PBC urges govt to withdraw fuel subsidy

April 19, 2022 (MLN): In the wake of the widening trade and fiscal deficit, the Pakistan Business Council (PBC) has suggested the incumbent government withdraw the fuel subsidy and avoid further populist measures which result in increasing inflation.

This removal of subsidy can be replaced with targeted assistance through Benazir Income Support Program (BISP) by restoring fiscal prudence.

In a letter sent to Prime Minister Muhammad Shehbaz Sharif, Chief Executive Officer Mr Ehsan Malik said that the new government needs to make several critical choices in days to come.

The letter also suggested the government stem the pressure on forex reserves by reducing imports and raising regulatory duty on imports of non-essentials.

Instead of regulatory duty on fuel imports, the government should focus on limiting imports through conservation measures such as work from home, early closure of commercial centres and wedding halls and rationing of fuel for private vehicles.

“As RD is impractical on fuel imports, limit import through conservation measures: work from home; early closure of commercial centres and wedding halls; rationing of fuel for private vehicles,” he added.

“Don’t allow the country to experience the kind of challenges confronting Sri Lanka,” Ehsan Malik said.

PBC also emphasized government to revive the International Monetary Fund (IMF) programme to secure bilateral and multilateral funding.

Foremost amongst these is restoring fiscal prudence, stemming the pressure on the foreign exchange reserves and reviving the IMF programme, the letter read.  

The letter also recommends to maintain a competitive exchange rate by targeting REER in the 95-105 range.

On the export front, PBC urged continuing with competitive energy tariff and other export incentives and come up with additional incentives for non-textile exports to widen the geographical dispersion.

PBC also stressed equitable taxation and accelerate Federal Board of Revenue (FBR) reforms to broaden the tax base.

The letter also stated, “Don’t burden existing taxpayers further and avoid knee-jerk revenue seeking measures that impact the long-term health of the economy.”

The council also called for the removal of past energy contracts, cross-subsidies, system inefficiencies and theft to maintain stable and competitive energy for the industry. “Fast forward the additional LNG terminals,” it said.

Furthermore, the letter emphasized to eliminate past energy contracts, addressing system inefficiencies and fast forward the work on additional LNG terminals to make the energy industry competitive.

In the letter to PM, the PBC has also recommended the government reinstate the relief on inter-corporate dividends as it was inadvertently treated as an exemption and withdrawn via the Income Tax (Second Amendment) Ordinance 2021.

The relief is in line with the established global practice of protecting inter-corporate dividends from multiple taxations and will promote the corporatization and competitiveness of local business groups in the global arena.

At the same time, the withdrawal of inter-corporate dividend tax relief will disincentivize the growth plans of existing business groups and discourage foreign investment in Pakistan as well.

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