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CREATING EASE OF DOING BUSINESS IN PAKISTAN

It is very difficult to establish/incorporate business in Pakistan and sustain it in the long run mainly
because of the legal environment/procedures/documentation and non-cooperative and negative
attitude of certain Government Departments and agencies.

When compared internationally, Pakistan is having very depressing world ranking in the ease of
doing business index. Currently Pakistan is at 138th position out of 190. Areas used in this rakings
include:

 Starting a Business
 Dealing with Construction Permits
 Getting Electricity
 Registering Property
 Getting Credit
 Protecting Minority Investors
 Paying Taxes
 Trading across Borders
 Enforcing Contracts
 Resolving Insolvency

In the current business environment and international ranking we should not expect reasonably
well size of international investments. We must eliminate all issues and hurdles that are pushing
down Pakistan in international rankings.

To attract international investments, many major changes are extremely needed. These vary from
justice, security, consistent policies, government departmental cooperation in addition to the
yardsticks listed above. Our neighboring counties except Afghanistan are at much better position
than Pakistan. Appropriate actions/changes/modifications in the under-mentioned areas should
bring relief.

In our opinion, a Government Business Coordination and Establishment Department should be


formed/established. This department should coordinate, support and manage the legal formalities,
documentations and registrations, etc. (on fast track basis under one roof) whatever needed to start
a business either invested from overseas or local. Following are the proposals and suggestions
through which ease of doing business can be achieved especially in export sector.
1. ACCESS TO FINANCE
One of the most important issues faced by SMEs is the difficulty in accessing finance. Commercial
Banks are discouraging SMEs in financing and are very reluctant to issue credits/loans to SMEs.
Banks demand for high valued collaterals. Even banks do not follow prudential regulations issued
by the State Bank of Pakistan for SME sector. In this regard, the State Bank of Pakistan has a
policy of Clean Lending to SMEs up to 5 (M) PKR without collateral, yet Commercial Banks are
not complying with the mentioned guidelines.

It is therefore recommended that the Commercial Banks be given directions to strictly


comply with the regulation of providing Clean Lending facility to the SMEs.

2. INSTALLATION OF ELECTRICITY CONNECTIONS

In China and other major industrial hub counties, electricity connection is installed in extremely
short time irrespective of the success of the industry. In Pakistan, WAPDA takes much longer time
for electricity connection.

 WAPDA should be made a facilitator instead of a regulator.


 Restrictions should be removed on new connections and number of enterprises in one
premise.
 WAPDA should be made time bound for new connections and all trouble shootings. WAPDA
should install new connection within one week from the date of application.
 Condition of Test Report/Load Report should be removed
 No questions should be asked for the installation of new connection.

Likewise, WAPDA, other departments like SNGPL, SSGPL should also categorically make
changes in their systems to facilitate the entrepreneurs.

3. REFORMS IN LABOR UNION LAWS


Necessary reforms are required in Labor Unions as the existing setup of Labor Unions has many
irregularities. Presently, the Union Leaders rule the unions without elections for long tenures and
are involved in manipulative activities. A better and viable solution of this matter is required.

Labor laws that are supporting Labor Unions should be modified, so that:

 Labor Unions office bearers should be restricted to hold office for maximum of up
to two years.
 Previous Governments signed many international protocols without considering
their impact on the industry and commerce of Pakistan which led the Labor Unions
to become a mafia. The policies set forth should be revisited to put a balance for
providing essential relief to the Industry.

4. LEGAL THREATS TO THE EXPORTERS


Almost all the utility/tax collection departments/agencies of the Government of Pakistan are
allowed to arrest the owner of the business enterprise without going to the court for due permission.
In most of the cases, they raise some fake discrepancies and one/two legal/illegal discrepancies
immediately to blackmail and snatch money from exporters.

Powers of such Government Offices should be restricted, so that none of such bodies should
be allowed to arrest the owner of the company without legal permissions. This would serve
to provide necessary peace of mind to the Exporters from the fear of exploitation.

5. ONE WINDOW FACILITY/OPERATIONS FOR DEDUCTION OF EOBI,


SOCIAL SECURITY & WORKERS WELFARE FUND
Pakistan has a tremendous growth potential which cannot be exploited with the presence of
inconsistent policies, cumbersome tax procedures and absence of business-friendly environment.
There is no second opinion about that fact that if there is only one group that pays 100% of its
taxes, that is the Export Sector of Pakistan. Yet the roaming ambassadors are not provided with
proper facilities and incentives to support them in return and are always occupied with hefty
documentation and bureaucratic hurdles which impede the smooth flow of trade.

