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Union of Small and Medium Enterprises submits proposals for forthcoming budget and trade policies

Karachi, March 17, 2015 (PPI-OT): The Union of Small and Medium Enterprises (UNISAME) submitted budget and trade policy proposals through the Small and Medium Development Authority (SMEDA).

President UNISAME Zulfikar Thaver stated that SMEDA is well aware that the micro enterprises and the SMEs are engaged in trading, manufacturing, services and farming and each is playing an important role and the government needs to realize that they all need to be facilitated and supported with finance at affordable mark up,given technical education, trade information and comfortable environment and the budget needs to ensure proper allocation of funds for this purpose.

The commercial importers and exporters are to be treated at par with the manufacturers and the facilities of utilizing bonded warehouses, sales tax refund and other facilities of releasing goods on guarantees which are provided to the manufacturing units must also be provided to the commercial traders.

Likewise the services sector and farming must be encouraged. There was much talk about promoting indirect exporters but nothing substantial has been done to even recognize them as such. However the State Bank of Pakistan ( SBP) has taken up the matter and hopefully it will be given the attention it deserves. Nevertheless SMEFA also needs to advocate the importance of promoting indirect exporters and facilitating them.

UNISAME has proposed priority for the SME sector as a whole on the basis that it is the majority sector and the backbone of the economy, it is the back forte of the large sector and both are very important to one another. In fact it also proposed priority for housing being positive it will give boost to the economy. The plea is that the sector be given the priority it deserves in the budget and since SMEDA is the instrument it has to be enabled to implement the plan.

The Union proposed that the income tax exemption limit be enhanced to Rs600000 in view of the depreciation of the rupee and the inflation rate due to which the buying power of the sector has become less.

It is proposed that farm sector inputs be spared from import duties, sales tax and other levies and instead income from agriculture be made taxable because income tax is payable on income whereas duties and taxes on farm inputs increases cost of production. Due to sales tax on farm inputs the export of value added goods is becoming uncompetitive the Union chief stated.

There should be zero duty on imports of technology, alternate energy systems, generators, machinery new or second hand including farm machinery and equipment to encourage industrialization and farming.

The duty on import of raw materials be reduced substantially, likewise duty on packing material be reduced substantially to promote attractive packing for exports.

The rate of exchange for imports and exports be kept such as to give a higher rate to the exporters to encourage exports and the rate for imports be lower to make imported raw material affordable as the import duties are calculated and applicable on the invoice value of imported goods.

The withholding tax of 0.20% on cash withdrawals from banks applicable on Rs 50000 and above be made applicable on withdrawals of Rs 100000 and above.

Withholding tax on profit on term deposits should be reduced to 5% from 10% as the beneficiaries are getting less income due to lowering of profit rates on savings schemes.

The government needs to give incentives to innovative and new industries. The new and innovative industries must get tax holiday and for industries being set up in undeveloped areas the tax holiday period must be longer.

The government must set up state of the art industrial estates and those desirous of setting up industrial estates must be given tax exemptions.

The ministry of finance must recognize the important role played by the construction industry and offer them finance at concession. The housing industry promotes many other industries. Along with the SME sector the housing industry also deserves priority.
It is very important that the government promotes efficient banking and increases the scope of leasing and hire purchase to make it affordable, it suggested leasing of income generating vehicles, plants and machinery and introducing commercial property leasing of shops, workshops, factories and warehouses on easy repayment with concessional rate of mark-up.

The pay as you earn scheme for purchase of land, offices, shop, workshops and factories and also machinery and equipment needs to be designed for the benefit of the sector. Leasing is very costly in Pakistan as the leasing companies borrow from banks and then do leasing. The government must finance the leasing companies at special rates.

There is no export credit guarantee insurance and exports to third world countries and through low rating banks is not possible as banks are not negotiating bills drawn on buyers of third world countries and especially those having accounts in low rating banks. There is need for sovereign guarantee to promote exports. The exports are declining, to boost exports we need to promote the exports of non traditional goods to non traditional markets. The sector is waiting for the Exim Bank and the establishment of the Exim Bank must be expedited on war footings.

SME financing is the responsibility of the state and the State Bank of Pakistan has introduced various schemes for the SMEs but although the funds are provided by the State Bank the risk is of the commercial banks who are not well versed in risk management therefore it is essential that the State Bank of Pakistan examines this aspect and comes up with SME financing schemes where the risk is shared by the commercial banks and the State Bank of Pakistan by virtue of credit insurance.

There is a scheme at present in which the SBP shares 40% risk but the banks are not utilizing it as they are not comfortable with sharing 60% and consider it higher. The government needs to strengthen SMEDA and equip it to carry on its activities vigorously and enable it to reach the SMEs and work scientifically for their uplift.

Credit limit to micro enterprises be increased from half a million rupees to one million rupees as commercial banks are not inclined to finance the small sector and if the limit is increased the micro finance banks could accommodate the small entrepreneurs along with the micro sector.

The government must provide sufficient funds for ongoing projects of SMEDA for their completion and smooth functioning.
Government must provide funds for fulfilment of commitments made in SME Policy for SME Export House, SME Institute, SME Ombudsman, Joint Venture Capital, SME Fund, Credit Guarantee Insurance and other promises made in the SME Policy which got approval of the National Assembly and the cabinet.

The budget needs to include provision for expansion of SMEDA on modern lines and make it an exemplary institution for SME promotion and development.

The local industry needs protection and presently the imports are huge as many items are imported which are manufactured in Pakistan of international standards.

Imports cannot be banned because of WTO rules and regulations but import duty could be imposed to discourage imports. The big merchants are importing many unessential items with undeclared money and are under invoicing and remitting funds through private channels. They are importing many items in confectionery, stationery, apparel, footwear, leather, furniture and almost anything and everything with their undisclosed funds. If a system be developed whereby the banks be directed to check whether the imports are with the legal declared money and if not then such imports be disallowed. These imports are also a burden on the balance of payments.

The reduction of import duty on raw materials and packing materials is proposed by us.

The government needs to promote import substitution industries and every effort must be made to promote, support and facilitate those investors who wish to set up such industries. The one window operation needs to be activated promptly.

Many investors are interested in putting up units of produce items for value addition but due to poor law and order situation in rural and outskirts of urban areas are afraid.

It is proposed and suggested that SME Liaison Committees (SME-LC) be set up on the pattern of CPLC (which mostly unfortunately caters to the large sector) The SME-LC could manage joint protection squads set up by the SME units in their areas to deter miscreants and gangsters from harassing the units.

For more information, contact:
Union of Small and Medium Enterprises (UNISAME)
75/1 3rd Commercial Street,
Phase IV, D.H.A., Karachi, Pakistan
Tel: +92-21-35884225-6
Fax: +92-21-35380642
Cell: +92-300-8245307, +92-321-8245307
Email: unisame@gmail.com

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