Date: 04-02-2011 Page No:15

EU concessions to make Pakistani

textiles competitive: SBP
By our correspondent

KARACHI: The State Bank Anecdotal evidence total exports is the

of Pakistan (SBP) has said suggests that the lack of textile sector.
that the trade concessions modern technology,
provided by the European designing techniques and “In case of textile
Union (EU) would increase exporter’s inability to meet exports, positive
price competitiveness of large orders are the major development was
Pakistan’s textile products. impeding factors. improved performance
of the high value
“The concessions will be Furthermore, if low value products such as
given for a period of three products are exported to readymade garments,
years effective from the EU to get benefit of knitwear, towels and
January 1, 2011 after legal trade concessions, then bed-wear,” the central
modalities, ie, approval domestic availability of the bank said.
from the EU government raw material would be a
and European problem and imports of “High value sector was
parliaments,” the SBP said these products could facing two major
in its quarterly report increase the cost of problems during the last
released a day earlier. production, the report said. two years. Firstly,
compressed external
The 75-items account for “The shortage especially demand led to low
approximately 27 percent hurt the production and export orders. Secondly,
of Pakistan’s total exports exports of towels and bed- supply-side issues such
to the EU, the central bank sheets, which have not as liquidity constraints,
said. In 2009, export been provided any shortage of the raw
earnings from these concession,” according to material, and prolonged
textile-related items were the report. power crisis were
around $1 billion. Average adversely impacting the
export earnings during the However, the tariff on production process,” it
last three years stood at different categories of yarn said.
$1.2 billion. Pakistan’s is already low, so a zero
export share of these tariff on these categories However, during Jul-Nov
commodities in the EU would not drastically lower FY11, boosted by
imports is approximately the unit prices. increased United States
three percent, it said. textile and apparel
On the other hand, a few imports, Pakistan’s
The direct benefit of this categories of fabrics and exports recorded a year
package is that it will lower knit-clothing could benefit on year rise during the
the prices of Pakistani from the trade concessions initial months of FY11
products in the EU, the SBP as the current average, the against a substantial fall
said. “However, analysis of central bank said. during the same period
the EU’s textile and apparel last year.
imports shows that Pakistan’s exports posted a
Pakistan’s unit prices in growth of 17.9 percent In the presence of tough
most of the categories are during July-November FY11 competition from
already much lower than in contrast to a fall of 8.3 regional competitors,
competitors, but still percent during the Pakistan’s performance,
Pakistan’s share in the EU corresponding period last especially in the case of
market is lower than its year. apparel, is largely in line
peers,” it said. with the export growth
The major contributor in of competitors.
Despite shortfall of market. value products
domestic cotton and registered a substantial
prolonged power crisis, On the supply side, rise.
Pakistan’s competitiveness availability of the raw
improved relatively as material such as cotton The rise in international
increased labour cost in yarn improved after cotton prices also kept
Bangladesh and government imposed the export price impact
appreciation of Chinese and restrictions on export of this positive during the
Indian currencies resulted category,” the SBP said. period under review, the
in a loss of competitive report added.
strength for their exports Due to these developments,
in the United States export quantum of high
Date: 04-02-2011
Raw cotton peaks at Rs12,500 per
maund
By Gohar Ali Khan
KARACHI: Raw cotton surged by Rs500
to hit the highest level of Rs12,500 per
maund on Thursday, dealers said on
Thursday.
They attributed the surge in cotton rates
to record high prices in the international
market due to cotton export ban in India
and major crop loss in Pakistan, China
and Australia.
About 500 bales of raw cotton were sold
at the peak level of Rs12,500 per maund
on credit in Deharki and Ghotki,
surpassing the previous high of Rs12,000
per maund on January 28. Seedcotton
(Phutti) rate increased by Rs100 to strike
an all-time of Rs5,500 per 40 kg,
breaking the previous record of Rs5,400
per 40 kg on February 2.
Amreen Hirani, a commodity analyst,
said the impact of international rally was
seen on local cotton prices as well, when
domestic cotton touched a record high.
On the International Commodity
Exchange (ICE), New York, the raw
cotton contracts for March and May rose
by 4 cents each to hit an all-time high of
$1.76 and $1.71 per pound, respectively,
amid rising demand for the commodity.
Hirani said the recent price hike was
witnessed due to the correlation with
international price that escalated
followed by major crop loss in Pakistan
and China due to weather conditions,
Page No:18
export ban in India, active trading at the
China Cotton Exchange.
Cotton traders maintain that the non-
delivery of cotton export contracts from
India has adversely affected the entire
cotton chain in Pakistan.
A meeting that took place between the
president of India Cotton Association and
the Adviser to the Prime Minister on
Textiles concluded with proposal to send
Pakistani importers’ delegation to India
to straighten up the mechanism of cotton
imports, they said.
Shakeel Ahmad, a leading cotton trader
on the Karachi Cotton Exchange said that
cotton ginners were holding back stocks.
“Soaring prices and short supply
dampened local cotton buying and
ginners seem unwilling to sell the
commodity on hope for higher prices in
upcoming days,” he said.
Despite runaway prices, spot rates of the
Karachi Cotton Association (KCA) held
steady at Rs11,000 per maund and
Rs11,789 per 40 kg for average quality
lint.
The country’s cotton sales stood at
10,200 bales of raw cotton (of 170 kg
each) varying between Rs10,400 and
Rs12,500 per maund depending on
staple length and grade.
Date: 04-02-2011
Exports to Egypt and Tunisia
affected: Dr Baig
KARACHI: Adviser to Prime Minister on
Textiles Dr Mirza Ikhtiar Baig has said
the textile products exports to Egypt and
Tunisia are on decline due to ongoing
turmoil and political unrest in these
countries.
In a statement here Thursday, Ikhtiar
Baig said he has received representation
from various textile exporters expressing
their concern on decline in exports of
their textile products to Egypt and
Tunisia.
Pakistan exports of textile to Turkey has
already affected due to their proposal to
impose safeguard measures on export of
Pakistan fabrics and garments and
expected a loss of about $400 million if
the said protective duties are imposed.
Page No:3
America has signed Free Trade
Agreement (FTA) with Morocco and Egypt
to export duty free textile products from
these countries to US and Pakistani
fabrics qualifies for exporting duty free
garments from Egypt and Morocco to US.
However, Dr Baig said that it is a
temporary effect and with the
stabilisation of the political situation in
Tunisia and Egypt the exports will
resume. Regarding Turkey he said that
government of Pakistan is taking up the
matter with Turkish authorities to
exclude Pakistan from the list of
countries proposed for imposition of
safeguard measures and a delegation led
by CEO TDAP is already in Ankara to take
up this issue.
 BUSINESS
RECORDER
Date: Friday 4th February 2011 Page No:20

Lint prices soar to new highs on cotton

market
RECORDER REPORT million bales, depicting sharp fall
KARACHI (February 04, 2011) against the last year figure at 12.5 The following deals were
: Rates hit the new high on the million bales, brokers said. reported: 500 bales of cotton
cotton market on Thursday as mills According to a report, India has from Rahim Yar Khan sold at
did purchasing amid confusions asked traders to apply for cotton Rs 12000, 600 bales from
over the contracts of import of yarn exports for unshipped Upper Sindh at Rs 12200, 500
Indian cotton, dealers said. The quantities out of the 720 million kg bales from Ghariki and Ghotki
Karachi Cotton Association (KCA) allowed in the 2010/11 season, a at Rs 12500, 400 bales of
spot rate was unchanged at Rs government circular said late on cotton from Noabad at Rs
11000, they said. Phutti prices in Tuesday. 10800, 400 bales of cotton
Sindh and Punjab were unchanged from Khadro at Rs 10800, 400
at Rs 4300-5500, they said. In the Exporters must apply between bales from Mehrab Pur at
ready business, trading activity February 2 and February 7, the 10900, 800 bales from Kumb
improved as about 13,000 bales of circular said, and after getting at Rs 10900, 1000 bales of
cotton changed hand between Rs permission have to export the cotton from Upper Sindh at Rs
10,400-12500 (credit), they said. quantity by March 31. On 11500, 600 bales of cotton
Wednesday the US cotton futures from Faqir wali at Rs 10400,
Market sources said that no respite jumped for the third straight day, 1200 bales of cotton from
was seen in the price increase settling up the daily limit, as Asian Haroonabad 10400-10900,
because the NY cotton futures is mills fuelled the rally on average 800 bales of cotton from
still on surge and rates in the local volume. Vehari at Rs 10725, 200 bales
market also hit the new high at Rs of cotton from Multan at Rs
12500. Commenting on the higher Cotton futures have rallied almost 10500/11000, 800 bales of
trend in the prices, Naseem Usman 25 percent since the middle of cotton from Bahawal Pur at
said that the price may show further January, the latest wave of a Rs 10800/11000, 800 bales of
rise in the coming days as it is not historic run that began in 2010 cotton from Pul Baghar at Rs
clear that what is next Indian and sent cotton prices to their 10800, 400 bales of cotton
move? In the meantime, loftiest levels in almost 150 years. from Duniya pur at Rs 11200,
negotiations between India and The key March cotton contract on 400 bales of cotton from Khan
Pakistan may help in making any ICE Futures US rose the four cent Pur at Rs 11500, 800 bales of
progress to import cotton , he said. limit to conclude at $1.7622 per cotton from Rahim Yar Khan
lb, with the session low at $1.73. at Rs 11500, 600 bales of
Besides, Pakistan Cotton Ginners Total volume stood around cotton from Lodhran at Rs
Association (PCGA) fortnightly 20,400 lots, just above the 30-day 11500, 1400 bales of cotton
report issued, showing phutti arrival norm, Thomson Reuters from Liaquat Pur at Rs 11500
till January 31 was nearly 11.1 preliminary data showed. and 400 bales of cotton from
Tounsa Sharif at Rs 11500.
The KCA Official Spot Rate for Local Dealings in Pak Rupees
----------------------------------------------------------------------------------------------------------------------------
FOR BASE GRADE 3 STAPLE LENGTH 1-1/32"
-----------------------------------------------------------------------------------------------------------------------------
MICRONAIRE VALUE BETWEEN 3.8 TO 4.9 NCL
===========================================================================
Rate Ex-Gin Upcountry Spot Rate Spot Rate Difference
For Price Ex-Karachi Ex. KHI. As Ex-Karachi
on 02.02.2011
===========================================================================
37.324 Kgs 11,000 120 11,120 10,120 NIL
-----------------------------------------------------------------------------------------------------------------------------
Equivalent
-----------------------------------------------------------------------------------------------------------------------------
40 Kgs 11,789 120 11,909 11,909 NIL
===========================================================================

