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  • SBP may continue with monetary policy tightening; 100 basis points increase likely

    SBP may continue with monetary policy tightening; 100 basis points increase likely

    KARACHI: The State Bank of Pakistan (SBP) likely to increase key policy rate by 100 basis points in the next monetary policy announcement scheduled for May 20, 2019, analysts said.

    Analysts at Arif Habib Limited forecast another rate hike of 100bps in policy rate from 10.75 percent to 11.75 percent in the upcoming monetary policy.

    The aggressive monetary tightening is expected to continue by the central bank as it is going to be the seventh consecutive rate hike, they said.

    The monetary tightening is expected on the back of

    i) rising inflationary pressure due to rise in prices of petroleum products and essential food items coupled with continuous slide of PKR leading to surge in prices of imported and local products (sold on import parity),

    ii) mounting Fiscal Deficit despite sharp cut in PSDP and rationalization of tariffs and duties, and

    iii) narrowing real interest rate as it declined to 1.66% in May’19 compared to last four year average of 2.75%.

    The analysts believed the SBP is adopting a proactive stance to increase policy rate on account of higher inflation in upcoming months alongside attempting to curtail the current account deficit.

    Since October 2011, the analysts observed that during International Monetary Fund (IMF) period real interest rate (RIR) has always remained on the higher side at an average of 3.1 percent compared to an average of 2.2 percent in non-IMF period.

    “This depicts that the IMF expects an increase in discount rate for sustainability despite lesser CPI during the period,” they added.

    Furthermore, it seems like the money market has already incorporated the rate hike which is essential to fulfill the gap of 61bps between 12-M T-Bills (11.86 percent) and Discount Rate (11.25 percent).

    The analysts conducted a short survey with institutional investors regarding their view on 1) interest rate in the upcoming Monetary Policy Statement (MPS) and 2) outlook on interest rates going forward.

    Majority of the respondents (53 percent) are of the view that the interest rates are likely to see a 100 bps spike in the upcoming MPS.

    Only 12 percent of the respondents opined that the rates may see a 150 bps surge.

    With regards to whether interest rates have peaked, 71 percent of the respondents are of the view that the rate hike era is yet to halt and will see further hikes going forward.

    It is asked the poll respondents about their 1-Yr forward view on the interest rate cycle. About 48 percent of the respondents are of the view that interest rates will see a surge of 50-100 bps in the next one year.

    Around 29 percent of the respondents do not see any further rate hike following the upcoming MPS.

    The analysts believed that May 2019 inflation to settle at 9.59 percent YoY compared to 4.19 percent in May 2018 and 8.82 percent in April 2019, respectively.

    They said inflation to continue its upward trajectory in upcoming months amid low base effect of last year, sharp increase in prices of perishable goods (fresh vegetables and fresh fruits), lagged impact of adverse exchange rate movements and gradually increasing international oil prices which may result in higher prices of local petroleum products (MoGas and HSD). This may keep inflation in the range of 9.0-9.5 percent for the next four months.

  • FBR chairman agrees on abolishing withholding tax on raw materials

    FBR chairman agrees on abolishing withholding tax on raw materials

    KARACHI: Shabbar Zaidi, Chairman, Federal Board of Revenue (FBR) on Saturday asked business community to provide list of raw material for reducing tax rates on import stage.

    Addressing the business community at Karachi Chamber of Commerce and Industry (KCCI), Shabbar Zaidi agreed with the business community that there should not be withholding tax on import of raw material.

    The KCCI members raised the issue that withholding tax rates ranging 3 percent to 6 percent were imposed on import of raw materials.

    “Yes. There should not be withholding tax on raw material,” Zaidi said and asked the KCCI to provide list for taking action before the next budget.

    Talking on Amnesty Scheme – 2019, the chairman said that the asset declaration scheme was clear and there was no ambiguity.

    He said that the scheme would be part of the Finance Bill for formal approval from the parliament and it would be the same as promulgated through the presidential ordinance.

    The chairman said that the rules were being formulated for intending declarants.

    Shabbar Zaidi also talked about smuggling and misuse of tax concessions.

    He said that tax relief may be given to small number of raw materials but it cannot be extended to all imported goods.

    He said that Afghan Transit Trade was used for smuggling into Pakistan. “But there are other ways to import illegal goods into the country,” he added.

    The chairman asked the business community that once they declare the smuggled goods were illegal for selling in the local market. “If the business community support and promise there will be no protest then the raids against illicit goods will be launched from tomorrow,” the chairman added.

