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Therehas been an amendment made in the 12th schedule of the Sales tax act 1990. According to this amendment, an additional value addition tax at the rate of 3% would be levied on the import of goods other than inputs or raw materials and including import of such goods which are subject to customs duty at the rate of 16% or above.
According to this ordinance, the effect of the amendment in the twelfth schedule (3% value addition tax) is not applicable on the Plant, machinery and equipment being imported by a manufacturer for in house installation or house, falling in chapters 84 and 85 of the first schedule to the Customs Act 1969 (IV of 1960).
The refund of a 3% value addition tax would not be barred if paid on goods used in making zero-rated supplies.
On18th of March 2020, there had been the issuance of notice by the Federal Board of Revenue (FBR) of Pakistan stating the extension in the date for submission of the Sales Tax Returnand Federal Excise Duty Return for the Tax period of February 2020 exercising the powers conferred under section 74 of the Sales Tax Act, 1990 and section 43of the federal Excise act, 2005. As per this notice, the date of submission of Returns of Sales Tax and Federal Excise Duty has been extended up to 25-03-2020. The returns were previously due on 18-03-2020.
The benchmark rate has been slashed by 75 basis points to 12.5% by the Central bank of Pakistan. This is the eight-month low rate and this is done to help businesses cope with the challenges that are growing due to the threats Imposed by the Coronaviruspandemic.
To fight against the contagious coronavirus and to increase investment in the country, hospitals and new projects in manufacturing sectors are being provided with the rebate against bank finance at a reduced rate of 3% and 7% respectively. Also, there is the availability of subsidized financing at a rate of 5% for textile exporters and 6%to all other exporters. This has been done to step up the export activities in the country.
On Tuesday, At a meeting with media before the announcement of monetary policy, Reza Baqir, Governor of state bank of Pakistan said that “The rate cuts and subsidized financing schemes are not the only tools and last steps for fighting against the Coronavirus, but there are also many other options under consideration as well and new measures will be announced when required.
It was also added by Him that the State bank of Pakistan is ready to take additional actions that may be necessary for the financial stability, safeguarding prices and supporting economic growth in light of the risks of Covid-19. He also said that a vigilant eye is being kept on real economic activities by them and that surety is being made for the factories to remain operational and for the exports, not to fall.
GDP Growth Projection:
However, for the ongoing fiscal year ending 30th of June 2020, the projection for economic growth has been revised down to 3% by the central bank of Pakistan.
Theestimated growth earlier was 3.5% for the current year. In January, due to the poor output of the agriculture sector and the contraction in large scales manufacturing industries like automobiles, cement, and steel, it was hinted to revise down the projection of estimated growth.
Governor of SBP said that at pre-corona virus levels, economic fundamentals remained intact. However, the possibility of a decrease in exports during the ongoing fiscal year was not ruled out by Him.
He also said
that first of all, a drop in exports would not be badly affecting the Gross Domestic Product (GDP) growth as there is a nominal share of exports in the GDP and the exports would not fall alone and imports would also shrink. Overall, these developments will be proved positive for Pakistan and the reason for this is mainly the huge drop (over 30%) in international oil prices.
There is massive uncertainty in respect of the coronavirus.
However, the impact being imposed by the pandemic of coronavirus on the people and the national economy is not permanent but temporary. The economy would be able to see a relief rally as soon as the medicines and vaccines are introduced against the Virus, He said.
Rate cut justified:
The cut in the policy rate of 75 basis points is justified under the consideration of inflation outlooks. The new rate brought is 12.5% on a par with inflation reading of 12.4% as was recorded in February, said Reza Baqir. However, there is no change in the inflation projection (11-12%) for the current fiscal year 2019-2020 by SBP.
Itwas remarked by Reza Baqir that people would not be encouraged to come out of the home as a result of a bigger rate cut while the virus is taking a toll on people
He added that rate cut in Pakistanshould not be compared with that of the developed countries as we are not in the competition of rate cuts. Also, the developed countries are able to be more careful and cautious for rate cuts than emerging markets including that of Pakistan.
He also said that new actions might be taken by them when they would get the latest data such as new inflation readings and large scale manufacturing sectors out in near future and that they want actions on quantitative measures.
Foreign investment outflow:
There has been no impact of the outflow of foreign investment (hot money) from the debt market of Pakistan(T-bills and Pakistan investment bonds (PIBS)) on the interest regime being prevailed in Pakistan.
There has been pulling out of the investment from Pakistan and across the globe so that cash can be kept in hands in tough times, said Governor.
He also added that since the end of June-2019, the buffer currency reserves of Pakistan have been increased by around $10.5 billionand if the remaining amount (which is a little over $2 billion) is pulled out by foreign investors, then there will be a no impact on us.
Subsidized loans for industry:
Temporary economic Refinance facility (TERF) has been announced by the chief of State Bank of Pakistan (SBP). This is done to stimulate new investment in the manufacturing sector and is a Shariah-compliant Version.
Banks would be refinanced by the SBP under this scheme, in order to provide financing at a maximum end-user rate of 7% for 10 yearsand the purpose of this is to set up new industrial units.
With a maximum loan size of Rs5 billion, the scheme has a total size of Rs100 billion and is accessible by all of the manufacturing industries but there has been an exception of the power sector as there is already existing refinancing facility for renewable energy projects.
This scheme will be proved beneficial for helping counter in delay in setting up new projects that the investors were planning prior to coronavirus outbreak. The duration for the availability of this scheme is one year and a letter of credit (LC) would be required, be opened by the end of March 2021.