In order to facilitate the business community of Pakistan particularly the export sector, Sialkot
Chamber of Commerce & Industry suggests that a One Window Facility/Operations be established
wherein all the Federal and Provincial taxes & levies are charged to the exporters including the
Social Security and other collections.

To serve the purpose, we suggest that a fixed percentage of total turnover, determined mutually
with the consent of all trade bodies be charged at source. The figure should be the final discharge
in respect of PESSI, EOBI and Workers Welfare Fund. We reckon that this initiative will not only
raise the Government’s revenue but also bring the cost of collection to almost zero and would
facilitate and promote business activities when businessmen would not be required to face the
wrath of so many departments, which impede smooth business activities.

6. ONE WINDOW FACILITY/OPERATIONS FOR NEW BUSINESS


REGISTRATION
For new business concerns, a certain number of registrations are required for startup, For example,
WAPDA, PTCL, Sui Southern or Sui Northern, TMAs, EPZA, PSIC, Punjab Environment
Department, Pakistan Customs, Sales Tax Department, Income Tax, PESSI, EOBI, WEBOC etc.
For a new exporter, reaching out to all these departments individually and completing their
required documentation is a tough ask. It is therefore suggested that the Government should
develop a solid mechanism of one window operation for registration of new businesses in the most
efficient and shortest possible time.

7. WAREHOUSING FACILITY IN EPZ


It is very difficult for SME based entrepreneurs to travel internationally for sourcing. Due to this
reason, almost all countries have allowed Warehousing Facilities in EPZs wherein commercial
importers can import duty free goods/all kinds of raw materials and sell these goods/raw materials
to SME exporters under SRO 492, 326, 327, 450 or Export Oriented Units (EOU). With this
facility, the cost of inputs (goods/raw materials/components) will be reduced by more than 50%
which will empower these SMEs to sell their goods/produce at very competitive prices. Provisions
are already available in the Customs Law, which only need to be replicated in the law of EPZ.

8. CLEARANCE OF SALES TAX REFUNDS, CUSTOM DUTY DRAWBACK


CLAIMS AND SBP DLTL CLAIMS THROUGH PRC AND FORM-E

The mechanism for lodging and clearance of Sales Tax Refunds, Custom Duty Drawback Claims
and SBP DLTL Claims (SRO 711 (I)/2018) be simplified for all schemes and packages. In this
regard, it is proposed that when taxes and levies are deducted through PRC, the process of claims
should also be initiated at the same time and the amount of claims should be credited directly into
the accounts of the Exporters on the basis of FORM-E and PRC. This would ease up the
cumbersome procedure of filing of claims and would end doubling of efforts.

9. MARGIN ON IMPORT LETTER OF CREDITS BY EXPORTERS FOR RE-


EXPORT

Recently State Bank of Pakistan has imposed hundred percent (100%) margin requirement on
import letter of credits by Exporters for re-export purposes. This has reduced the ability of
exporters to import quantities sufficient to meet export requirements. Exporters should be
allowed:
 To import materials under open account for re-export after value addition.
 To import materials at lower margin requirements.
 To send advance payments to their international suppliers.
10.EXEMPTION OF SAMPLES FROM ANY SORT OF DUTY/TAXES/LEVIES

For value added Export Sector of Sialkot, it is vital that samples of goods to be manufactured, are
received by the Manufacturers in Pakistan for development, reverse engineering and ultimately
soliciting orders for goods from another country.

These Commercial samples are basically specimens of goods that may be imported by the
Manufacturers cum Exporters in Pakistan, to know its characteristics and usage and to assess its
production feasibility. However, such samples are charged with high duties and taxes, which make
it difficult for the SME based Exporters of Pakistan to manage the expenses at such scale as import
of samples is a routine procedure for them.

Keeping in view the same, it is suggested that Samples worth of USD 500 be totally exempt
from any sort of duty, taxes and levies to facilitate the export sector of Pakistan.

Also, the Manufacturers involved in Exports have to, on emergent basis, import certain parts
of machinery as a result of malfunction or damage to continue their work in process which
also face high percentage of duties. It is also proposed that the duties, taxes and levies on
such parts for machinery be also exempted.