  • Rupee falls by 4.58 percent against dollar in a week

    Rupee falls by 4.58 percent against dollar in a week

    KARACHI: The rupee fell by 4.58 percent against dollar during the last week in interbank foreign exchange market. The fall mainly attributed to IMF loan program which was recently agreed by Pakistan.

    The dollar reached to record high by end of last weekly trading day on Friday. The interbank foreign exchange market ended Rs148.00 to a dollar.

    The country had agreed to the conditionalities involved in IMF’s Extended Fund Facility during this week. Since the initial agreement to the IMF program the financial markets of Pakistan had crashed mercilessly.

    Currency analysts said that the dollar appreciated by Rs6.48 during last trading week. The exchange rate was started the week at Rs141.40 and ended at Rs148.00 to the dollar in interbank foreign exchange market.

  • Weekly Review: Monetary policy to set market trend

    Weekly Review: Monetary policy to set market trend

    KARACHI: The change in key policy rate to be announced by the State Bank of Pakistan (SBP) on May 20 will set the market trend during the next week.

    “With monetary policy to be announced in the coming week investors are most likely to have a cautious approach and bearish sentiments may persist,” analysts at Arif Habib Limited said on Saturday.

    Given uncertainty in PKR/USD parity, macro-economic concerns and lack of positive triggers we expect the market to trade range bound. However, attractive valuation may revive investor sentiments.

    The analysts said that the market continued to bleed this week, commencing on a negative note.

    The expectation of positive sentiments upon agreement of IMF Program did not materialize.

    Investors remained cautious due to tough measures attached with the program.

    However, investors took a sigh of relief mid-week owing to Pakistan’s emerging market status being retained, positive news regarding offshore drilling (final stages) and approval of amnesty scheme by the cabinet.

    The momentum, however, was short lived as the Pak Rupee witnessed depreciation against the USD and concerns persisted over a significant rate hike in the upcoming monetary policy statement.

    The market shed 1,550 points (down by 4.5 percent) WoW, closing at 33,166 points.

    Negative sector-wise contributions came from i) Fertilizers (335 points), ii) Cements (237 points), iii) Commercial Banks (229 points), iv) Oil & Gas Marketing Companies (219 points) and v) Pharmaceuticals (92 points).

    Whereas, sectors that contributed positively include i) Oil & Gas Exploration Companies (83 points) and ii) Power Generation (19 points).

    Scrip-wise negative contributions came from FFC (161 points), PSO (85 points), ENGRO (80 points) and HBL (76 points). Whereas, positive scrip-wise contributions came from PPL (109 points), HUBC (84 points), and POL (49 points).

    Foreign buying continued this week clocking-in at USD 8.2 million compared to a net buy of USD 10.4 million last week. Buying was witnessed in Commercial Banks (USD 8.2 million) and Cement (USD 5.6 million).

    On the domestic front, major selling was reported by Mutual Funds (USD 19.1 million) and Insurance Companies (USD 2.4 million). Average Volumes settled at 107 million shares (up by 46 percent WoW) while value traded clocked in at USD 29 million (up by 29 percent WoW).

  • PTBA suggests 5-year policy for gradually reducing sales tax rate

    PTBA suggests 5-year policy for gradually reducing sales tax rate

    KARACHI: Pakistan Tax Bar Association (PTBA) has suggested gradually reduction of sales tax rate under five-year policy and for first year the sales tax rate should be brought down to 15 percent from next fiscal year.

    In its budget proposals for 2019/2020, the PTBA said that present rate of Sales Tax at 17 percent with 3 percent value addition tax on commercial importers is too high.

    It said that there is a narrow tax base due to the high rate which induces tax evasion, under invoicing, corruption and smuggling.

    The PTBA proposed that this year as a first step Sales Tax Rate may be brought down to 15 percent and five year policy may be announced for reduction of rate of tax by 1 percent every year.

    Moreover, same rate of value addition tax (i.e., 3 percent) may be levied on luxury goods which are expected to be sold at a higher value addition in the local market as compared to other goods.

    “Higher value addition tax should be levied on import of luxurious items such as cosmetics, shampoos, cars, etc.”

    It said that the proposed amendments would assist in the expansion of tax base, reduction in smuggling and corruption, rise in government revenues and increased competitive edge and promotion of documentation of economy.

    Furthermore, the reduced tax rate will encourage the unregistered persons to get themselves registered, resulting in broadening of tax base.

    Higher value addition tax on luxury goods will not only generate additional revenue but will discourage import and also support the local industry.

