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Here is a brief bar chart of the sales tax rate in Pakistan during the past 10 years.
Personal Tax
All individuals, unregistered firms, associations of persons, etc., are liable to tax, at the
rates ranging from 10 to 35 per cent.
Tax on Companies
All public companies (other than banking companies) incorporated in Pakistan are
assessed for tax at corporate rate of 35%. However, the effective rate is likely to differ
on account of allowances and exemptions related to industry, location, exports,
etc.
Good economic governance in areas such as taxation, regulations, and business
licensing is a fundamental pillar for the creation of a favorable business environment
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In the latest edition of the Doing Business report, Pakistan is currently ranked 172 which
is 4 ranks below than its previous rank in 2014 which was 168 which implies that the
situation in paying taxes by the people has gotten much more worse in the past year.
While comparing Pakistan to its competitive countries like China or India, Pakistan is not
that far behind these countries in terms of paying taxes as China ranks 120th in the list
while India ranks 156th.
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INDUSTRY ANALYSIS
Cement Industry
Since the industry faces a situation where sales price will be fixed by mutual consensus,
the cost of production will be the most critical factor of profitability. Due to increased
cost of input such as electricity, coal, paper bags, mark-up rates etc, the cost of
production of cement has increased over the years.
Energy cost is a major component of total cost of production. It contributes at an
average 40 to 45 percent towards total cost of cement production. Energy cost is even
higher in case of those plant which use wet process. A cement plant based on wet
process consumes 165 kg of furnace oil to produce one ton of clinker as compared to 85
kg of furnace oil used in dry process to produce the same quantity of clinker. Since
cement plants use both furnace oil and electricity, any increase in the prices of these
two products is detrimental to profitability of the industry. Ever since October 1995,
however, there has been more than 60% increase in the price of furnace oil.
Another significant cost component is packaging material. Cement is rarely sold in bulk
in Pakistan — almost all cement sales are in four-ply paper sacks. Cost of paper sacks
has gone up by almost 90% since December 1994. The packaging cost has also increased
due to new taxes being imposed on import of sack kraft paper.
Power tariff for industrial consumers has been increased by almost 46 percent to Rs
15.31 from Rs 10.51 per unit whereas Time-of-Day rate was increased by 35 percent to
Rs 18.81 from Rs 13.99 per unit. The off-peak rate of this category jumped up by 62
percent to Rs 13.31 from Rs 8.22. This has also substantially raised the cost of
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production of cement. The packaging cost has also increased due to new taxes being
imposed on import of sack kraft paper.
There is urgent need for installing “bulk loading facilities” at ports in order to facilitate
the cement industry to export in large quantity. Presently, only one company has
arranged a limited bulk handling facility.
Cement prices have gone down considerably despite substantial increase in prices of
major inputs like coal, electricity, paper bags and markup rates. Consequently, current
price of cement has become much lower than its historical prices due to two factors viz.
fierce competition and government pressure to keep the prices low.
A price level of Rs.260 per bag seems to be a viable price for cement industry, although
it is still lower than the cement prices in other countries. Undue pressure of
government to keep the prices lower than the prices of other countries would prove to
be counterproductive for the economy.
About 100 percent increase in the prices of imported coal, from around US$ 40 per ton,
few years back, to US$ 80 per ton, has greatly affected profitability of cement industry.
Also, about 30 percent fuel cost affected cost of production.
Taxes on Cement in Pakistan are the highest than most of the countries i.e. about 30
percent, as compared to 10 percent in Indonesia, Philippines, Egypt, 7 percent in
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Thailand and zero percent in Iran and Malaysia. As such, rationalization of taxes on
cement in Pakistan should be considered.
Government should consider switchover to concrete roads, as maintenance cost of such
roads is almost zero, although initial capital cost is higher. As per an Indian study, there
would be about 12 per cent saving in fuel consumption on plying vehicles on concrete
roads. Substantial savings can be achieved by this switchover.
Excise Duty on cement may be reduced by at least half, to bring the taxes on cement at
least to the level of India, if not to the level of other countries.
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Textile Industry
The Pakistan textile industry contributes more than 60 percent (US $ 9.6 billion) to the
country’s total exports. However, currently this industry is facing great decline in its
growth rate. The major reasons for this decline can be the global recession, internal
security concerns, the high cost of production due to increase in the energy costs etc.
Depreciation of Pakistani rupee that significantly raised the cost of imported inputs, rise
in inflation rate, and high cost of financing has also effected seriously the growth in the
textile industry.
