News 23Nov23

Additional tax on windfall income, profits, gains: Banks given Nov 30 deadline to make payment
The Federal Board of Revenue (FBR) has given deadline of November 30, 2023 to banks for payment of 40 percent additional tax on windfall income, profits and gains during calendar years 2021 and 2022.

The basis adopted for this purpose is average earning of past 6 years from foreign exchange (FE) minus the current year profit, as per accounts, to be taxed @ 40 percent, a tax expert said explaining the notification.

In this regard, the FBR has issued an S.R.O.1588 (l)/ 2023 here on Wednesday.

Foreign currency deals during 2021, 2022: FBR to impose 40pc additional tax on windfall profits of banks

The FBR’s notification said that the federal government has specified the banking companies to be the sector for the purpose of the section 99D of the Income Tax Ordinance.

The FBR has determined that the method by which the windfall income, profits and gains are required to be computed shall be in accordance with the provisions of this notification. The FBR has also specified that the rate of tax for the purpose of the said section 99D shall be 40 percent.

The scope of windfall income, profits and gains shall be as computed in this SRO for the calendar years 2021 and 2022 corresponding to tax years 2022 and 2023 respectively, for the purpose of the section 99D.

The FBR has fixed November 30, 2023 to be the date by which the payment of the additional tax for the purpose of the section 99D shall be made, or within such extended period not exceeding 15 days, as the Commissioner, for reasons to be recorded in writing may allow, on an application in writing for extension of date by the taxpayer.

The FBR has specified that payment of the additional tax shall be made in the federal treasury through a prescribed challan or computerized payment receipt.

The windfall income, profits, and gains shall be computed in accordance with the laid down formula, FBR added.

The FBR has also given Illustration- I and II (bank’s Foreign Exchange Income as declared in Financial Statements).

 

Pakistan plans to sell excess power to Central Asia in winter season via CASA-1000
Pakistan is looking to export its surplus electricity to Central Asian states, in the winter season, as it seeks to utilise the transmission infrastructure of a delayed regional power project and reduce its capacity payments burden.

The country will hold the technical talks with Kyrgyzstan, Tajikistan, Kazakhstan, Uzbekistan and the World Bank in Dubai next month to discuss the tariff and the amount of power that can be sold to the region from October to April.

Pakistan has a huge excess of electric power in the winter season, when its installed capacity of 45,000 megawatts (MW) drops to 9,000-12,000 MW, and wants to use the transmission system of the Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000) to sell it to its neighbours.

The CASA-1000 project was conceived to export the hydro generation of 1,300 MW (300MW for Afghanistan and 1000 MW for Pakistan) from Kyrgyzstan and Tajikistan during the summer season, for five month, but now Pakistan has aspired to export its surplus electricity in winter to Central Asian states through the same infrastructure.

Earlier, a delegation headed by the Energy Minister Muhammad Ali on November 10 left for Bishkek, Kyrgyzstan, to attend the inter-governmental commission meeting mainly to find out the option to utilise the much-touted and delayed $1.17 billion CASA-1000 project structure for the export of electricity.

The minister told The News, that Kyrgyzstan says that it will erect a hydropower project in 2 years’ time so it may not need the electricity from Pakistan, but the regional countries such as Kazakhstan, Uzbekistan and others which are to be connected with regional grid of CASA-1000 will import electricity from Pakistan.

Power ministry recovers Rs55bn from delinquent consumers
The power ministry said on Tuesday, it had recovered Rs55 billion from electricity consumers that had either not paid their bills or were involved in theft, as part of a campaign to reduce losses and improve the sector’s performance.

The ministry said it had collected Rs46 billion from Sept. 7 to Oct. 31 and another Rs9 billion in November so far, through detection charges and arrears recovery from delinquent consumers.

Rashid Langrial, secretary of Power Division, said the November data includes detection charges and arrears recovery but does not include the financial impact of the theft reduction drive.

"In this recovery effort, LESCO led with Rs10 billion, followed by PESCO with Rs9 billion," Langrial said on his social media platform X. "In the process, we had arrested 29,541 delinquent consumers and 20 employees and had suspended another 272 employees including officers."

The breakup shows Lahore Electric Supply Company (LESCO) is on top of the list with a recovery of over Rs10 billion. The Peshawar Electric Supply Company (PESCO) is ranked second on the list with a Rs9 billion recovery.

Langrial said the ministry had also raised detection charges of over Rs5 billion. "Most of the theft variance in large swathes of the Indus plain, is associated with cooling load and a local sense of impunity," he added.

"Therefore, as winter approaches, the monthly payoff of the anti-theft campaign compared to the previous year would fall as the incentive for theft is even otherwise not very high.”