RECORDER
Date: Friday 4th February 2011
Flood, diseases and pest attacks: cotton
arrival declines by 11.26 percent
MULTAN (February 04, 2011)
: Chairman of Pakistan Cotton
Ginners Association (PCGA),
Masood A Majeed has said
that shortfall of cotton arrival
was 11.26 percent. He said
total 1,11,04,511 bales of
cotton were received during
this season. It was 14,08,719
bales less than last year
showing a decline of 11.26
percent in the production due
to flood, diseases and pest
attacks.
While 3,44,259 bales were
received during last fortnight
from January 16th to February
1st, 2011. He said that total
641 ginning factories are
operational in Sindh and
Punjab. Recent floods had
badly hit the cotton crop in the
districts of Muzaffargarh,
Layyah, Rajanpur,
Rahimyarkhan Multan and
Dera Ghazi Khan. They said
that 38.50 percent cotton was
destroyed in Muzaffargarh,
57.92 percent in Rajanpur,
8.19 percent in Dera Ghazi
Khan, 13.81 in Jhang, 19.61
percent in Hyderabad and
24.03 percent in Ghotki. Cotton
production in the country has
declined by 11.26 percent as
the arrivals recorded at the
gunneries as on February Ist,
2011 stood at 1,11,04,511
bales, showing a decrease of
11.26 percent from 1,25,13,230
bales received in the
corresponding period of last
year.
The report reveals an increase
of 18.14 percent in cotton in
Lodhran district, 105.84
BUSINESS
Page No:12
RECORDER REPORT
percent increase in Mianwali
district, and 9.46 percent
increase in Balochistan. The
unsold stock is 7,23,943 bales
which is less than last year,
when unsold stock was
8,10,900 Chairman of Pakistan
Cotton Ginners Association
(PCGA), Masood A Majeed
briefed reporters about the
fortnightly report.
Punjab contributed 73,90,562
bales, last year it contributed
82,24,122 bales showing a
decline of 11.22 percent,
Similarly Sindh contributed
37,13,945 bales against the last
year production of 41,89,108
bales showing a decrease of
11.34 percent and Balochistan
24,118 bales to take the total to
1,11,04,511 bales.
District-wise production data
showed that Multan contributed
4,03,193 bales, Lodhran
2,30,722 bales, Khanewal
7,28,142 bales, Muzaffargarh
2,36,930 bales, Dera Ghazi
Khan 3,00,827 bales, Rajanpur
1,95,047 bales, Layyah
1,77,990 bales, Vehari 7,42,984
bales, Sahiwal 5,25,553 bales,
Pakpattan 2,60,337 bales,
Okara 49,100 bales, Kasur
7,300 bales, Toba Tek Singh
2,67,657 bales, Faisalabad
1,12,100 bales, Jhang 1,55,124
bales, Mianwali 1,57,900 bales,
Bhakkar 93,500 bales,
Sargodha 39,700, Rahim Yar
Khan 9,95,257 bales,
Bahawalpur 8,20,424 bales,
and Bahawalnagar 8,90,779
bales.
Sindh's district-wise production
figures were: Hyderabad
3,51,528 bales, Mirpurkhas
3,94,651 bales, Sanghar
15,69,036 bales,
Nawabshah 3,43,912 bales,
Naushero Feroze
1,94,397bales, Khairpur
2,08,542 bales, Ghotki 2,16,
418 bales, Sukkur 2,93,566
bales, and Dadu 1,17,777
bales.
Balochistan added 24,118
bales to the total. The
arrivals figures recorded so
far are the lowest Pakistan
ever had. PCGA claimed
that 2 million bales were
destroyed in recent floods in
Punjab and Sindh. Policy-
makers may hope that
bumper cotton crop will help
the government make
deficiency in other areas,
taking the annual growth
rates to over 7 percent.
The chairman PCGA
reiterated demand to the
government to announce
relief and bail out package
for cotton ginning factories
of flood-hit areas and survey
of such areas should be
completed shortly. The
report said that the ginners
pressed 1,09,74,860 bales.
Only 4,73,656 bales were
exported by commercial
exporters (who mostly
purchased from Sindh), and
merely 57,200 bales were
purchased from Punjab. The
textile industry purchased
99,06,912 bales and
7,23,943 bales were
available with ginners as
unsold stock.

RECORDER
Date: Friday 4th February 2011
Cotton futures prices continue their
upward spiral with gusto
LAHORE (February 04, 2011)
: With several bullish factors
conglomerating to push up cotton
prices across the world, New
York fibre futures kept spiraling
northwards at record pace and
performance. Indian refusal to
allow shipments of cotton against
existing contracts on a vast scale,
crop shortages in China, Pakistan
and Australia, public disturbances
in West Africa and Egypt and net
short global supply position have
put cotton prices on an
apparently unending spree.
The domestic seedcotton (kapas
- phutti) prices have risen at
mind-boggling speed to range
between an unprecedented range
of Rs 4,300 to Rs 5,500 per 40
Kgs in both Sindh and Punjab.
Similarly lint prices have also
shot up to a record range from Rs
10,500 to Rs 12,200 per maund
(37.32 Kgs) in Sindh and Rs
10,500 to Rs 12,000 per maund
in Punjab. Some sales of cotton
were also conducted at Rs
12,500 per maund but on credit
basis. Tendency for cotton prices
continued to be incline upwards.
In India also, cotton prices are
said to have catapulted to range
between an unprecedented Rs
5,100 to Rs 5,200 per candy.
Anyhow, the fact remains that
only around 70,000 bales of
cotton have been shipped by the
Indian exporters against their
reported sale of about one million
bales to Pakistan. Karachi
merchants added that despite
generous settlement rates offered
by importing Pakistani mills three
or four times for the same
BUSINESS
Page No:20
DR ZAFAR HASSAN
transaction, Indian shippers are
expressing their inability to
dispatch the cotton.
It has been also reported that
several mills in Bangladesh,
China and Pakistan have
approached the International
Cotton Exchange in Liverpool to
assist them in obliging Indian
shippers to perform their
contracts. In another move, the
Indian government is said to
have put a cap of 720 million
Kgs on the export of yarn to
assist the downstream industry
in obtaining yarns at cheaper
prices. Thus yarn stocks at
Indian mills are piling up and
the mills are disturbed at this
development. However, these
measures have reportedly
thrown the Indian cotton
economy out of gear and
created many imbalances due
to interference in free trade
mechanism.
Due to record rise in cotton
prices, mills in Pakistan are
suffering from acute cash crisis
with doubling of lint prices in
nearly on year's time. These
developments are giving an
advantage to India which have
made Indian textiles more
competitive in the export
markets. Now reports also
indicate that polyester staple
fiber (PSF) prices have also
risen by almost Rs 4 per
kilogram due to increase in
crude oil prices to more than
Dollar 100 per barrel. Thus
some Pakistani mills may
change their fiber spinning
blend but may also have to
close down temporarily in
May or June 2011. Due to
the government of India
interference in their cotton
and textile sectors, some
parts of the Indian textile
industry may also face
closure by the middle of this
year.
With cotton prices having
risen to dizzy heights and
interference of Indian
government in matters of
cotton and textile sales,
manufacturing and exports, it
is difficult to imagine the
damage which would occur in
case the commodity prices
begin to tumble.
In the evening (almost 5 pm
Pakistan time), New York
cotton futures prices (ICE)
were lingering around 180
cents per pound for the
March 2011 contract. Now
trade talk is also mulling at
the idea of cotton futures
prices at the level of US
Dollar two per pound. The
squeeze nature of this
contract may then attain
fruition.
In ready sales of cotton as
per Karachi brokers, one
transaction of 600 bales of
cotton from Upper Sindh
(Daharki and Ghotki) was
reported at Rs 12,200 per
manud (37.32 Kgs), while
400 blaes from Rahimyar
Khan in Punjab were sold at
Rs 12,000 per maund in a
very tight market.