11.ALLOWANCE OF SALES TAX ZERO-RATING AND EXEMPTION OF


CUSTOM DUTIES ON ALL INPUTS (DIRECT OR INDIRECT) OF FIVE
EXPORT ORIENTED SECTORS
It is suggested that all purchases of direct and indirect raw materials and machinery by the
exporters be exempted from Sales Tax. This will serve to solve the liquidity issues of the SMEs
and Micro SMEs. It is observed that the packing material, printing inks, TE Foam used in
Sports Bags, treatment chemicals including hardener chemical, thinners, Butyl acetate,
Chemicals used in Leather Tanning including Pre-Tanning Agents including Sodium
Sulfide, Tanning Agents (Chrome Tanning, Oil Tanning, Vegetable Tanning, Alum Tanning)
Re-Tanning Agents, Fat Lickers and Pigments which are vital for production of value added
goods, have been omitted from the ambit of inputs for exports and subsequently from a zero-rated
regime needs to be reviewed. It is therefore proposed that the above mentioned material be
exempted from Sales Tax and Custom Duties.

It is also proposed that latest machinery (0 to 5 years) vital for the 05 value added export
sectors be exempted totally from any sort of duty and taxes.
12.EXEMPTION OF EXPORTERS FROM WITHHOLDING OF SALES TAX
INSTEAD OF REFUND OF SALES TAX

Exporters are not liable for the sales tax and collection thereof. All input sales taxes are usually
refunded after extreme scrutiny. But practically these refunds are delayed greatly. Sometimes these
refunds are not even allowed for years and amounts of refundable sales tax rises to millions of
rupees. Even the scrutiny staff may stop refunds without specific reasons. Audits and other
procedures are routine obstacles in allowing refunds. Such delayed refund proceedings create
problems for both Government and Exporters. Government bears costs for the verification and
scrutiny of the refund applications whereas Exporters get their funds stuck creating liquidity
problems and increased financial costs.

It is proposed that Government should make a legislation to exempt exporters from


withholding of Sales Tax instead of allowing refund in arrears.
13. EPZ RELATED ISSUES/PROPOSALS

a. Initial Investment in USD barred


One of the primary reasons for establishment of Export Processing Zones was to increase exports
through attracting foreign investment in form of Joint Ventures. In order for the foreign investors
to come in with their investments, favorable policies should be put in place. It is obvious that the
foreign investment would come in shape of USD which is not allowed by the State Bank of
Pakistan. It is highly recommended that such bottlenecks should be removed on emergent basis.
Companies in Pakistan who wish to invest in such ventures should be allowed to purchase USD
from market as a clean investment.

b. Challenges in EPZA
 No permanent Chairman for last 2.5 years.
 Only 1 meeting conducted in the last 3 years.
 Annually an average of 15 (M) in surplus is with EPZA.
 No decision/action/progress as there is no Chairman to direct and control the authority

c. Mismanagement of SEPZ by PSIC


All the infrastructure of Sialkot Export Processing Zone is with Punjab Small Industries
Corporation (PSIC) who is not helping in any repair/maintenance of the roads, surrounding wall,
water and sewerage system due to which SEPZ depicts a picture of a deserted area.

Although, Sialkot businessmen who bought land in SEPZ paid about PKR 2.5 (B) to PSIC, the
corporation still claim that they do not have any budget/funds with them. Keeping in view the
same, it is suggested that:
 Authority of SEPZ should be given back to Export Processing Zone Authority
(EPZA).
 As per law, businessmen who invest in procurement of land in SEPZ are required
to start business in 2 years’ time otherwise land would be recalled back by EPZA at
original price and can be sold to a new buyer at current market price. This
difference in price would help SEPZ to raise money for their infrastructure
development.
 EPZA could become a regulatory authority of SEPZ and all those stake holders that
have businesses in SEPZ could formulize an advisory committee for the monitoring
of SEPZ.
 As per law, customs official must be available at the gate of SEPZ and give
instantaneous response to what is coming in our going out. However, there is no
permanent appointee in SEPZ and an additional task is given to customs airport
inspector.