Electricity theft or not receiving the bills is costing the country nearly Rs589 billion a year, according to the caretaker government. Theft has helped keep Pakistan's power sector mired in debt, struggling to upgrade an aging electricity grid network prone to frequent blackouts. This has weighed on a economy already grappling with galloping inflation, a weakening currency and a huge budget deficit.

 

Industries demand fair gas price
- Industrialists in Karachi on Tuesday demanded the government to lower the gas tariff to Rs1,350 per million British thermal units (MMBtu), which they said was the actual cost of gas as determined by the regulator.

The Karachi Chamber of Commerce and Industry (KCCI), along with representatives of seven industrial town associations and value-added textile sectors, said at a press conference that the recent sharp increase in gas tariffs was a "shortsighted" move that would hurt the economy and exports.

"We are ready to pay the cost of gas but not the subsidies for other sectors," said Jawed Bilwani, vice chairman of the Businessmen Group (BMG).

He said the new gas tariff, which ranged from Rs2,100 to Rs2,600 per MMBtu, was imposed to subsidise the fertilizer, domestic and power sectors, while penalising the industrial sector, which contributes to 27 percent of the country's gross domestic product (GDP) and 70 percent of its exports.

“The industry demands fair gas tariff of Rs1350 per MMBtu but would never accept the unbearable and unabsorbable gas tariffs ranging from Rs2100 to Rs2600 per MMBtu which have been imposed to please the fertilizer, domestic and fertilizer sectors and terribly penalize the industrial sector of the country."

Bilwani warned that if the government did not reduce the gas tariff to Rs1,350 per MMBtu by the first week of December, the business community would intensify its protests by displaying banners across the city and observing no-export days twice or thrice a week.

“We will only wait till 1st week of December for the government to announce reduction in gas tariff but if it does not happen, we will have no choice but to intensify protests.”

 

Jul-Oct 2023-24: Rs300.9bn authorised for projects under PSDP
The Ministry of Planning, Development and Special Initiatives has authorised Rs300.9 billion (31.67 percent), including Rs26.3 billion foreign exchange component, in July to October 2023-24 against Rs950 billion total budgeted allocation for development projects under the Public Sector Development Programme (PSDP).

According to the Ministry of Finance’s notification, the Ministry of Planning, Development and Special Initiatives authorised 15 percent funds for the first quarter, 20 percent for the second quarter, 25 percent for the third quarter, and 40 percent for the fourth quarter under the PSDP 2023-24.

According to data available on the website of the ministry, the ministry authorised Rs239.31 billion (36.4 per cent) including 12.694 billion foreign aid for development projects of various federal ministries, divisions and other departments against Rs653.2 billion budgeted allocation for the financial year 2023-24.

PSDP is unaffordable: IMF

There are a total of Rs76 billion expenditures on development projects from July-October 2023 against Rs300.9 billion authorisation.

The ministry authorised Rs61.344 billion including 13.56 billion foreign aid out of Rs211.78 billion budgeted for the National Highways Authority (NHA) and power sector (NTDC/PEPCO) for development projects. A total of Rs41.997 billion has been authorised out of Rs156.5 billion for development projects of the NHA and Rs19.35 billion out of Rs55.3 billion for the power sector(NTDC/PEPCO) for the first four months of the current year.

GSP review: EU identifies major challenges facing Pakistan
The European Union (EU) has said that political turmoil, constitutional challenges, economic crisis, high inflation and serious shortage of foreign reserves are continuously affecting Pakistan.

According to fourth joint GSP Review Report of European Commission and the European External Action Service (EEAS) the progress of eight GSP+ beneficiary countries, including Pakistan, were shared in the effective implementation of the 27 international core conventions underlying the GSP+ scheme, which is required for beneficiary countries in order to continue benefiting from GSP+ status. The 27 conventions cover the four areas of human rights, labour rights, environmental standards and good governance for the period 2020 to 2022.

The report further highlights areas where more progress is needed. So far, four biennial reviews have been concluded under the current GSP scheme.

EU decides to extend GSP

According to the report, after a no-confidence vote ousted Prime Minister Imran Khan, who had taken office during the previous monitoring period, a broad coalition government under Prime Minister Shehbaz Sharif formed the federal government in April 2022. Since then, the political scene in Pakistan has seen increasing polarisation and controversy in relation to former Prime Minister Imran Khan. The political stand-off culminated in May 2023 with the detention of Imran Khan and members of his party, as well as, street protests with violence against security forces and their installations. In the aftermath, many protesters were arrested and taken for trial including at military and anti-terrorism courts. Internet and social media were temporarily shut down. In early August 2023, former Prime Minister Imran Khan was arrested again and convicted, disqualifying him from contesting the next general elections. In August 2023, the National Assembly was dissolved a few days before the end of its term. Since then, a caretaker government is in place with a limited mandate until general elections.