RECORDER
Date: Friday 4th February 2011
Managing revenue shortfall: FBR should
tax beneficiaries of loan write-offs: analysts
KARACHI (February 04, 2011)
: The Federal Board of
Revenue (FBR) can easily
manage its revenue shortfall
for annual budgetary target by
collecting income tax from the
beneficiaries of loan write-offs.
Although the Board has powers
to charge income tax from the
beneficiaries.
The revenue body has put this
option aside and contemplating
other resources including
imposition of RGST and
broadening tax base of salaried
class to enhance its revenue
collection, analysts said while
talking to Business Recorder
on Thursday.
They said every year banks
provided for non-performing
loans and the interest related
to such loans where the loan
was not paid by the loanee
within a certain period of time.
There are three categories of
loans, (i) sub-standard, (ii)
doubtful, (iii) loss depending
upon the period of default.
In the Seventh Schedule to the
Income Tax Ordinance, 2001,
the bad debts classified as
'sub-standard' is not allowable
as an expense. However, the
bad debts classified as
'doubtful' and 'loss categories'
are admissible as deduction
subject to one per cent of the
total advances as per balance
sheet date in case of corporate
loans, and in case of SMEs
and consumer loans such
deduction is admissible up to
five per cent of the advances
wef Tax Year 2011.
They further said some of
these loans were subsequently
recovered and added back to
income wherever recovery was
BUSINESS
Page No:1
MUHAMMAD ALI
affected. However, some of
these loans and the amount of
interest related to such loans is
actually 'write-off' and in this
respect the State Bank of
Pakistan (SBP) has issued a
circular No 29, dated October
15, 2002 wherein guidelines for
write-off of irrecoverable loans
and advances have been
issued.
Through Finance Act, 2004, the
clause (3A) was also
incorporated in Part-IV of the
Second Schedule to the Income
Tax Ordinance, 2001 wherein
effect was also given to the
circular ibid where such loans
and the interest related to such
loans is 'write-off' under the
scheme of the SBP envisaged
in the said circular.
Analysts said the principal
amount of loan and the interest
related to such loan, which was
written off by a bank in the case
of a taxpayer, could be
disallowed by the department to
the extent of loss declared by
such taxpayer and the addition
on account of such loans were
to be resulted in income.
Therefore, the same was to be
restricted only to the extent of
loss declared for the year or
brought forward loss from the
previous years.
To a question, they said the
provisions of sub-section (5)
and (5A) of section 34 and
section 70 of Income Tax
Ordinance, 2001 would not
apply to any benefit derived by
way of waiver of profit on debt
or the debt itself under the SBP,
Banking Policy Department's
Circular No 29 of 2002, dated
October 15, 2002, to the extent
not set off against the losses
under Part VII of Chapter III.
Furthermore, they said the
restriction has been placed
on the addition of section
34(5), 34(5A) and section 70
to the extent of loss
declared for the year or loss
brought forward from the
previous years. They said
the provisions of section
34(5), 34(5A) and 70 deal
only with such situation
where any expense has
been allowed for the past on
accrual basis or even
otherwise and subsequently
the same expense is
recouped/recovered such as
the write-off of any interest
or benefit as related to such
expenses is subsequently
accrued to the taxpayer, the
same is to be added back.
They said the section 34(5),
34(5A) and section 70 did
not cater for the principal
amount of debt, which has
been written off because
these sections deal only
with the expense.
But there is no such
situation with regard to the
principal amount of debt
because the principal
amount of loan has not been
routed through the profit and
loss account of the
taxpayer. Therefore sections
34 & 70 are not applicable
to the write-off of principal
amount of loan. If at all, this
amount is liable to tax, the
Board has to look into some
other provision of the law for
its taxability, they
maintained.
Replying to a question, they
said several tax practitioners
were of the view that this
principal amount of written-

RECORDER
off loan is taxable under
section 18(1)(d). However, the
same tells that: "The following
incomes of a person for a tax
year, other than income
exempt from tax under this
Ordinance, shall be chargeable
to tax under the head "Income
from business. "The fair market
value of any benefit or
perquisite, whether convertible
into money or not derived by a
person in the course of, or by
virtue of, a past, present, or
prospective business
relationship."
Moreover, analysts said the
receipt of loan from a banking
company did not affect the
manufacturing/trading and
profit and loss accounts of the
taxpayer as it is an item of the
BUSINESS
balance sheet of the taxpayer,
(loanee) appearing as liability
on the credit side of the balance
sheet. Therefore, its write-off
should not be taxable u/s
18(1)(d) under normal
circumstances.
However, the circular No 29,
dated October 15, 2002 creates
certain obligations and rights for
both the banking company and
the taxpayer, paying the loan. It
gives rise to three categories of
loans and specifies certain
conditions for paying a certain
percentage of loan/interest
within a certain period of time,
the balance amount of loan is
written off by the banking
company. So this circular is
beneficial to both the taxpayer
as well as the banking company
and this transaction is
affected by both the banking
company and the taxpayer
(loanee) under "business
expediency". Therefore, any
benefit arising from this
transaction as waiver of
principal amount of loan of
the taxpayer would fall
under section 18(1)(d) and
as such the waiver of
principal amount of loan
would also be taxable in the
hands of the taxpayer.
These provisions of section
34(5), 34(5A) and section 70
would be applicable to the
waiver of interest mark-up
being a recouped
expenditure.

RECORDER
Date: Friday 4th February 2011
Afghan Transit Trade Rules 2011: Pakistani
customs to examine all containers with
broken seals
ISLAMABAD (February 04,
2011) : Pakistani customs
authorities have been
empowered to examine 100
percent containers with broken
seals carrying transit goods for
Afghanistan to avert missing
containers' scams in future under
the new Afghan Transit Trade
Rules 2011.
Sources told Business Recorder
here on Thursday that the new
Afghan Transit Trade Rules 2011
has issued a procedure for
examination of containers under
the Afghanistan Pakistan Transit
Trade Agreement (APTTA). The
100 percent containers arriving at
port of exit will be subject to
examination under the risk
management system in case of
any information or if the seals are
not intact. The examination shall
be carried out in presence of the
concerned Assistant/Deputy
collector.
As per new rules, the triplicate
copy of goods declaration
bearing mate receipt (MR)
number, cross-border stamp and
examination endorsement shall
be treated as cross-border
certificate to ensure that
containers actually reach
Afghanistan.
According to the procedure
related to the Afghan transit
export at Karachi, on arrival of
Afghan transit export cargo in
Afghani standardised trucks and
open vehicles (in case of
perishable goods) at sea ports,
the Afghan exporter or his
authorised clearing agent shall
present the customs staff the
duplicate and triplicate hard
copies of Goods declaration (GD)
along with TAD if required in
BUSINESS
RECORDER REPORT
some cases, and other relevant
documents, marked as "In
Transit from Afghanistan" to
respective foreign countries
through sea.
On arrival of goods at port of
loading, the driver of the truck
or the clearing agent shall get
the gate pass from the
Preventive gate officer or sepoy
posted at the gate. The gate
officer shall tally container
number, vehicle number, GD
number and shipping bill
number etc and allow the
vehicle to enter the port area.
The Afghan Transit Trade Rules
2011 further stated that the
clearing agent shall present GD
and gate pass to the preventive
staff who along with the PRAL
staff shall make entry in the
manual register and feed the
container number, number of
containers, number of
cartons/packages in the
container, shipping bill number
as mentioned in the GD into the
system. After feeding of all the
details in the system, a
registration serial number shall
be generated which shall be
marked on the face of GD. The
Preventive gate staff shall sign
and stamp "Pass-in" bearing
number of containers on the
reverse of the GD before
allowing the vehicle to enter the
terminal area.
It said that after "pass-in" at the
port area, the clearing agent
shall go to port weigh scale for
weighing the containers and
shall get the weight slip. After
getting the slip, the vehicle will
move to the Afghan transit shed
or the specified area for de-
stuffing. The cargo shall be
Page No:1
unloaded in Afghan Sheds
at Karachi port or Port
Muhammad Bin Qasim,
Gwadar or in case of
containerised cargo, the
container shall be unloaded
at shipping line yard or the
port/terminal.
The PCCSS staff shall dc-
seal after verifying seal and
railways wagon/vehicle
number. He will tally the
particulars of the documents
with that of the vehicle and
inspect the seal before
allowing entry to the
concerned Afghan cargo
shed. The PCCSS staff shall
check and verify the
particulars fed in on-line
computer system as
substantiated in sub-chapter
5 of the rules.
The clearing Agent shall
present the GD to
examination staff (Export)
for registration. The detailed
examination of goods will be
dispensed with if the seals
are intact. In case of short
shipment, the examination
staff shall stamp the GD
mentioning short-shipped
cargo bearing number of
containers and number of
packages and value of the
goods on the reverse of the
GD.
At the terminal, after
inspection, Afghan cargo
shall be off loaded in the
presence of Customs officer
and representative of the
owner of the goods. AO
processing (Export) shall
cross check the particulars
of the GD and send it to the
concerned Principal