Finance Bill to Burden Industry Further
All Pakistan Textile Mills Association (APTMA) has told that government’s actions are not
matching with its words for the textile industry. Referring to the Prime Minister Yusuf
Raza Gilani speech at the launching ceremony of the Infrastructure Development of the
Pakistan Textile City at Port Qasim Industrial Area, where Prime Minister spoke high of
the textile industry contribution towards the country’s economy, Chairman APTMA
Tariq Mehmood said the federal budget 2009-10 is a total negation of the
acknowledgement of the role of textile industry on the part of the Prime Minister.
According to him, reintroduction of minimum tax on domestic sales would invite
unavoidable liquidity problem, which is already reached to the alarming level. He said
the textile industry was facing negative generation of funds due to unaffordable markup
rate on the one hand and acute shortage of energy supply & unimaginable power tariff
for industry.
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Increasing Cost of Production
The cost of production of textile rises due to many reasons like increasing interest rate,
double digit inflation & decreasing value of Pakistani rupee. The above all reason
increased the cost of production of textile industry which create problem for a textile
industry to compete in international market.
1. Internal issues pose a Larger Threat for Pakistan’s Textile Industry
Pakistan’s textile industry is going through one of the toughest period in decades. The
global recession which has hit the global textile really hard is not the only cause for
concern. The high cost of production resulting from an instant rise in the energy costs
has been the primary cause of concern for the industry. Depreciation of Pakistani rupee
during last year raised the cost of imported inputs. In addition, double digit inflation and
high cost of financing has seriously affected the growth in the textile industry. Pakistan's
textile exports have gone down during last three years as exporters cannot effectively
market their products since buyers are not visiting Pakistan due to adverse travel
advisory and it is getting more and more difficult for the exporters to travel abroad.
Textile exporters rightfully demand reduction of Kibor rate to 8% to avoid a severe
decline in exports. This rate is inflation adjusted rate and then banks by adding 2 or 3%
in KIBOR rate charge their customers for their profit. A three-year comprehensive textile
policy is expected to be announced before budget 2009-10.
2. Energy Crisis
• Electricity Crisis
As a consequence of load-shedding the textile production capacity of various sub-
sectors has been reduced by up to 30 per cent. The joint meeting of APTMA & other
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related organization was held at APTMA House to formulate a joint strategy to address
the alarming electricity crisis being faced by the textile industry. The meeting
unanimously decided to constitute a joint working group of electricity management for
the textile industry in the larger interests of the value chain of the textile industry. The
joint working group will meet shortly to design a detailed plan to pursue the following
goals; immediate total exemption from Electricity load shedding for the textile industry
value chain; Rationalization and reduction of electricity tariff. The load-shedding of
electricity cause a rapid decrease in production which also reduced the export order.
The cost of production has also risen due to instant increase in electricity tariff. Due to
load shedding some mill owner uses alternative source of energy like generator which
increase their cost of production further. Due to such dramatic situation the capability
of competitiveness of this industry in international market effected badly. Fig. 1.
Illustrates comparison between electricity production and consumption.
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Figure 1: Comparison between Electricity Production and Consumption
• Gas Shortage
Gas load-shedding continues in Punjab and NWFP despite a significant increase in
temperature. A spokesman for the All Pakistan Textile Mills Association (APTMA)
claimed that 60 to 70 per cent of the industry had been affected and was unable to
accept export orders coming in from around the globe. He said the textile industry had
already endured over 45 days of gas disconnection over a period of four months,
causing extraordinary production losses and badly affecting capability of the industry. In
Punjab, energy supply disruption only was causing an estimated loss of Rs1 billion per
day.
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3. Tight Monetary Policy
The continuity of tight monetary policy cause an intensive increase in cost of
production. Due to high interest rate financing cost increases which cause a severe
effect on production. The withholding tax of 1% also effect the production badly. The
high cost of doing business is because of intensive increase in the rate of interest which
has increased the problems of the industry. The government should take immediate
measures to remove slowdown in the textile sector.
4. Removal of subsidy on Textile sector
The provisions of Finance Bill 2009-10 are not textile industry friendly at all. Provisions
like reintroduction of 0.5% minimum tax on domestic sales, 1% withholding tax on
import of textile and articles etc., are nothing but last struck on industry’s back.
Reintroduction of minimum tax on domestic sales would invite unavoidable liquidity
problem, which is already reached to the alarming level. The textile industry was facing
negative generation of funds due to unaffordable markup rate.
5. Lack of new investment
Pakistan textile industry is facing problem of Low productivity due to its obsolete textile
machineries. To overcome this problem and to stand in competition, Pakistan Textile
Industry will require high investments. There is a continuous trend of investing in
spinning since many years. Pakistan’s textile industry estimates that around Rs1, 400
billion (US$32 billion) of investment was required till 2010 in order to achieve the
government's export target.
6. United States & EU cuts imports of textile from Pakistan
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United States cancel more than 50% of textile orders of Pakistan .US also impose a high
duties on the import of textile of Pakistan which effect the export in a bad manner. US &
EU are the major importer of Pakistan textile which create a huge difference in export of
Pakistan textile after imposing a restriction on import of Pakistani textile goods.
