

but because of the silence

of good people !"

Menander says:

“By associating with

wise people, you will

become wise yourself.”

Macro-Economic Indicators

Objectives of Pre-Budget Seminar

ICMA Pakistan’s Pre-Budget Proposals Booklet

Core Issues and Solutions

Sector/ Industry Specific Proposals

Professional Role of Management Accountants

All economic indicators are now showing signs of recovery and upward trajectory

Finance Minister says …………….

“Pakistan would achieve GDP growth target of 5.1% for FY 2014-15”

During 2013-14 GDP growth was 4.14 % Asian Development Bank (ADB) predicts that GDP growth in 2014-15 would be 4.2% and IMF forecasts it would be 4.3%

By December 31, 2014 ………..

Pakistan’s forex reserves stood at US$15 billion - including US$6.9 billion with banks

and US$10.3 billion with SBP

As per State Bank of Pakistan ………..

Overseas workers remittance increased to US$ 8.98 billion during July-Dec 2014-15 – growth

of 15.25% from last year same period

“The truth of the

matter is that you

always know the right

thing to do. The hard

part is doing it."

Discuss core economic issues and explore possible solutions

Highlight improvements in taxation laws

Suggest concrete measures for increasing tax revenues

Devise a mechanism to resolve refund issue face by exporters.

Core Issue : Restructuring FBR

“A comprehensive restructuring and revamping of FBR is required to make it a true revenue oriented organization. Presently, it remains

stuck up in refunds processing and litigation”

Solution : 4-months Refund processing time

“The whole process of sales tax refund should be completed within four months as per given time‐frame to resolve liquidity problem of exporters: a) Automated Filing of Sales Tax Return by exporters = 15 days b) Submission of Files to FBR for Refund = 30 days c) Processing of Files by FBR (automation) = 30 days d) Refund of Payments to exporters = 30 days”

“It is strongly recommended that Ministry of Finance may consider to form a permanent ‘Review Committee’ to monitor that the above proposed refund mechanism is being properly implemented”.

The Committee may comprise representatives from FBR, Chairmen of concerned Associations of five export oriented industries and ICMA Pakistan. A notification to this effect may be issued by the FBR and also given legal cover in the Finance Bill 2015‐16.

Solution : Forming a “Review Committee’

Solution : RPO as Negotiable Instrument

“RPOs should be declared by government as a “Negotiable Instrument” so that it can be

discounted and negotiated with the bank”.

Core Issue : Sales Tax Refund

“Refund processing should be done by another independent organization, other than

FBR, in order to maintain transparency and avoid unnecessary litigation”.

Solution: Clarification from Ministry of Law regarding

applicability of Sales Tax on Power Sector Subsidy, Village

Electrification under PSDP, New Connections, Deposit Works

and development activities.

Income Tax Exemption for DISCOs, GENCOs, and NTDC till the

privatization of these entities.

Zero Rated or No Refund No Sales Tax regime for State

Owned Public Sector to fix liquidity issue and to avoid

unnecessary litigation.

Core Issue : Power Sector and FBR at Dragger Drawn

“Aristotle says: “The

secret of success is to

know something nobody

else knows.”

Sector‐Specific

Proposals

The previous system of ‘Zero‐rating’ for export oriented textile industry should be restored which would mean ‘No Deduction - No Payment’ of sale tax refunds.

The power and gas shortage faced by textile sector should be resolved on war-footing basis, otherwise GSP Plus status would prove futile.

New electricity and gas plants should be installed in Faisalabad ‐ the textile hub of Pakistan to revitalize the closed textile units and attract workers from across Punjab province.

The export of value added textile products should be encouraged through offering incentives to earn maximum foreign exchange earnings.

There should be zero‐rated duty for import of latest textile equipments and machinery to replace and upgrade obsolete machineries in order to achieve product competitiveness.

Import of Pet coke (HS Code 2713.1100) be freely allowed from India via sea and land routes at Attari and Wagah entry points, as in case of cement exports from Pakistan to India.

Front end tariff and arrangement of revolving letter of credit for those sugar mills which cogenerate energy from Bagasse during off‐season. This would create confirmed revenue for sugar mills and will help the country in meeting the electricity shortfall.

Tax incentives to sugar mills which produce ethanol fuel.

"Opportunities Are Like

Sunrises, If You Wait

Too Long You Can Miss

Them."

The government should frame regulation

to make it a binding on automobile manufacturers to offer safety measures such as anti-lock breaking system (ABS), lower CO emissions, etc along with quality specifications to ensure safety and quality standards.

Hides and skins should be included in the Sixth Schedule of Sales Tax Act, 1990 like phutti (raw cotton) for continuing zero‐rating of these leather industry raw materials as agriculture produce.

A realistic increase in duty drawback rates on export of finished leather. The withholding tax on leather exports be also reduced from 1% to 0.5 percent.

The government should develop a ‘Leather Development Plan’ which should provide incentives to leather industry such as support for technology upgradation, setting up of Leather Development Centers, leather and footwear parks, combined treatment plants etc

The legitimate demand for increase in prices may be considered after carrying out a comprehensive due deluging of input cost so that only cost reflective prices may be fixed to avoid any undue burden on common man. Management Accountants can extend their services in cost determination.

The Drug Regulatory Authority (DRA) should be revamped to transform it

into a dynamic and professional body that may develop effective policies for the pharma industry.