RECORDER
Appraiser. After the GD is out of
customs charge, the PA Afghan
Transit Export shall "allow
shipment" and the Preventive
staff shall "allow loading" in the
system and the goods shall be
loaded on vessel for foreign
country.
The customs officer will enter
acknowledgement of transit
goods in the 'One Customs'
clearance system. The triplicate
BUSINESS
copy of GD bearing MR
number, cross-border stamp
and examination endorsement
shall be sent back to the
Customs Station at Torkham or
Chaman from where the goods
have entered Pakistan while the
Customs authorities at Karachi
shall retain duplicate copy for
record in MCD section. This
triplicate copy shall be treated
as cross-border certificate.
If the Appraising/Examining
Officer points out any
difference in marks and
number of the containers or
in case of any discrepancy
in weighing or unusual
detection in the scanning of
the cargo, the violation will
attract the penal provisions
embodied in these rules,
Customs Rules 2011 added.

RECORDER
Date: Friday 4th February 2011
APTTA to be functional from February 12:
no 'side letter' for India
ISLAMABAD (February 04,
2011) : Federal government on
Thursday announced that the
Washington-backed Afghanistan
Pakistan Transit Trade
Agreement (APTTA) will be
functional from February 12 or
13, 2011 without any 'side letter'
for India.
"Implementation on APTTA will
commence from February 12 or
13 but we have neither given a
side letter to Afghanistan for India
nor Kabul made any such
demand so far," Commerce
Secretary Zafar Mahmood said
while replying to a question at a
press conference convened to
brief media about the amendment
to the Strategic Trade Policy
Framework (STPF).
Commerce Minister Makhdoom
Amin Fahim, Additional
Secretary, Shahid Rahim Shaikh
and Joint Secretary Export Azhar
Ali Chaudhry were also present
at the press conference. Prime
Minister Syed Yousuf Raza Gilani
approved the amendments in
STPF on Wednesday in principle
and desired that these
amendments may be cleared by
the Economic Co-ordination
Committee (ECC) of the Cabinet.
According to Secretary
Commerce, Afghanistan had
insisted on allowing import of
Indian goods through Wagah
border but Pakistan regretted to
accept this demand, saying that
Pakistan cannot allow transport
of Indian goods to Afghanistan
through Wagah until bilateral
issues such as Kashmir are
resolved.
Official sources told Business
Recorder that the Prime Minister
BUSINESS
MUSHTAQ GHUMMAN
has agreed to allow import of
raw jute, Mono Ethylene Glycol
(MEG), Pure Terephthalic Acid
(PTA), polypropylene,
polyethylene, spare parts of
weaving machines and
vaccines from India.
"We are allowing of import of
seven more items from India to
be announced after formal
approval of the ECC," the
Secretary Commerce added.
Commerce Minister and
Commerce Secretary dispelled
the impression that Export
Development Fund (EDF) is
being misused as all the
projects are approved in
consultation with the private
sector, which has due
representation on the board.
Answering another question, he
said that Federal Export
Development and Promotion
Board (FEDPB) will be a policy
board to be led by the Prime
Minister which will meet twice a
year to review export policy.
The board will be duly
represented by the public and
private sector stakeholders.
This proposal will be submitted
to the Cabinet in its meeting on
February 9, to be presided over
by the Prime Minister.
Secretary Commerce clarified
that FEDPB will not replace
TDAP as the latter is an
implementing agency. In reply
to a question regarding the
current status of Chairman
National Insurance Company
Limited (NICL), Ayaz Khan
Niazi, the principal accused in
Rs 6 billion financial scam, he
said that first Niazi was sent on
forced leave but later on he was
suspended. His two-year
Page No:
contract is going to expire
during the second week of
current month, he added.
Replying to another
question, the Commerce
Minister said that the
Finance Ministry had agreed
to extend Rs 27 billion in
three years to implement
STPF 2009-12 but failed to
release a single penny till
today. Sitting on the right
side of the Minister,
Secretary Commerce
clarified that Rs 5 billion
liabilities of exporters have
accumulated as result of
incentives announced in the
STPF which the Commerce
Ministry has to pay.
"We have requested the
Finance Ministry to release
whatever amount they can
easily arrange to clear the
backlog of claims submitted
by the exporters, he added.
In reply to a question, the
Commerce Minister said
that the import of five-year
old reconditioned cars will
not have any impact on the
local auto assemblers as
these would be less than
1300 CC. He said,
notification in this regard will
be issued soon but he did
not give any specific date for
issuance of SRO. Secretary
Commerce said Prime
Minister has declared 2011
as 'Year of Export' during
which Pakistan will focus on
China for expanding
exports.
Zafar Mahmood stated that
the Prime Minister has
reviewed the Commerce
Ministry's performance of

RECORDER
the last six months. Last year, the
Commerce Ministry had projected
6 percent growth in exports but
achieved above 9 percent. This
year, the Commerce Ministry is
pursuing 10 percent growth as
projected in STPF.
He appreciated the role of
provincial governments in growth
BUSINESS
of exports. The Commerce
Ministry had identified 22-23
items for inclusion in the
present list of tradable items,
but he cleared only 17
items.With regard to European
Union (EU) package, the
Secretary Commerce stated
that this time the WTO meeting
has been postponed on the
request of the EU. The
meeting is expected to be
convened in March 2011.
On Reconstruction
Opportunity Zones (ROZs),
he said David Lipton, US
President Barack Obama's
Senior Adviser, has assured
that the bill is in Congress
and will be passed soon.
 BUSINESS
RECORDER

RECORDER
Date: Friday 4th February 2011
Remaining five months: FBR chalks out
new plan to increase revenue
ISLAMABAD (February 04,
2011) : The Federal Board of
Revenue has chalked out a
new plan to increase revenue
collection in the remaining five
months (February-June) of
2010-11 by taking strict
enforcement action against the
withholding agents, who deduct
taxes, but fail to deposit the
same in the national
exchequer.
Sources told Business
Recorder here on Thursday
that the decision has been
taken in the first Board-in-
Council meeting chaired by
FBR Chairman Salman
Siddiqui at the FBR House.
The restructuring of the Inland
Revenue has also been
considered during the meeting
to empower the Additional
Commissioners of Inland
Revenue under the functional
level for separately dealing with
enforcement, audit and legal
areas of taxpayers. The new
team of tax managers including
FBR Member Inland Revenue
Khawar Khurshid Butt and
Asrar Raouf Additional
Secretary, Revenue Division
was also present in the
meeting.
On the conclusion of Board-in-
Council meeting, Minister of
Finance Abdul Hafiz Sheikh
visited the FBR Headquarters
in the evening and met the
FBR Chairman Salman
Siddiqui. FBR Chairman also
introduced the FBR Member
Customs and FBR Member IR
with the Finance Minister
during the meeting.
Board-in-Council considered
that the FBR in consultation
with the Director General
Withholding Tax would initiate
BUSINESS
Page No:1
SOHAIL SARFRAZ
action against all persons Commissioner Enforcement
where withholding of taxes has and Additional
been done, but the deducted Commissioner Legal. These
amount has not been deposited three Additional
in the national kitty. There are Commissioners would
different forms of withholding of directly report to the
taxes where withholding agents concerned Commissioner of
have shown high level of non- the RTO. These Additional
compliance. It has been Commissioners would work
decided to strictly monitor this directly under the
area and final action plan would supervision of the
be implemented after obtaining Commissioner IR. In this
input from the Director General way, the audit, enforcement
Withholding Tax in the next and legal maters of a
Board-in-Council meeting to be specific unit would be
convened shortly. In the next 4- simultaneously deal by the
5 months, the withholding of concerned Commissioner.
taxes would be the key focus Under the new setup, each
under the enforcement plan of Commissioner would have
the Board. full information about the
audit, enforcement and legal
Under the re-organisational related issues of a taxpayer
structure of the Inland Revenue, through the respective
sources said that the Board-in- Additional Commissioner
Council considered the Audit, Additional
proposals of the Additional Commissioner Enforcement
Secretary Revenue Division. It and Additional
has been proposed that the Commissioner Legal. The
functional level should be new setup seemed to be
transferred to the Additional close to the old circle-based
Commissioners of Inland system where all functions
Revenue. Under the proposed were separately performed
structure, every Commissioner by the income tax officials.
of Inland Revenue would be Under the proposed
fully equipped with the restructuring, the functions
Additional Commissioners for of IT and Human Resource
dealing with the issues of Audit, Management (HRM) would
Enforcement and legal. As per continue to directly report to
proposal, each Commissioner the Chief Commissioner
of Inland Revenue would have Inland Revenue of the
a complete setup of Audit, concerned RTO.
Enforcement and Legal.
If a Commissioner Inland
According to the proposal, the Revenue has been
existing setup of Commissioner empowered to deal with
Legal, Commissioner 10,000 cases, he would be
Enforcement and responsible for handling all
Commissioner Audit under the audit, enforcement and legal
Chief Commissioner may be issues of these taxpayers
abolished. The Commissioner through their respective
of Inland Revenue would be Additional Commissioner
assisted by Additional Audit, Additional
Commissioner Audit, Additional Commissioner Enforcement