 

Economist terms energy sector ‘black hole’
Dr Hafeez Pasha, former finance minister, Wednesday, while identifying key areas which undermine human security in Pakistan has said that the black hole in Pakistan’s economy is the energy sector, due to unbelievable levels of line losses and rising energy prices.

He said this while speaking at the launch of his report titled, “Human Security in Pakistan” on the second day of the 26th Sustainable Development Conference (SDC) organised by the Sustainable Development Policy Institute (SDPI).

Dr Pasha said that security must be analysed keeping in view of the universal and people-centric nature and must not be evaluated in terms of arms, adding that external financial vulnerability indicator was of critical importance for Pakistan to assess the threat to human security.

“Between the years 2020-2022, Pakistan witnessed a massive decline in human security indices and in the last two years 41 percent increase in the food prices was witnessed which significantly undermines food security and nutritional security of the people”.

He further stated that the divergence in development among the provinces was the other major issue, with the biggest problem being Balochistan where the per capita income had declined by 30-35 percent in the past two decades.

Dr Moeed Yusuf, former National Security Advisor, said the first national security policy of Pakistan came in 2022 that focused on ensuring that the most vulnerable people were safe, secure, had decent employment and their dignity was protected for economic security.

Investment co-op in energy sector: ‘Framework’ may be signed during PM’s visit to UAE

“The pre-requisite of implementation is to have a benchmark to evaluate the implementation and the consolidation of indicators by Dr Hafeez Pasha is the next logical step”.

Pakistan govt disallows sugar export till season-end assessment: Dr Gohar Ejaz
Caretaker Federal Minister for Commerce & Industries Dr Gohar Ejaz on Wednesday said that the government will not allow sugar export till the assessment of full production and consumption at the end of the season.

The remarks come a day after Dr Ejaz chaired the meeting of Sugar Advisory Board (SAB) in Islamabad, addressing the challenges confronting the sugar industry.

“Had the honour of chairing the meeting of SAB to discuss the strategic shift in our sugar policies,” said Dr Gohar, in a statement on social media platform X. “We decided to break away from the previous cycle of exporting sugar and then importing it due to local market shortages,” he said.
The caretaker minister was of the view that the “outdated approach” not only caused financial losses to Pakistan but also increased the cost of sugar for the common man.

“We will not allow the export of sugar till the full production and consumption is assessed at the end of the season,” he said.

“By adopting a Pakistan First approach, we are committed to ensuring a stable and affordable supply of sugar for our citizens. Together, we will overcome challenges and work towards a brighter future,” he added.

Gohar informed he would chair another meeting of SAB for full implementation of the track and trace system to monitor sugar production and consumption in Pakistan.

 

Govt may hike gas prices by another 10-15pc to slash circular debt
Knowing the fact that this time the government will collect revenue of Rs980 billion in the ongoing FY24 on account of the massive hike in gas prices by up to 193 percent, the IMF has still asked the government to further increase the sale price of natural gas from January 1, 2024 to slash the circular debt that currently stands at Rs1,250 billion.

“The authorities are contemplating an increase in the natural gas sale price by 10-15 per cent, which will yield Rs100 billion additional revenue. It is to be used for slashing the natural gas circular debt. However, the final decision to this effect has not been taken so far. Maybe the gas price will increase by just 5 per cent to generate Rs50 billion,” senior government officials of the Energy Ministry told The News.

With the massive rise in gas price by up to 193 per cent from November 1, 2023, the government will have surplus revenue of Rs275 billion which will be consumed in paying the Rs210 billion cost to be incurred against the RLNG diversion to domestic sector in the ongoing winter season. It also offsets the loss of Rs65 billion incurred due to failure of the government in notifying gas price hike four months late.

The gas companies, Sui Southern and Sui Northern, will submit their petitions with the OGRA seeking adjustment in gas prices from January 1, 2023, which will most probably ask for a downward revision of gas prices. But the Fund wants the government to further increase gas prices by 10-15 per cent from January 1, 2024. The Fund pinpointed that the government has failed to hike the gas tariff biannually for the last 10 years since 2013, causing a massive buildup in the gas circular debt.

No power from fuel oil in October, exports surge to all-time high
Pakistan's fuel oil exports soared to a record high in November as domestic power generation from the product plummeted, industry officials said on Wednesday.

The country shipped 125,000 tonnes of fuel oil in the first three weeks of November, almost matching the total exports of 146,000 tonnes in the previous four months. The shipments are the highest monthly export volume ever, surpassing the previous record of 75,000 tonnes in a single month.

The surge in exports came as local refineries faced a glut of fuel oil due to low electricity production from the product. In October, the country did not produce any electricity from fuel oil, down by 100 percent from a year earlier, according to power production figures.