7. Raw material Prices
Prices of cotton & other raw material used in textile industry fluctuate rapidly in
Pakistan. The rapid increase in the price raw material effect the cost of production
badly. The increase in raw material prices fluctuate rapidly due to double digit inflation
& instable internal condition of Pakistan. Due to increase in the cost of production the
demand for export & home as well decreased which result in terms of downsizing of a
firm.
8. The Effect of Global Recession on Textile Industry
Pakistan is 26th largest economy in the world, and 47th largest in terms of the dollar. It
is sad to see our economy like this now. Pakistan is actually a very economically diverse
country with boasting industries of textiles, agriculture, etc.
The main reason for this slump has largely been the political instability over the past few
years; no proper economic policies were implemented; at least none that succeeded.
This caused a very high rate of inflation, which, in 2008, had increased to a whopping
25% as compared to a 7.9% of 2006. What occurred afterwards is what we call the
domino effect. The value of the Rupee crashed from 60-1 USD to 80-1 USD in only a
month, the prices of commodities soared through the roof, the number of people living
below poverty line increased from 60 million to 77 million, and consequently, the
working class layman became virtually deprived from basic necessities like water,
wheat, electricity, natural gas, and cooking oil; add to all this, the preposterous amounts
of load-shedding, and what we get is a nation in shambles.
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The above all situation of the economy badly affected the textile industry also. The
demand for textile product cut down locally & internationally as well. The export order
reduced due to unpredictable conditions of Pakistan & political instability. The cut down
in the production of textile cause further unemployment level which decrease the living
standard of peoples.
9. Effect of Inflation
Inflation rate is measured as the change in consumer price index (CPI). Inflation is
basically a general rise in the price level. It is decline in the real value of money. Inflation
can have adverse effect on economy. Pakistan is one of prey of inflation. It still faces
high double digit inflation. The increase in inflation cause the increase in the cost of
production of textile good which return in downsizing. The double digit inflation cause
reduction in exports of textile.
CONCLUSION
Pakistan’s textile industry is going through one of the toughest periods in decades. The
global recession which has hit the global textile really hard is not the only cause for
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concern. Serious internal issues also effected Pakistan’s textile industry very badly. The
high cost of production resulting from an instant rise in the energy costs has been the
primary cause of concern for the industry. Depreciation of Pakistani rupee during last
year which has significantly raised the cost of imported inputs. Furthermore, double
digit inflation and high cost of financing has seriously affected the growth in the textile
industry. Pakistan's textile exports in turn have gone down during last three years as
exporters cannot effectively market their produce since buyers are not visiting Pakistan
due to adverse travel conditions and it is getting more and more difficult for the
exporters to travel abroad. Pakistan’s textile industry is lacking in research &
development (R & D).The production capability is very low due to obsolete machinery &
technology.
Pakistan is facing high cost of production due to several factors like the hike in electricity
tariff, the increase in interest rate, energy crisis, devaluation of Pakistani rupee,
increasing cost of inputs, political instability, removal of subsidy & internal dispute. The
above all factor increase the cost of production which decreases the exports. Exports
receipts decrease from $ 10.2 B to $ 9.6 B. The global recession also hit badly the textile
industry. Double digit inflation also caused decrease in production in textile sector
which cause the increase in unemployment level.
On imposition of 16% FED on banking and insurance services such advance taxes would
play havoc with the growth of the industry in already existing adverse circumstances
and needed to be withdrawn immediately. The government should not withdraw sales
tax and withholding tax exemption on machinery and parts, as it would add cost besides
liquidity problem for the industry.
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COMPARISON WITH COUNTRIES
INDIATo begin with here is just a brief overview of the rankings between India and Pakistan for the different factors/drivers of the cost of doing business.
Now we’ll look into these factors simultaneously and have an idea of how much cost is needed or required to do this in each country.
India currently ranks much lower in terms of starting a business than in Pakistan which clearly shows us that setting up a business in Pakistan is much more feasible for any random person. The question is why is it feasible to do it in Pakistan?While setting up a standardized company in India, it requires nearly 100,000 INR in paid in minimum capital requirement along with a startup capital of 10 times GNI per capita. On the other hand setting up the same kind of a business in Pakistan requires 0 PKR in paid in minimum capital requirement along with a start- up capital of 10 times GNI per capita which shows us how it is much more beneficial for a person to start a business in Pakistan rather than India and therefore India is ranked lower in this case.
Pakistan is ranked higher in terms of dealing with construction permits than in India because of the estimated cost associated with constructing a building in Pakistan currently is PKR 6,601,001 while in India the same cost would be around INR 4,496,273 which when converted into Pakistan ruppes would cost around PKR 7425795.40. In terms of registering a property in both countries, same costs are applied.