RECORDER
and Additional Commissioner
Legal.
Under the new structure of the
Board, the FBR is expected to
create new posts of Chief-I,
Chief-II and Chief-III to directly
interact pertaining to
operations with the
Commissioners Inland
Revenue in the field
formations. The new setup of
Chief-I, Chief-II and Chief-III
would operate within the FBR
Member IR empowered to
handle all domestic taxes
including sales tax, income tax
and federal excise duty. The
new setup of Chief-I, Chief-II
and Chief-III is likely to replace
to abolished posts of FBR
Member Domestic Operations
North and South.
Sources stated that the FBR
discussed various options to
increase revenue collection in
the remaining months of
current fiscal. The FBR
Members gave different
suggestions to improve
revenue collection. It was
agreed to focus on recovery of
arrears and expedite pending
cases at the level of judicial
fora including Tribunals, High
Court and Supreme Court of
Pakistan. It has been further
decided that strict monitoring
and enforcement of sales tax is
very important for increasing
revenue collection.
The Board-in-Council also
decided to take action against
over 10 lakh non-filers of
BUSINESS
income tax returns under the
Income Tax Ordinance 2001.
The FBR has decided to give
monthly targets to the Regional
Tax Offices (RTOs) to enforce
filing of returns. This would not
only result in broadening the
tax-base, but also be
instrumental in improving
revenue collection.
The Board-in-Council also
decided to take action against
around 40,000 non-compliant
withholding agents who have
failed to file their returns or
statements. The FBR will assign
targets to the field formations
and failure would result in
action against the concerned
officials in the RTOs. The FBR
has also decided to take action
against the non-filers of sales
tax return (December 2010),
who failed to file returns in
January 2011. The FBR will
issue e-intimations to the non-
filers for legal action against
them by the respective RTO.
Sources said that the Board-in-
Council meeting chaired by
FBR Chairman Salman Siddiqui
showed its commitment to
reach the original budgetary
revenue collection target of Rs
1667 billion. It has been
committed to surpass the
downward revised revenue
collection target of Rs 1604
billion and efforts would be
made to achieve the original
target of Rs 1667 billion for
2010-2011.
During Board-in-Council
meeting, FBR Member
Legal gave an in-depth
analysis on the restructuring
of the Legal Wing. The
presentation focused on
problems in dealing with
different issues under the
existing structure of the
Legal Wing of the FBR. It
has been proposed to equip
the legal Wing with two FBR
Chief Legal to exclusively
deal with the cases of the
Federal Tax Ombudsman
(FTO) and other cases at
the level of courts. In the
absence of necessary
workforce under the FBR
Legal Wing, the department
is facing problems in
effectively dealing with the
legal issues. In case FBR
will provide Chief Legal to
the Wing, Secretaries and
Second Secretaries would
also be provided to the FBR
Legal Wing for proper
working of the Board.
The Board-in-Council also
appointed Riffat Shaheen
Qazi, Member Facilitation
and Taxpayer Education
(FATE) of FBR as official
spokesperson of the FBR.
At the same time, the FBR
has also appointed Asrar
Raouf Additional Secretary,
Revenue Division as official
spokesman of Revenue
Division. The Boar-in-
Council also authorised the
FBR Member IR and FBR
Member Customs to interact
with the media in relation to
the respective field/area.
 BUSINESS
RECORDER
Date: Friday 4th February 2011
Automatic clearance of ST refund: FBR
introduces new provision in ERS
RECORDER REPORT
ISLAMABAD (February 04, 2011) : The
Federal Board of Revenue (FBR) has
introduced a new provision in the Expeditious
Refund System (ERS) for automatic clearance
of sales tax refund under no objection to avoid
blockage of claims under the electronic system.
In this regard, the FBR has amended the Sales
Tax Rules 2006 through an SRO.82(I)/2011
here on Thursday.
According to the notification, the refund claims
Page No:1
shall be processed by Risk Management
System (RMS) of FBR IT system within two
working days of electronic submission of refund
claim in the 'RCPS format'. The system will
automatically clear the amount under no
objection. The electronic advice will be issued
to the Centralised Sales Tax Refund Office
(CSTRO) and the registered person about the
refund amount cleared by the RMS for
payment.
 BUSINESS
RECORDER
Date: Friday 4th February 2011
Pakistan's foreign exchange reserves rise
to record $17.38 billion level
RECORDER REPORT
KARACHI (February 04, 2011) : The country's
total liquid foreign reserves reached at highest
ever level of 17.38 billion dollars because of
huge remittances sent by overseas Pakistanis.
According to the State Bank of Pakistan (SBP)
that country's total liquid foreign reserves have
posted an increase of 86.1 million dollars to
17.386 billion dollars on week ended January
29, 2011 from 17.30 billion dollars a week
earlier.
The raise was witnessed in the reserves held
Page No:24
by SBP, which have reached about 14 billion
dollars level. Reserves held by SBP increased
by 112.2 million dollars to 13.85 billion dollars
during the last week as compared to 13.739
billion dollars a week earlier. However, foreign
exchange reserves held by banks have
witnessed a decline and were down by 26.1
million dollars during the last week. With
current decline, overall foreign reserves held by
banks declined to 3.534 billion dollars as
compared to 3.561 billion dollars last week.

RECORDER
Date: Friday 4th February 2011
SBP report confirms fears
EDITORIAL (February 04,
2011) : State Bank's quarterly
report released on 2nd
February, 2011 has confirmed
once again fears that
Pakistan's economy continues
to be in a very poor shape and
any "further delay in
implementing critical structural
adjustments risks significantly
increasing the future costs to
the economy."
Persistent energy shortages,
growing arrears of energy
payments together with weak
consumer and business
confidence have taken their toll
on the domestic economy,
which is now projected to grow
only in the range of 2 to 3
percent, as compared to the
annual plan target of 4.5
percent and actual growth of
4.1 percent during FY10.
Given the outstanding issues
with expenditure management
and revenue shortfall, fiscal
performance also continues to
remain a source of concern. A
large part of increase in the
fiscal deficit was explainable,
being a consequence of higher
security-related expenditures
and the floods, but a larger
contribution to the fiscal
weakness came from
significant weaknesses in
revenues.
A variety of tax reforms have
been suggested to improve the
fiscal situation, including the
much-maligned RGST, wealth
tax, agri-income tax, capital
gains tax and improved tax
governance but, according to
the SBP, such a controversy
was unnecessary "as arguably
all of these proposals should
be implemented to ensure
widening of the tax base."
These reforms will induce cost-
push inflationary pressures in
BUSINESS
the economy in the short run,
but would help sustain high
growth in the long run. A major
worry for the State Bank was
that larger fiscal deficit, non-
availability of non-bank finance
and a reluctance to borrow from
the market by the government
was contributing to the
magnetisation of deficit.
As a result, it was the
government sector that had
dominated the 15.94 percent
YOY M2 growth during the
current year so far. Growing
exposure of banks to
government-related lending has
also led to a downgrading of
five major banks by Moody's.
Inflationary pressures too have
strengthened more than
anticipated during the first half
of FY11. Although post-flood
shocks will fade away, "the
fiscal expansion, proposed
reduction in energy subsidies
and prospects of rising imported
inflation will continue to drive
inflationary expectations.
Consequently, SBP estimates
for FY11 have been revised
upwards from 13.5-14.5 percent
to 15.0-16.0 percent."
Nonetheless, the State Bank
was not in favour of direct
government intervention as it
would lead to market
distortions. The external sector
situation also looks grimmer
due mainly to an expected fall
in flood-related receipts,
increase in international
commodity prices, especially for
energy and uncertainty about
capital and financial account
receipts.
Financing problem of an
anticipated current account
deficit will put pressure on the
country's forex reserves and
could increase volatility in the
exchange rate. We feel that a
Page No:22
pessimistic view of the
economy, as projected by
the State Bank, is a true
reflection of the unfolding
situation that is really dire
and should serve as a
warning to the authorities to
make extra efforts to stop
the rot before the gathering
storm becomes a deadly
tornado.
It needs to be mentioned,
nonetheless, that in the
unique context of Pakistan,
one could now also include
the leaders from the
opposition parties in the
circle of authorities due to
their newly assumed power
of overruling the
government's policy plans,
making the task of policy-
making of the country
doubly tedious and
cumbersome.
Anyhow, the State Bank has
revealed nothing
extraordinary in its quarterly
report, but followed its script
of analysing the economic
parameters based on
reasonable assumptions. Its
estimates, like most of the
other analysts, indicate very
clearly that most of the
macroeconomic targets
fixed in the beginning of the
year are likely to be missed
by a sizeable margin.
At a projected growth rate of
only between 2 and 3
percent, the economy would
not be able to generate the
level of employment needed
to absorb the surplus labour
force and the standard of
living of the ordinary people
would not improve due to a
stagnation in the per-capita
income.
The rate of inflation, which
was projected to be in single