The refining sector had to find new markets for the surplus fuel oil to keep the refineries running and meet the rising demand for diesel and petrol for local consumption, especially during the harvesting season.

Earlier this month, the regulator asked the refineries to operate at full capacity to ensure adequate supply of petroleum products, particularly diesel. "For the production of diesel in huge quantity for local consumption, refineries have to operate at maximum capacity and this is only possible when furnace oil extracted from crude oil is disposed of," an industry official said.

The official said that fuel oil exports jumped massively in November compared to the previous month of October. The country exported 46,000 tonnes of fuel oil in October. "This is a record export of fuel oil in a month, as previously Pakistan's export of this product in one month was 75,000 tonnes."

Pak Arab Refinery Limited was the largest exporter of fuel oil in November, shipping 50,000 tonnes, followed by Cnergyico Limited with 40,000 tonnes and Pakistan Refinery Limited with 25,000 tonnes.

Pakistan has produced low electricity from fuel oil in the current fiscal year. During the first four months, the electricity produced from furnace oil registered a decline of 62 percent. "This trend continues as there is no demand for fuel oil in the country for power generation and it is finding its way into the international market," the official said. Last year, refineries had to shut down after large stocks of fuel oil piled up during the winter season.

Pakistan eyes BRICS membership, seeks assistance from Russia
Pakistan is actively pursuing membership in the BRICS economic alliance and aims to join the group in the coming year, according to Muhammad Khalid Jamali, the country's newly appointed Ambassador to Russia.

In an interview with TASS news agency on Wednesday, Ambassador Jamali mentioned that Pakistan has already applied for membership and is seeking Russia's assistance in the admission process, especially since Russia will assume the chairmanship of BRICS in 2024.

"Pakistan would like to be part of this important organisation, and we are in the process of contacting member countries in general and the Russian Federation in particular for extending support to Pakistan’s membership," stated Ambassador Jamali.

In September, Caretaker Foreign Minister Jalil Abbas Jilani briefed the Senate Standing Committee on Foreign Relations about Pakistan's efforts to gain full BRICS membership. He highlighted that joining BRICS aligns with Pakistan's objectives of restructuring the international financial structure and reducing dependence on the dollar. The foreign ministry has initiated consultations with relevant stakeholders as part of this exploration, he added.

Addressing concerns about a potential veto from India, Minister Jilani downplayed the apprehensions, stating that any member resorting to such a veto would risk its own status within the group. He emphasised that BRICS membership would provide Pakistan with representation at an important international forum and facilitate trade and economic relations with member countries.

BRICS, currently consisting of Brazil, Russia, India, China, and South Africa, may see an expansion in January with the inclusion of Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE. Analysts estimate that the expanded BRICS+ is already economically larger than the G7. Over 40 countries have expressed interest in joining BRICS, according to 2023 chair South Africa.

Parts shortage portends drop in auto production
Imports of completely knockdown kits (CKD) by the local car assemblers plunged 58 per cent to $23 million in October from $54m in September.

This is the lowest monthly CKD imports recorded by the country and is also lower than the average seen during Covid times. Car production may further reduce during the next couple of months, Muhammad Tahir of Sherman Securities claimed.

Interestingly, average monthly CKD imports during FY22 stood at the highest around $142m.

CKD imports shrank 41pc to $208m in 4MFY24 from $355m a year-ago period.
The huge decline in auto parts import is the result of the government’s policy to control current account deficit (CAD), leasing curbs by the State Bank of Pakistan amid unprecedented interest rates that discouraged auto financing, showing consistent decline over the last 16 months while high car prices and inflation erodes purchasing power, he said.

If this trend in CKD imports continues, car sales may dip further in November and December. Auto sales during October fell to a three-month low level of 6,000 units, he said.

The auto sector has been in the limelight at Pakistan Stock Exchange (PSX) outperforming the KSE 100 index by 12pc ever since Pak Suzuki Motor Company Ltd (PSMCL) announced voluntary delisting on Oct 12, thus creating excitement amongst investors.

This delisting would unlock fair valuation for all other companies in the auto sector which are trading below historical book values due to economic slowdown, peak interest rates and import curbs, he said.

He said the import of bus and truck CKDs recorded a steep decline of 92pc to $1.5m in October from $18m in September. A 57pc drop was registered in the arrival of heavy vehicles’ kits to $56m during 4MFY24 from $131m in the same period last year.

Mr Tahir said additional demand for trucks may come following the government’s strict implementation of the axle load regime. Transporters will now be following the government’s prescribed load limit according to the axles of the vehicle. For example, three axles can load 27.5 tonnes. Currently, transporters load twice the prescribed limit.