  • Exemption on import of telecom equipment demanded to encourage investment

    Exemption on import of telecom equipment demanded to encourage investment

    KARACHI: Foreign and multinational companies have demanded the Federal Board of Revenue (FBR) to exempt sales tax and customs duty on import of telecom equipment in order to encourage investment in this sector.

    The Overseas Chamber of Commerce and Industry (OICCI) in its proposals for budget 2019/2020 said that telecom was very investment intensive sector and it should be given concessions in terms of reduced rates of customs duties and exemption of sales tax against import of telecom equipment.

    The exemption and concessions are important to promote the teledensity throughout the country especially in far flung areas so that the benefits of next generation mobile services can be reached to the masses living in backward areas, said the OICCI – the representative body of foreign investors and multinational companies in Pakistan.

    Previously, telecom sector was importing telecom equipment at 5 percent customs duty and zero percent sales tax under SRO 575, however, through Finance Act, 2015, this SRO was rescinded and consequently, the customs duties on network equipment have been increased from 5 percent to 20 percent and sales tax exemption has been removed.

    “The increase in custom duty and levy of sales tax has badly affected the pace of growth and digital inclusion as the cost of doing business has been significantly increased which is an additional barrier to network coverage in Pakistan,” the OICCI said.

    The roll out of 3G/4G network is still very much at the early stages and reduction in customs duties and restoration of sales tax exemption will help the operators to sustain the necessary investments.

    Therefore, the OICCI recommended to reinstate the concessionary custom duties/ exemption of sales tax (refer SRO 575) to encourage investments in IT/ telecom infrastructure.

  • Elimination of regulatory duty, additional customs duty on essential raw materials recommended

    Elimination of regulatory duty, additional customs duty on essential raw materials recommended

    KARACHI: Federal Board of Revenue (FBR) has been suggested to eliminate additional customs duty and regulatory duty on essential raw materials.

    The Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals recommended tariff rationalization in the forthcoming for budget 2019/2020.

    It recommended elimination of additional custom duty and regulatory duty on essential raw materials, which are either not locally available or in limited supply, used for local manufacturing.

    The OICCI – the representative body of foreign investors – also suggested bringing illicit trade into tax ambit.

    It said that on the basis of survey conducted by OICCI amongst its members, losses to the government exchequer due to Illicit trade (business in products which are either smuggled, counterfeit, under-invoiced imports, sold by unregistered manufacturer/seller, etc.) is estimated at Rs200 billion (tobacco alone estimated at Rs63 billion only).

    In order to control the Afghan Transit Trade, it recommended:

    Harmonize duty and tax rates to remove the incentive for evasion.

    Fix quantitative limits for imports based on genuine Afghan needs and size of population.

    Establish a basis of collecting duty/taxes at the point of entry into Pakistan for the account of the Afghanistan Government

    Fix import value in consultation with the brand owner in Pakistan.

    Customs procedures and Cross-border rules should be published for transparency.

    Containers coming back from Afghanistan should be checked by customs.

    There should be a negative list of items which are not utilized in Afghanistan; yet are imported and make their way into Pakistan.

    Streamlining of border crossing procedures on financial guarantee by banks and anti‐corruption measures.

    Export to Afghanistan be facilitated with simplified procedure by FBR and border control authorities.

    For stringent controls illicit trade, it recommended:

    Introduce tighter penalties for illicit trade across categories, including criminal liability across the value chain, including retailers, distributors and manufacturers

    Introduce a special division/ task force to raid retailers and manufacturers to confiscate and destroy illicit stocks

    Launch a media campaign to increase awareness in consumers of the harms of illicit products and discourage them from purchasing such products

    The OICCI suggested structural reforms in the customs:

    Do a thorough review of the custom regime, in consultation with brand owners, to address issues of counterfeiting, smuggling, and rationalization of duty structure and fixing of import Tariff prices.

    Custom valuation should be done on modern lines through online search and matching international and regional pricing and taking local legal importers of items on board.

    IPR (Intellectual Property Rights) laws implementation in Pakistan need to be strengthened. Special IPR tribunals may be formed for speedy trials leading towards IPR compliance at par with international standards of IPR enforceability.

    Unauthorized imports of counterfeit products should be effectively checked through registration of brands with the custom authorities in coordination with the original brand owner/ registered in Pakistan.

    Valuation ruling should be issued in consultation with the owner of the brand or its authorized representative.

    The data of import should be public (restrictively) to ensure transparency and this will also help in taking over of goods under section 25A of the Custom Act, 1969.