RECORDER
digit, is now estimated to be
around 16 percent. Although
the data on poverty is not yet
available, it is definitely going
to increase since a large
number of people in the
country were already living on
the margin and factors like
increasing inflation and
unemployment would worsen
their plight further.
Regrettable though it may be,
but a combination of such
negative developments could
increase the level of frustration
in the society and stoke
lawlessness and chaos in the
country. Early signs of such
disquieting events are already
visible in some urban areas of
Pakistan.
Unfortunately, the PSDP and
increased availability of private
sector credit, which could serve
as a driving force to accelerate
development and absorb the
increasing levels of the labour
force entering into the market,
have both been direct victims
of a marked deterioration in the
public finances of the country.
Most of the ills of the economy
could only be removed by
pruning expenditures,
increasing revenues and
bridging the gap in the fiscal
position of the country to a
reasonable level, but it is
easier said than done.
One area, which was a source
of some comfort, was an
improvement in the external
BUSINESS
sector account during the first
half of FY11. Due to a variety of
factors, such a turnaround,
according to the State Bank,
may also not be sustainable.
Against this perspective, it is
the considered view of the SBP
to continue with the structural
programme of the IMF to soften
the external financial
constraints, as well as to
enhance the resilience and
robustness of the economy.
This is a very well-judged
remark of the State Bank on the
current economic situation but,
given the present level of
resentment against the IMF in
the country and a number of
violations in the conditionalities
under the existing SBA,
whether such a proposal would
be really implemented or useful
is anybody's guess.
Also, the State Bank has rightly
linked the manageability of the
growing macroeconomic
imbalances with implementing
the agenda of critical structural
adjustment reforms. Such a link
is of course of paramount
importance but the
developments during the year
show that it is nearly impossible
to tread such a path due to
consistent resistance by the
groups with vested interests
and the opposition parties, who
are bent upon browbeating
government and preserving
their own interests.
The imposition of the RGST,
which could have been a
very useful tool to document
the economy and broaden
the tax net, remains mired in
controversy and the practice
of fixing domestic oil prices
in line with the international
prices, has been abandoned
for the time being. Nobody
is now talking about taking
measures to raise revenues
or reduce subsidies.
On the other hand, the
whole emphasis seems to
be on getting more facilities
or relief from the present
government. The
parliamentary
representatives, who were
given the task of forging a
consensus on various
economic reforms are not
making satisfactory
progress, but only adding to
the fiscal problems of the
country by postponing
certain crucial decisions.
In this kind of situation, we
see only little hope of the
faithful implementation of
the necessary reform
agenda, on which the
improvement in key areas of
the economy depends. In all
probability, therefore, the
next quarterly report of the
State Bank will also not
reveal any good news. This
would, of course, be sad but
the destiny of nations
depends on taking the right
decisions at the right time.

RECORDER
Date: Friday 4th February 2011
Mounting debt burden and wasteful
spending
HUZAIMA BUKHARI AND DR IKRAMUL HAQ
ARTICLE (February 04,
2011) : Ostentatiously lavish
living, wasting and plundering
public money, misuse of
powers, disrespect towards
rule of law, insatiable greed
coupled with rampant
corruption, apathy towards the
poor and needy, inefficiency
and incompetence - just to
mention a few-are the well-
known traits of our rulers
(both military and civilian
alike) and government
officials - there could be some
notable exceptions.
The word 'austerity' is not in
the dictionary of our political
leaders, high-level civil
military bureaucrats, public
office holders and even
private individuals, who are
enjoying little affluence. The
habit of living beyond means -
some called it our national
addiction - has made us a
nation with a beggar's bowl.
When foreign lenders see the
lifestyle of our ruling elite, they
immediately show indignation
- it is hard for them to believe
that the rulers of a nation,
living on borrowed funds,
have such flamboyant ways of
spending.
The country's total foreign and
domestic debt at the
beginning of 2011 has
touched the dangerous mark
of almost Rs 11 trillion - the
debt-to-GDP ratio rising to 74
percent from 64 percent in
January 2010. The
government is continuously
borrowing heavily to meet its
burgeoning budgetary deficit.
According to the State Bank
of Pakistan, domestic debt
increased to Rs 4.958 trillion
by September 2010, from
4.018 trillion in September
2009.
The external debt of the
government increased to Rs
BUSINESS
3.864 trillion in September
2010 from Rs 3.656 trillion in
September 2009. By trained economists. We have
September 2010, the foreign
debt was $58.41 billion as
against $55.62 billion in June
2010, showing an increase of
$2.79 billion in three months.
By the end of 2010, our
domestic debt went up to Rs
5.50 trillion as a result of the
government's insatiable political economists. These
borrowing quest. In guys are technicians, morally
September 2010, domestic
debt and liabilities were of Rs
5.191 trillion, which registered
an increase of Rs 306 billion
in just three months.
During 2009 to 2010, owed, [name is omitted by us]
domestic debt showed an
alarming growth of Rs 1.05
trillion. In December 2009,
domestic debt/liabilities stood
at Rs 4.447, trillion rupees,
which increased to Rs 5.5
trillion by December 2010.
Today's Pakistan represents a
State where a trio of corrupt
civil-military bureaucrats,
crooked politicians and profit-
hungry businessmen is very
affluent, but the Government
is on the brink of bankruptcy.
This state of affairs is the
direct outcome of the state's
policies of allowing a free
hand to forces of loot,
corruption and terrorism. No
other state in the world has
undergone such a horrible
experience. Clearly, Pakistani
rulers have destroyed the
State through corruption and
incompetence. Unfortunately,
foreign-trained Pakistani
economists (sic) have all
along been defending and
serving political masters, and unwillingness to harness
instead of advising the
concerned quarters to enforce
financial discipline and better
financial management.
In our last week column, we
raised the point why we have
Page No:22
failed on the economic front
despite the many foreign-
received the following reply
from a noted economist
working in Washington with
the US Treasury Department:
"Great economists and no
progress! What is missing?
Perhaps you do not need
economists like these but
bankrupt, and add numbers.
Apply this in your microscopic
analysis. For example [name
is omitted by us] never paid
back his scholarship dues to
the Pak government, which he
struts around saying that he
taught at Harvard while it was
at Howard U at DC, no one
would hire him in the US.
[Name is omitted by us] is a
CPA not an economist, [name
is omitted by us] is an
accountant who sold his soul
to the PML-N and on and
on...[name is omitted by us] is
a pedestrian".
One of the major weaknesses
of governance in Pakistan is
unchecked wasteful spending
and unwillingness to collect
taxes from the rich and
mighty. The worsening plight
of the poor is not due to
scarcity of resources-as
propagated by the rulers to
shift the blame on to others -
but is due to the wasteful
expenses on the part of the
rulers and their mediocre
bureaucracy.
Wasteful spending out of the
taxes collected from the poor
the real potential of Rs 4
trillion by taxing the rich is
playing havoc the with
economy as well as the socio-
economic fabric of society.
Behind the present chaotic