d. Shipment consolidation
Some international customers consolidate their shipments in Pakistan. Unfortunately, Pakistan
customs laws regarding exports from EPZs do not allow such consolidation. Both exporters in EPZ
and outside EPZ lose their customers due to impossibility of consolidation of shipments (one LCL
shipment from EPZ cannot be consolidated with another LCL shipment from non-EPZ area). It is
suggested that procedures should be defined that allow consolidation of above referred LCL export
shipments.

e. Material movement (from bond to bond) procedures to be simplified


Currently material movements from bond to bond are allowed but it is extremely difficult if
exporters need to move some materials from EPZ to bond/manufacturing bond in tariff (non-EPZ)
areas for re-export outside Pakistan. It is suggested that these procedures be made simple and
quick.

f. Title of EPZ related SROs


Most EPZ related SROs and standing orders are titled KEPZ (Karachi Export Processing Zone)
instead of all EPZs in Pakistan. Such SROs are creating ambiguities when other EPZs in Pakistan
need implementation. Pakistan Customs does not cooperate in this regard. The Government should
either modify the concerned SROs or issue explanatory comments or directions to make these
SROs effective for all EPZs in Pakistan.
g. No dedicated and EPZ-trained customs staff is deputed.
Persons deputed from Pakistan Customs usually do not have enough training regarding the
operations of the Export Processing Zones in Pakistan. This results into ambiguities in the
implementation of laws, rules and procedures laid down for the purpose.

h. Machinery imported into EPZ under EOU (Export Oriented Unit) policy
It is a positive policy that no taxes are levied on import of plant and machinery into EPZ. But after
the useful life or due to technological change, if it becomes obsolete, Pakistan Customs
demand/collect full duties as are applicable on new machinery imported into tariff (Non-EPZ)
areas. It is suggested that the SRO should be modified so that exporters in EPZ can be facilitated.

i. Limit of two years for re-export


Recently a time limit (of two years) has been fixed to re-export the materials imported into EPZ
for re-exports. EPZ is a Government bonded area and Pakistan Customs have full access to whole
of the EPZ. Duty free import incentive given to foreign and local investors in EPZ will be finished
and investor confidence will further shatter in addition to the increased investment into the
business.

14.ESTABLISHMENT OF SPECIAL ECONOMIC ZONE IN SIALKOT


In order to avail the benefits offered by the Special Economic Zones in post China Pakistan
Economic Corridor (CPEC) Era, the Sialkot Chamber of Commerce & Industry has taken the
initiative to propose Establishment of Sialkot Special Economic Zone (SSEZ), in Private Sector
or under Public Private Partnership model, to be developed and managed under proposed Sialkot
Industrial Estates Development and Management Company (SIEDMC), an independent company
limited by Shares and/or Guarantee to be incorporated with Securities and Exchange Commission
of Pakistan by the private sector.

Establishment of Sialkot Special Economic Zone (SSEZ) would facilitate industrialization,


broadening of Industrial base, development of industrial clusters and initiation of
incubation/startup centers and would spur economic activity in the region leading to job creation,
technology transfer and development of industrial infrastructure. In order to take further steps
towards the SSEZ proposal, SCCI would need approval/commitment by the Government agencies
on the following:

 Formation/Incorporation of Sialkot Industrial Estates Development and Management


Company (SIEDMC);
 Identification and acquisition of land by the Government on behalf of SIEDMC for the
establishment of SSEZ;
 Fast-track processing of application by the Federal and Provincial Boards of Approvals to
grant approval for the Establishment of SSEZ;
 Approval of interest free loan of PKR 5 Billion to SIEDMC at 0.2% markup for a period
of 10 years for the Establishment of SSEZ;
 Approval of exemption from all customs duties and taxes for all capital goods imported
into Pakistan for the development, operation and maintenance of SSEZ by SIEDMC
instead of one-time approval;
 Approval of exemption from all taxes on income accruable in relation to the development
and operation of the SSEZ for a period of ten years, starting from the date of signing of the
development agreement by SIEDMC;
 Provision of loan to Zone Enterprises at KIBOR fixed at 5% to be paid by the Government
plus 2.5% to be paid by the Zone Enterprises;
 Provision and exemption from custom duties and taxes on imports of capital goods into the
SSEZ for installation therein by the Zone Enterprises;
 Provision of exemption from all taxes on income to the Zone Enterprises for a period of
ten years from the date the Zone Enterprise has commenced commercial operations
irrespective of the cutoff date of June 30, 2020;
 Provision of facilities to the local investors at par with the foreign investors.