    Related Stories

    FBR notifies elimination, reduction of regulatory duties on several raw materials; issues SRO

  • SBP issues list of e-branches for obtaining fresh currency notes for Eid-ul-Fitr

    SBP issues list of e-branches for obtaining fresh currency notes for Eid-ul-Fitr

    KARACHI: State Bank of Pakistan (SBP) on Friday issued list of 1,718 e-branches for sending SMS and obtaining fresh currency notes for Eid-ul-Fitr.

    The SBP said that fresh currency notes will be available from designated commercial bank branches called “e-branches” and the sixteen field offices of SBP BSC.

    The booking of the service shall commence from May 19, 2019, while issuance of fresh currency through mobile SMS service will start from May 20 and continue till May 31, 2019.

    The service will be provided through 1702 e-branches & 16 SBP BSC offices in 142 cities across Pakistan to ensure maximum geographical coverage.

    The charges for the service are Rs. 1.50/- plus tax, per SMS.

    The branch IDs of designated e-branches are available at SBP website http://www.sbp.org.pk, PBA website http://www.pakistanbanks.org, commercial banks websites and will also be displayed prominently outside designated e-branches.

    It may be noted that the branch ID for e-branch is different from the existing branch/SWIFT code of banks.

    Under this facility, a person may send an SMS message comprising his/her 13 digits CNIC/Smart card number along with the desired e-branch ID [e.g. 32453-3454432-1(space)KHI001] to short code 8877.

    The list of the banks can be accessed to the link: List of e-branches.

    In return, the person will receive an SMS containing redemption code, e-branch address and the code validity period.

    Redemption code received by the customer will be valid for two (02) working days as per the mentioned dates in the SMS.

    The customer may then approach the concerned e-branch along with his/her original CNIC/Smart card, a photocopy of the CNIC/Smart card and transaction code received from 8877 to obtain fresh currency notes. An individual can obtain three (03) packets of Rs.10/- and one (01) packet each of Rs 50/- & Rs. 100/-.

    It is also notified that each CNIC/Smart card number or mobile phone number can only be used once.

    No transaction code will be issued to the sender in case he/she sends the same CNIC/Smart card number from different mobile numbers or sends different CNIC/Smart card numbers from same mobile number during the service.

    Further, the system shall provide the fresh currency notes on first come first serve basis and new bookings shall be closed once the system reaches its capacity.

  • Hafeez Shaikh approves disaster support fund worth Rs17bn for stock exchange

    Hafeez Shaikh approves disaster support fund worth Rs17bn for stock exchange

    KARACHI: Dr. Abdul Hafeez Shaikh, Advisor to Prime Minister on Finance and Revenue on Friday met members of delegation of stock exchange and approved Rs17 billion amounting disaster support fund.

    According to sources a meeting between stock members delegation consisting of Arif Habib, Aqeel Karim Dhedhi, Basheer Jan Muhammad, and Sulaiman Mehdi with the advisor. The meeting was ended on a positive note today.

    Dr. Hafeez Shaikh approved initiation of “Disaster Support Fund” worth around Rs17 billion rupees which will be managed by NIT where MD NIT Adnan Afridi was called on immediate notice to discuss the execution of the fund.

    The advisor also committed to expedite the Buy Back regulation amendments to support and hold destabilizing stock prices.

    In regard to the current issue of Show Cause notices in relation to short selling, Finance Minister has requested SECP to expedite and clear the ambiguities between the authorities and brokers to bring investor class confidence in the market.

    Besides this, another development states that the same delegation is scheduled to meet Governor State Bank of Pakistan today to discuss and resolve issues in relation to Monetary Policy and Exchange rate affecting the stock market and the economy.

  • Rupee deteriorates to record low; dollar closes at Rs148

    Rupee deteriorates to record low; dollar closes at Rs148

    KARACHI: The Pak Rupee ended down against dollar on Friday and closed at Rs148.00 in interbank foreign exchange market.

    The rupee was remained under pressure against dollar and shed Rs1.50 to close at Rs148.00 to the dollar from previous day’s closing of Rs146.50 in interbank foreign exchange market.

    The rupee was touched historic lows during intra-day trading.

    The interbank foreign exchange market was initiated in the range of Rs146.00 and Rs147.00. The market recorded day high of Rs150 and low of Rs147.50 and closed at Rs148.00.

    The exchange in open market also witnessed depreciation of Pak Rupee.

    The buying and selling of dollar was recorded Rs148.00/Rs150.50 from previous day’s closing of Rs146.00/Rs147.50 in cash ready market.