RECORDER
socio-economic and political
situation in Pakistan, amongst
other factors, is an ever-
widening gulf between the rich
and the poor.
It is shocking that with every
passing day, more and more
people are being pushed
below the poverty line - their
total number is now not less
that 45 million in a country
where rulers unashamedly
waste billions of rupees on
their personal comfort and in
the name of security.
In the fiscal year 2009-10, the
total tax revenue collected by
Federal Board of Revenue
(FBR) was around Rs 1300
billion. The Federal
government showed total
receipts (both tax and non-
tax) at Rs 2426.7 billion.
Expenditures - current plus
development - were Rs 6040
billion, out of which non-
development outlays were to
the tune of Rs 3,746 billion.
Debt servicing alone has risen
to Rs 950 billion from
budgeted amount of Rs 780
billion. For the financial year
2009-10, a cursory look at the
Annual Budget Statement
reveals a disturbing story.
Analysis of two sizeable
volumes, prepared and
published by Finance
Division, Ministry of Finance,
commonly called the "Pink
Book", shows how public
money is wasted on
unproductive, unnecessary
and monstrous federal
government offices when
millions of people are
homeless and starving.
The details of the expenditure
included in this publication
captioned "Details of
Demands for Grants and
Appropriations" are simply
horrifying. We have over 50
Ministries and 135 Divisions,
sub-Divisions, attached
offices and allied
departments.
In the budget 2009-10, the
government demanded just
BUSINESS
Rs 400,000 for the adoption of
Urdu language as the official
language [Page 11, Volume I,
Pink Book], whereas for travel
and transportation of Federal
Ministers alone total allocation
was that of Rs 47,044,000
[Page 10, Volume I, Pink
Book]. Total money given to
the apex court was Rs
354,500,000, whereas the
entertainment the expenditure
of the Prime Minister and
President House was over Rs
220,700,000!
The budget sanction of the
Meteorology Department is
Rs 417,000,000, the Council
of Islamic Ideology Rs
52,280,000 and the Model
Deeni Madaris Rs 29,287,000
- their contribution towards the
public hardly justifies such
spending. On the contrary, the
total money spared for the
Scientific and Technological
Division of Ministry of the
Science and Technology is
just Rs 298,838,000 and that
too not for research but for
operational expenses. It is a
national shame to the note
that total budget of this vital
Ministry is only Rs
3,076,070,000, out of which
not a single penny is
earmarked for research
projects.
Details for demands provided
in 'Current Expenditure'
(Volume I) and 'Development
Expenditure' (Volume II) of
the Pink Book confirm beyond
doubt that billions of rupees
are being wasted in the most
ruthless manner. The then
Secretary to the Government
of Pakistan, Salman Siddique
[now Chairman FBR], in his
preface to this book observed:
"For the day-to-day working of
the ministries and their
departments, this document
becomes the basic reference
point for expenditure
management and control."
In the name of "control" and
"management", the Auditor
General of Pakistan observed
in his annual report, all rules
and regulations were blatantly
violated and the national
exchequer suffered the loss of
billions of rupees. Yet nobody
was convicted - rather, the
worst offenders got pardon
under the infamous NRO
(National Reconciliation
Ordinance - what a misnomer
wherein cases of looters of
national wealth were
withdrawn in the name of
political expediency).
The following examples for
additional grants, taken from
the Pink Book, are not only an
eye-opener but also testify to
the wasting and plundering of
public money by politicians
and bureaucrats:
-- Prime Minister's Secretariat
got an additional grant of Rs
76,656,000 for establishing
camp offices at Lahore and
Multan for the Prime Minister.
At both places, we already
have palatial government
buildings, yet the Prime
Minister of this starving debt-
enslaved nation wants to
spend millions more for
aristocratic, high-born, grand,
exclusive camp offices!!!
-- Special grant (in addition to
regular budget) of Rs
300,000,000 was given for
transfer of Special Initiative
Wing to Cabinet Division - one
wonders whatever is the need
of this wing!
-- Cabinet Division got
supplementary grant of Rs
22,000,000 for the Central
Pool of Cars for Ministers,
State Ministers etc. They are
not ready to improve and use
the public transport system.
Further grant of Rs,
21,063,000 was given to
Cabinet Division to meet the
shortfall of funds in the Main
Secretariat.
-- Rs 15,000,000 was
sanctioned by the National
Assembly as additional grant
to the "publicity campaign" for
the Prime Minister's Special
Fund for victims of terrorism.
Do we need publicity for such
a cause!!

