ISLAMABAD, 21 June 2004 — Pakistan has just announced steps that open up its market for more than $10 billion machinery imports at five percent or less customs duty, and tax cuts for business and industry.
This enlargement of market is estimated for fiscal 2005, but the process will continue even later. A wide range of machinery imports have been allowed at 5.0 percent duty, and some even free, in case the same equipment is not manufactured in Pakistan. Customs tariff on 5,000 industrial raw materials and inputs was abolished in 2004 which boosted output of the large scale manufacturing sector 17.1 percent. These duty-free imports continue but more tax cuts have been announced for fiscal 2005 that starts July 1. The concessions include abolition of sales tax on 288 new items, and other taxes on several hundred goods and materials. “These and related tax cuts will improve the global competitiveness of our industry and reduce the cost of doing business in Pakistan,” Finance Minister Shaukat Aziz says.
The customs duty and tax cuts offer a major opportunity to foreign manufacturers and exporters of capital goods, machinery, plant, inputs and industrial raw materials to Pakistan. The industries, finished products, components, or inputs that will benefit from these extraordinary concessions range from aircrafts and their engines, to textiles, telecom, and steel.
These also include: cooking oil, ship breaking, tractors, combined harvesters, bulldozers, fertilizers, dumper trucks, heavy construction machinery, cellular phones, oil exploration, electricity, energy, CNG buses, equipment for hospitals, call centers, business processing outsourcing, educational & research institutions, and mineral projects.
Custom duty on 469 raw materials and inputs has been reduced. The reduction is between 5 to 20 percent. It will promote industries, especially, iron and steel, plastics, chemicals, dyestuffs and precision equipment. The importable items include: polypropylene, basic dyes, varnishes, resins, polyester film, ingots, steel coils, corrugated sheets, wire rope, tin waste and scrap, engineering tools, engines, turbo propellers, vacuum pumps, passenger lifts & elevators, tower cranes, buckets, shovels, escalators and machines for producing bags, sacks and envelopes.
The reduction in customs duties, and making a large number of industries and businesses tax-free, aim at reducing the cost of doing business in Pakistan, across the board. It is also part of efforts for bracing up to globally compete under the WTO.
The opportunity for exporters to Pakistan of these and related products has opened up because the country is planning to push its GDP from 6.4 percent in the just-ending fiscal 2004 to 8.0 percent by fiscal 2007 under the Medium-Term Macroeconomic Framework (MTMEF). Investment, largely by the private sector, and foreign investors through FDI, will be 20 percent of the GDP. The budgetary deficit will be reduced to less than 3.0 percent of GDP, and the average annual inflation rate is projected at 5.0 percent. He also says, “these are difficult targets, but if our economy, now moving forward positively, stays on track, we will achieve them,” as part of the 3-year MTMEF.
The business prospects during fiscal 2005 are quite good, both in the public and private sectors. While the private business has built up sizeable private cash over the last three years, the commercial banks have still large liquidity.
The banks, on the strength of this liquidity are liberally offering credit at 5 to 8 percent. The private sector credit takeoff rose from Rs. 148 billion in 2003 to an unprecedented Rs. 281 billion in the first eleven months of 2004. The trend is expected to persist. The interest rates are slowly looking up, but the present low-interest rate environment is likely to continue for the foreseeable future, according to the central bank and commercial bank officials. Home remittances sent in 2004 by overseas Pakistanis from Gulf, Saudi Arabia, Middle east and North America totaled $3.8 billion and kept the banks fairly liquid, besides going into direct investment. The government, at the same time, is encouraged by its reduced budgetary deficit, and the expected larger tax collections, and has chalked up a sizeable infrastructure program to build large irrigation and hydelpower systems, motorways and highways, telecom, transport, and railways.
A new Textile City is coming up at Karachi to provide modern industrial facilities, all utilities and export processing zone facilities. Karachi will be followed by establishment of two more Textile Cities at Lahore and Faisalabad — that is already known as Pakistan’s Manchester. Textile industry imported $4.0 billion textile machinery from Germany, Italy and Japan, over the last three years. It was out of a $5.0 billion target fixed under the Textile Vision-2005.
The equipment has largely modernized textiles, provided value-addition, and added a large variety and high quality of products, especially ready-to-wear garments and fashion. It will help Pakistan expand its textile exports and earn a higher unit-value for its products.
The first phase of Gwadar, deep-sea port will be completed by the end of the year. Gwadar is located close to the Gulf - near the Gulf of Oman. It will be a business-industrial-telecom-communication hub, located half way between United Kingdom and Japan, as well as being the most cost effective route from the Arabian Sea to the Central Asian republics. The government has just declared the area around this seaport as “Gwadar Special Economic Zone” (GSEZ) to promote a variety of warehousing, transshipment and all types of industries. It will require a huge amount of imported machinery.