Strict measures be taken to prevent sale of fake, substandard and non‐registered drugs as well as hoarding of medicines, by imposing penalties and making legislation.

To ensure economic sustainability of fertilizer plants, the fertilizer sector may be allowed to import their own LNG from own sources. under the present arrangement, PSO is allowed to import one commissioning cargo through FSRU on FOB basis or LNG carrier on DES basis under LNG SPA.

"In the times of crisis I was

not hurt by the harsh

words of my enemies, but

by the silence of my

friends."

Import of edible oil is a heavy drain on our foreign exchange. Pakistan can save about US$2 billion annually by encouraging the domestic edible oil sector. To achieve this, the government should provide incentives for proper farming, production, processing and marketing of oil seeds.

There is imposition of sales tax at federal level and services sales tax at provincial level on all IT products, which has adversely impacted growth of Pakistan’s IT & ITES industry. It is proposed that IT industry be exempted from payment of sales tax on IT products.

There is presently income tax exemption for IT Industry which is going to expire in 2016. This would have adverse impact on growth of IT industry, especially SMEs who do not have financial resources to compete globally. FBR may consider extending income tax exemption atleast for next 10 years by which time IT industry would be able to survive additional taxation.

An ‘Infrastructure Construction Development Bank’ may be established to deal with the financing issues of the construction sector.

Presumptive tax on construction companies should not be more than 1% on yearly receipts. Stamp duties and registration fee be adequately reduced to an aggregate 1 percent.

Banks and DFIs should extend credit facilities for BMR of construction machinery. State Bank may direct Commercial Banks to allocate certain percentage of credit to construction sector.

"When you are in the Light,

everything follows you,

But when you enter Darkness,

even your own shadow

doesn't"

SBP has introduced several financing schemes for SMEs but commercial banks are reluctant to take the risk. SBP should come up with such a financing scheme in which risk is shared equally by the SBP and the commercial banks by virtue of credit insurance.

The credit limit to micro enterprises may be increased from half a million rupees to one million rupees as commercial banks are not inclined to finance the small sector.

Pakistan is an agriculture country has a huge potential to tap the international market through

value addition of agricultural produces. The government, through SMEDA, should provide

facilities and benefits for promotion of businesses, based upon agriculture and food products.

The overall education budget should be enhanced to at least 8% to 10% ‐ out of which one third should be allocated to higher education sector.

Tax incentives be provided to private sector for building schools and colleges in remote and underdeveloped rural areas, especially for girls education. Special budget should be allocated.

A Great Japanese proverb:

If one can do it, You too can do it. If none

can do it, You must do it.

Chinese version:

If one can do it, you can do it better. If

none can do it, still you can do it the best.

Pakistani version:

If one can do it, let him do it. If none can

do it, how can u do it?

Professional Role of

Management Accountants

PROFESSIONAL ROLE IN GOVERNMENT

Management Accountants can provide their professional expertise in financial and managerial re-engineering of operationally sick units; rationalization of tariff and tax structure regime; and in bringing down inflation by determining selling price of consumer items and essential commodities - based on their cost of production.

PROFESSIONAL ROLE IN CORPORATE SECTOR

Management Accountants are like a brain in human body, which diagnose real problems of businesses that hamper growth and development, and then suggest remedies by putting in place an effective control mechanism.

Section 258 of Companies Ordinance, 1984 is related to Cost Audit and based on Management Accountants’ expertise and specialization. The cost audit rights shall be exclusive with Cost and Management Accountants.

The Management Accountants should be given entitlement for audit rights under the Foreign Contributions Act, 2014.

Management Accountants should be allowed to carry out special audit of accounts of International NGOs as well. For this purpose, Clause 16 (a) of draft Foreign Contributions Act, 2014 may be amended.

The Management Accountants should be given representation at the Anti-Dumping Appellate Tribunal and any other Tribunals, where the professional services of accountants are required.

The Management Accountants can work jointly with the National Tariff Commission (NTC), Government of Pakistan to make the industry aware about the anti‐dumping/ countervailing duties required for competing in the international markets.

The Management Accountants can be associated by the government to develop rescue plans for revival of inefficient Public Sector Entities (PSEs) like Pakistan Railways, PIA, Pakistan Steel, etc. They can help such units in overcoming management‐related problems and achieving efficiencies and maximum productivity.

The expertise of Management Accountants can be utilized by the government in effective ‘cost management and control’ as well as ‘financial management’ of the Public Sector Development Programs (PSDPs) implemented in all the provinces.

a) The Government in coordination with Management Accountants, Pharma Industry and Consumers’ Society shall come up with legislation to prevent the sale of fake, sub‐standard and non‐registered drugs.

b) To ensure transparency and cost effectiveness, Cost Audit shall be made compulsory in pharmaceutical industry as soon as possible.

It is suggested that like Auditor’s Review report‘ which is compulsory to be incorporated in the financial statements of Limited Companies, it should also be made mandatory for limited companies to provide an analytical review by the Cost and Management Accountant as well.

ICMA Pakistan’s Pre-Budget 2015-16 recommendations include the following: 1. Professional Role of Cost and Management

Accountants 2. Special Regime for five export-oriented

industries 3. Proposals for expanding tax base and

increasing tax revenue 4. Proposals for facilitating taxpayers /simplifying

tax structure 5. Proposed Income Tax Measures 6. Proposed Sales Tax Measures 7. Proposed Federal Excise Measures 8. Sector – Industry- specific Proposals

THANK YOU