Subsidized loans for Hospitals:
In order to support hospitals and medical centers in combating the spread of COVID-19, Refinancing Facility for Combating COVID-19 (RFCC) and its Shariah-compliant Version has been announced by the SBP.
Under this scheme, banks will be refinanced by the SBP in order to provide financing at a maximum end-user rate of 3% for five years. This facility is being provided for the purchase of equipment that would be used for detecting and treating the coronavirus.
With a maximum financing limit of Rs200 million per hospital or medical center, the scheme is having a total size of Rs5 billion. This facility has availability until the end of September 2020.
There has been a free-fall in the stocks around the world. The free-fall has been due to the worries about the threats being imposed by the outbreak of coronavirus around the globe.
Pakistan is also not safe from the effects of coronavirus on its economy. Another massacre has been seen on the first day of this week as the negative sentiments of last week continued this week.
The benchmark index of Pakistan stock exchange (PSX), KSE-100 index declined by 2375 points in a session during this week which seemed to be the highest ever decline in the history in terms of points. It touched an intraday low of 2442 points on Monday.
The market closed at 33664 points, with a decline of 6.59%. This is considered as the highest decline in percentage terms since 20th May 2002 according to the sources.
Over 383 billion have been wiped off from the market during the session in this week according to a source from the capital stake.
The market went into the red zone right after the opening of the stock exchange on Monday. This happened for the fourth time when the trading had been halted at the Pakistan stock exchange, as the KSE-30 index fell by more than 5%.
The activity started halting at 10:13 am on Tuesday and remained halted for almost 45 minutes. This was done to follow a rule that was meant to giving the market a chance to recover as the severe decline in prices could have exhausted the liquidity.
CoronaVirusthat has been culminated into a panic sell-off in global stocks is not different from that in Pakistan, said Adnan Sami Sheikh, AVP research at Pak Kuwait investment co. It has been further added by Him that there are more risks for investors of equity that they would bear losses in the future.
The investor’s sentiments have been lessened by the pandemic, as the count for coronavirus has been doubled in Pakistan over the weekend while trade disruptions and uncertainty that have been resulted from the virus outbreak remained in the country.
Zain Uddin, the senior research analyst at Cedar Capital said that around over 158 countries including Pakistan (as over 100 cases have been reported in Pakistan till now), the overall sentiments in the market have been taken to a down, pushed by the banks and oils on the back of coronavirus outbreak. It was also stated from Him that the FED rate that has been cut to 0% is putting pressure on the US future and also being reflected in other exchanges.
UBL (-7.49%), PPL (-7.5%), BOP (-7.5%), ENGRO (-2.3%), HUBC (-3.2%), HBL (-7.49%), DGKC (-7.5%) and LUCK (-7.5%) were the major losers of the sectors.
Image source: Capital Stake
In all, 215.43 million shares had been traded at the stock exchange. Of the 332 scrips traded, 22 advanced, 301 declined and 9 remained unchanged.
There has been a decision by FBR (Federal Board of Revenue) for launching the real-time monitoring of production in the sectors of cement, sugar, and fertilizers for the purpose of preventing tax evasion. For this purpose, an Invitation for License (IFL) has been issued by FBR for IT-based solutions for Electronic Monitoring (Trade and Trace system) of products specified i.e. Fertilizer, cement, and sugar. The purpose of the establishment, maintenance, and operations of trade and trace system is to enable FBR for monitoring product activities and for the generation of real-time information volumes produced at manufacturing sites. This includes verification data of the collection of applicable taxes related to the production of specified products. The track and trace system is also purposed at providing the FBR enforcement officials and delegated agencies with real-time information that enables them to monitor and control the movement of specified goods through the supply chain. This also includes determination of the origin of specified goods, as well as to determine their legal status. Foreign specified goods getting imported into Pakistan will be having markings with a unique identification, applicable for Pakistan and will be already affixed or printed at the point of manufacture outside the country. Similarly, any specified goods getting produced in Pakistan for the purpose of exports shall be required to carry unique markings for identification fir intended destination markets. The license must be guaranteeing to factor all the above-mentioned requirements into a system for ensuring readability for products being imported and application for products to be exported as per Licensing Rules, 2019. Though the Large Scale Manufacturing (LSM), is the major and comparatively documented sector of our economy and in contributing a sizeable chunk of revenue, said FBR, yet, for LSM segments like cement, cigarettes, sugar, and beverages, real tax potential is to be realized. Currently, the Track and Trace system is offering the most feasible, reliable and straightforward solutions across the globe. With the minimum human interface, if implemented in a proper transparent manner, Track and Trace system, the interest of the revenue can be safeguarded by mapping and capturing the un-registered segments, this system can also act as anti-tax fraud tool that would entail a visible increase in revenue and this system can also ensure the level playing field to all in the above-mentioned sectors of cement, sugar, and fertilizers. For the sake of prevention of revenue leakage, production being under-reported, and sales of specified goods and for ensuring the proper payment of duties/taxes on the manufacture and sale of specified goods, FBR being mandated to license the implementation of Track and Trace system. This system is to be developed, operated and maintained by the person having the license for specified goods manufactured in and imported into Pakistan. To sum this up, FBR is inviting applications for grant of the license which is to be issued under Sales Tax Rules, 2007 (as amended vide 250(I)/2019 dated 25-02-2019 and SRO. 918(I)/2019 dated 07-08-2019) for developing, maintaining, and operating the Track and Trace system and the provisions of the rules and instructions should be accorded with.