RECORDER
-- The inefficient and
incompetent NAB - as
adjudged by the apex Court -
has got Rs 55,804,000 in
addition to regular budget
grant just to meet shortfall in
budget of NAB, Islamabad. It
also managed to get
supplementary grant of Rs
22,064,000 to receive its
"shares in recoveries"
(Islamabad office alone). This
is a unique government
agency that gets a share in
recoveries - even though its
prime duty and function is to
recoup such losses - whereas
all its expenses are also met
from the taxpayers' money.
The extra grants that NAB has
extorted in budget 2009-10
from taxpayers' money for its
many other offices are: Sindh
(Rs 35,094,000), Punjab (Rs
34,997,000), NWFP (Rs
23,967,000), Balochistan (Rs
12,692,000), Rawalpindi (Rs
23,020,000) and Gilgit (Rs
687,000).
-- Under Demand No 025
[Defence Services] a huge
sum of Rs 13,612,717,000
has been sanctioned under
the title "Essential
requirement of Defence
Services" but no descriptions
in terms of items have been
given.
-- Defence Production Unit
(demand No 26) depicts
additional grant of Rs
1,761,196,000 for debt
servicing of a loan. The
details of loans, the purpose
for which it was acquired etc
have not been disclosed.
The above list, illustrative of
some wasteful expenditure, is
by no means exhaustive. It is
indicative of the priorities of
our rulers. They are spending
lavishly by borrowing more
and more money.
The figure of foreign debt is
going to be US $75 billion in
2015 and that of domestic
debt Rs 8 trillion. Both
external and internal debts
are increasing at a frightening
BUSINESS
rate. The way we are
managing our resources (not
exploiting them or wasting
mercilessly those already
available) is criminal and is
leading us to self-annihilation.
Fiscal deficit of over Rs one
trillion is expected during the
current fiscal year. This
testifies to the bankruptcy of
our political leadership and
the IMF-imposed economic
managers, who keep on
relying on an incompetent and
corrupt bureaucracy. They
always take the first flight to
Washington when things go
out of hand.
The policy of appeasement
towards tax evaders, money
launderers and plunderers of
national wealth is showing its
impact in all spheres: the
political culture of changing
loyalties continues, the nation
is in despair and all sectors of
the economy are showing
horrible indicators. In this
bleak scenario, our political
leaders have no definitive
plans for coming out of these
crises.
Nothing will change unless
rulers start living like common
people; within their means.
They are not ready to
surrender the extraordinary
perks and privileges enjoyed
by them at the cost of the
taxpayers' money. In a
democratic set-up,
responsibility towards the
people who voted for the
parliament and accountability
are interconnected.
The concept of modern
egalitarian state emerges
from the sovereign right of the
Parliament to levy taxes
[Article 77 of the Constitution
of Pakistan]. But at the same
time it has to spend the same
for public welfare rather than
for personal comfort and self-
aggrandisement. The second
part of democracy is
completely missing in
Pakistan.
When half of the population of
the country is facing
malnutrition, the shameless
indulgence of rulers and
bureaucrats in wasteful
expenditure continues
unabated. Look at their gaudy
lifestyle when people are
committing suicide due to
starvation.
The grim truth of Pakistan is
the habit on the part of the
rulers and their lackeys to
indulge in self-deception by
relying on foreign masters,
self-praise and self-
perpetuation at time of crises
without realising how
disastrous these acts can be.
This is certainly a ruinous and
suicidal path. We cannot
come out of debt-
enslavement, which is the
main cause of our
subjugation, unless we first
become an economically self-
reliant nation.
For this, the President, Prime
Minister, ministers,
parliamentarians, heads of
political parties and high-
ranking government officials
would have to take the first
step by living at very modest
levels, start paying their taxes,
bring all their foreign assets
back, and then mobilise the
masses for struggle to take a
great economic leap forward.
(The writers, tax lawyers,
are Adjunct Professors at
Lahore University of
Management Sciences)
Friday, February 04, 2011
Page No.17
Third picking may not resolve cotton
crisis
By Parvaiz Ishfaq Rana
KARACHI, Feb 3: The unusual
sustained flow of phutti (seed
cotton) from cotton fields into
ginneries during the ongoing
third and last picking may not
altogether resolve raw cotton
shortage but to a greater extent
help narrow down demand and
supply gap. Historically first
picking results in harvesting of
around 60 per cent of cotton
crop but this season official
figures disclose that the third
and the last picking is going on
at much higher pace than
normally witnessed, cotton
analysts said.
At the start of current cotton
season (2010-2011), the
production gap stood at 22 per
cent over the corresponding period
last year. However, on improved
arrival of phutti during last three
consecutive fortnights it has now
narrowed down to 11.26pc.
According to official figures,
phutti arrivals during the last
fortnight ending February 1, 2011
was higher by 70,988 bales over
the corresponding period last
season.
In total, 344,259 bales of phutti are
reported to have reached ginneries
during this period as against
273,271 bales in the same period
last year.
Even then the overall cotton
production during period under
review stood less at 11.104 million
bales or 11.26 per cent compared
to 12.513 million bales produced in
the corresponding period last year.
This means that the country is still
short by 1.408 million bales against
last year production.
Both the cotton producing
provinces Sindh and Punjab
continue to show short crop by
11.22 and 11.34 per cent at 7.390m
and 3.713 million bales,
respectively.
Details of production figures
disclosed that the Punjab has so far
produced 0.934 million less cotton
over the corresponding period last
year when production stood at
8.324 million bales.
Similarly, Sindh cotton crop
harvesting stood short by
476,163 bales over 4.198
million bales produced in the
same period last year.
Cotton analyst Naseem Usman
said that spinners will have to
get contracted Indian cotton if
they want to see the current
season through. He further said
that around 2.5m bales will still
be needed by spinners to keep
their units running till the
arrival of new crop.
Spinning industry has
purchased around 9.906
million bales so far as against
10.907 million bales lifted by
them in the same period last
year. Exporters have purchased
473,656 bales compared to
794,348 bales last year.
Ginners are currently holding
around 723,943 bales of unsold
stocks compared 810,900 bales
last year.
Friday, February 04, 2011
Page No.17
Soaring lint prices to benefit textile mills
By Our Equities Correspondent
KARACHI, Feb 3: In the off-market deals
towards evening on Thursday, prices of
cotton had soared to Rs12,200 per maund,
while earlier in the day, the local cotton
exchange posted day`s closing price at
Rs11,800 per maund. Either way the cotton
is blowing up in the sky.
Amreen Hirani, analyst at InvestFinance,
observed that the price of cotton had breached
the barrier of $2.12 per pound in the
international market with Cot look-A index
closing at $2.01 per lb. All of that represented
huge leap of 18 per cent in just over a month
since start of 2011.
“In spite of local prices reaching for the skies,
it still trades at discount of 21 per cent to the
international prices”, the analyst calculated.
Major textile mills in the country were
enjoying inventory gains due to cotton
purchased earlier at almost 35 per cent cheaper
prices than those prevailing at the moment.
Another analyst observed that bigger mills
procure cotton in the months between
September and December. For such mills, he
said, it was a win-win situation, for they could
spin yarn, make cloth or even sell the stock at
higher prices and make windfall gains.
Amreen reported that the recent price hike was
witnessed due to the correlation with
international price that escalated on account of
huge crop loss in Pakistan and China due to
weather conditions; export ban in India and
finally, active trading at CNCE (China Cotton
Exchange).
The analyst pointed out that for a long time the
story of India`s ban on exports was disturbing
the local spinners in Pakistan who had booked
cotton orders of one million bales but had only
received a quarter of the order to date. In spite
of India having the potential to export 10
million bales, delay in release led to assume
that India was waiting for still higher prices.
The undecided exports of cotton from India
was pushing local merchants to wait for the
raw material that was booked on cheaper
prices earlier and letting the inventory gain
they could have earned go.
Finally a meeting that took place between the
president of India Cotton Association and the
advisor of Textile Ministry concluded on
agreement to send Pakistani importers`
delegation to the neighbouring country.
The analyst says that the profitability of the
Pakistani textile industry tends to improve with
higher cotton prices as operating margins
move in lockstep with prices.
However, the current sky high cotton price
represented a predicament for the industry as
despite enjoying robust margins and exports,
total production of both cotton cloth and yarn
had slipped by two per cent and 12 per cent
year-on-year respectively during 5MFY11,
while reversal of the cotton price trend could
easily result in significant inventory losses for
the sector.
A cotton trader observed that the benefit of
buying cheaper cotton a couple of months
earlier by bigger textile mills could result in
providing them with a one-time inventory gain.
Friday, February 04, 2011
Page No.18
Lint prices steady amid brisk buying
By Our Staff Reporter
KARACHI, Feb 3: The cotton market on
Thursday maintained a bullish outlook but
prices remained stable around the overnight
levels and did not follow the fresh speculative
surge in the New York future contracts.
About 15,000 bales changed hands in the ready
section and most of them were sold around the
previous levels, while some inferior lots were traded
as lower as Rs10,200 and fine lots at Rs11,500 per
maund.
The New York futures for both the matured March
and the ruling May contracts soared to their career-
best level of 176.22 and 171.00 cents per lb, up with
limit-gain of four cents.
Analysts said reports that the China was cornering
all the floating stocks on the global markets
including New York futures, which continued to
fuel price flare-ups elsewhere.
China, they said, needs massive quantity of both
cotton yarn and lint to feed its large textile industry
and its entry into the foreign markets always causes
price flare-ups on the other markets.
The contributory factor is short crop in some of the
leading cotton producers including Pakistan and
suspension of exports by India, they added.There
was, therefore, official spot rates were firmly held at
the last level of Rs11,000 per maund.
The following are some of the deals reported by the
Karachi Brokers Forum.
SINDH TYPE: 1,000 bales, Upper Sindh at
Rs11,500, 400 bales 800 bales, Kumb and
Mehrabpur at Rs10,900, 400 bales each Khadro and
Nayabad at Rs10,800.
PUNJAB VARIETY: 1,200 bales, Haroonabad at
Rs10,400 to Rs10,900, 600 bales, Faqirwali at
Rs10,400, 800 bales, Vehari at Rs10,500 to
Rs11,000, 200 bales, Multan at Rs10,725,800 bales,
Bahawalpur at Rs10,800 to Rs11,000, 800 bales,
Pul Baghar, at Rs10,800, 400 bales, Duyniapur at
Rs11,200, 400 bales each, Khanpur, Tounsa Sharif,
800 bales, Rahimyar Khan, 600 bales, Lodhran and
1,400 bales, Liaquatpur at Rs11,500.
Date: 04-02-2011
‘$22b export target to be achieved’
By: Imran Ali Kundi
ISLAMAABD - Declaring 2011 as export
year, Commerce Minister Makhdoom
Amin Fahim Thursday said that the
country’s export would surpass the target
of 10 per cent increase and would go to $
22 billion during the current fiscal year
2010-11.
“Exports grew by 21 per cent in the first six
months (July-December) of this fiscal year
with textile sector leading the growth with
an increase of 25 per cent. We are
expecting that this trend will continue in
the following months and we will surpass
the export target of 10 per cent increase for
the year 2010-11,” said Fahim while
addressing a press conference on Strategic
Trade Policy Framework 2009-2013.
Secretary Commerce Zafar Mahmood on
the occasion said that the government
would add further eight items for trade
with India, and in this regard a list of
commodities had been sent to the
Economic Coordination Committee (ECC)
of the Cabinet for approval. However he
did not specify the eight items.
Meanwhile, the government decided to
include seventeen other items in the trade
list of the country. Zafar Mahmood said
that Pakistan was in a position to export
wheat and the government would increase
the exports of vegetables, fruits, meat and
dairy products after their value addition.
The government decided to constitute
Federal Export Development and
Promotion Board, which would be
represented by the officials of provincial
governments and private sector apart from
Page No:16
representatives of the federal agencies, he
said and added that this board would give
proposals and suggestions to enhance the
exports, and Trade Development Authority
of Pakistan (TDAP) would implement the
proposals.
The secretary commerce further said that
US delegation had assured Pakistan that
bill of Reconstruction Opportunity Zones
(RoZs) would be approved from the
American Congress this year. Meanwhile
Pak-Afghan Transit Trade would be
functional from February 12. Pakistan
would mainly focus on trade with China,
adding Beijing had agreed on the tariff line
concession on 286 items for Pakistani
exporters.
Amin Fahim said, “The Prime Minister
assured us that finance ministry will
release funds for commerce ministry to
increase the exports under Strategic Trade
Policy Framework 2009-2013. The finance
ministry did not release a single penny
while it had to give Rs 27 billion in three
years.” The secretary commerce on the
occasion said that commerce ministry
needed Rs 5 billion on urgent basis.
On a question, the commerce minister said
that decision of importing used cars would
not affect the local auto industry. The
prices of cars were enhanced because
spare parts’ prices went up in the
international market, he further added.
The ministry of commerce would also give
a detailed briefing to the Cabinet on 9th
February 2011 regarding its future plan.