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INDIA PAKISTAN
ANALYSIS OF PAKISTANI INDUSTRIESCLASS NO: 40162
IN TERMS OF INFLATION RATE:
It can be seen here that in terms of inflation rate, India has been able to obtain a much more sustainable position because of its huge population which results in less inflation. On the other hand, in Pakistan we can have a fair idea from the above graph that there has been a rise as well as a decline over the years which affects the cost of doing business in the country and is one of the most vital factors.
IN TERMS OF INTEREST RATES:
The graph above provides us with a clear picture of how both the countries over the years have been in terms of interest rates. We can see here that the interest rate in both the countries over the years have had ups and downs but recently Pakistan has a relative lower interest rate when compared with India.
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INDIA PAKISTAN
ANALYSIS OF PAKISTANI INDUSTRIESCLASS NO: 40162
IN TERMS OF TAXES:
It’s clearly obvious from the figure to the right that in terms of taxes India would be more preferred while doing a business because of its los sales tax rate which means that there could be more profit and higher revenues.
Furthermore, here is another picture which shows us the Tax Revues generated in Pakistan and India comparatively. Tax Revenue is basically the amount the government receives from its citizens because of the tax rates.
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IN TERMS OF TRADING (IMPORTS, EXPORTS):
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Trading is usually required in each business today and the importance of trading has recently reached to its peak with the introduction of many new platforms from where it could happen. The two graphs given above shows us the cost of imports and exports in India and Pakistan in terms of US Dollars. Both the graphs are in favor of setting up a business in Pakistan because the cost is much lower in Pakistan when compared with India. India lags behind both in the cost to import and in cost to export.
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COST TO EXPORT COST TO IMPORT
ANALYSIS OF PAKISTANI INDUSTRIESCLASS NO: 40162
BANGLADESHHere is just a brief overview of the rankings of Pakistan and Bangladesh in terms of doing business in their respective countries
Pakistan and Bangladesh are not much parted from each other in terms of setting up a new business with there being only 1 place in difference. To make things easier for tis citizens, the government in Bangladesh has launched various reforms like launching a full-fledged online business name clearance and registration process, eliminating the requirement to buy adhesive stamps and further enhancing the online registration system and automating the registration process and reducing the time required to obtain a trading license and to complete the tax and value added tax registration. While Pakistan only launched a single reform in the year 2010 which has already been mentioned in the report earlier.
IN TERMS OF INFLATION RATE:
It can be seen in the graphs posted above that the inflation rate in Pakistan is relatively a bit higher than in Bangladesh which tells us that the cost of doing any business in Pakistan would be slightly higher than doing the same business in Bangladesh.
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BANGLADESH PAKISTAN
ANALYSIS OF PAKISTANI INDUSTRIESCLASS NO: 40162
IN TERMS OF INTEREST RATE:
The graph above provides us with a clear picture of how both the countries over the years have been in terms of interest rates. We can see here that the interest rate in both the countries over the years have had ups and downs but recently Pakistan has a relative lower interest rate when compared with Bangladesh.
IN TERMS OF TAXES:
In the Pie charts shown in the start of the comparison, we can see that Bangladesh ranks much higher than Pakistan in terms of paying taxes which shows that the people living there do not consider taxes a major threat for their business therefore are eligible enough to pay the taxes.
We can see that in this graph given above as well that sales tax rate in Bangladesh for quite some time now has been stable since the year 2006 which shows that the cost of doing any business is not much affected by the taxes. Bangladesh would be preferred while doing
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business over Pakistan in terms of taxes because of generating higher revenues and greater profits.
IN TERMS OF TRADING (IMPORTS, EXPORTS):
The pie-chart shown in the start shows us that Pakistan is ranked higher in terms of trading. This can be seen in the graphs given below:
It can clearly be seen in the graphs given above as well that Pakistan is by far much more better than Bangladesh in terms of importing or exporting goods with any country. The graphs given above shows the cost to import and export in terms of US Dollars.
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COST TO EXPORT COST TO IMPORT
ANALYSIS OF PAKISTANI INDUSTRIESCLASS NO: 40162
EXCHANGE RATES:
The picture above shows the exchange rates of the currencies of each currency with US Dollars. We can see it in the graph that in terms of exchange rates Pakistan has the highest, with Bangladesh and India being just slightly less than Pakistan.
BIBLIOGRAPHY43 | P a g e
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Abbasi, N. (2014). Inflation dilemma. Lahore: LCCI.
Bank, T. W. (2015). Doing Business 2015. Washington: The International Bank for
Reconstruction and Development /.
dilemma, I. (2010). Labor and Employment Law: A Profile On Pakistan. Lahore.