Pakistan Daily Economy Update - 28 May

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1. May 28 , 2016 KCCI - eBulletin Budget 2016-17: FBR proposes to withdraw a host of exemptions FBR has proposed to withdraw a number of income tax exemptions in upcoming budget for FY17 including reduced rates of withholding taxes on supplies, services & contracts; dividend from agriculture income; reduced rates of withholding tax on supply of List of Indicators cotton lint, raw wool/rice, exemption on flying allowance; withholding tax on insurance premiums and claims and deletion of option to textile services providers to be assessed under minimum tax. The third phase of elimination of exemptions/concessions available USD-Interbank in Second Schedule to the Income Tax Ordinance, 2001 covers many exemptions. The Board has proposed to withdraw a number of USD-Open MKT KSE-100 index income tax exemptions to reduce the cost of exemptions in the upcoming budget (2016-17). BR. Date / Period Unit Value 27-May PKR 104.84 0.02% 27-May PKR 105.50 -0.02% FIPI 27-May 27-May Pts. $ Mn 36,694 -1.91 0.42% NM** Crude (JU'16) 27-May $/bbl 49.04 -0.71% Gold (MY'16) 27-May $/oz 1,222.2 -0.21% Gold (10g) Local 27-May PKR 41,657 0.00% Silver (MY'16) 27-May $/oz 16.31 -0.21% Cotton(KHI)-40 kg 27-May PKR 6,039 -0.89% Kibor-6M 27-May % 6.15% 0.01% 20-May $ Bn 21.61 1.37% Jul-Apr 16 $ Bn 16.03 5.18% WoW Forex Reserves FBR forced to slap tax on education aids: Annual cost of GST exemptions stands at PKR 208Bn The annual cost of sales tax exemptions has came around PKR 208Bn during FY16; making the FBR to propose imposition of sales tax on the machinery, equipment and other education and research related items imported by technical, training institutes, research Remittances institutes, schools, colleges and universities in budget (2016-17). BR. Exports* Overseas investors demand refunds Overseas Investors have urged the tax authorities to release all the refunds against bank guarantees. They said that all the tax refund claims for the period up to June 30, 2015 should be released against bank guarantees before the end of FY16 and the audit process should be completed by Sept. 30, 2016. The Investors proposed incentives for new investment especially FDI, simplification of tax procedures and removal of tax anomalies. Tribune. YoY Jul-Apr 16 $ Bn 17.32 -12.99% Imports* Jul-Apr 16 $ Bn 36.34 -3.70% Trade Balance* Jul-Apr 16 $ Bn -19.02 -6.68% Current Account Avg. CPI-FY16* Jul-Apr 16 Jul-Apr 16 $ Mn % -1,519 2.79 17.71% May-16 Discount Rate % 5.75 Sources: KCCI Research, PMEX (At 4:00PM), NCCPL, KSE, SBP, PBS* WoW= week on week; YoY=Year on Year Size of PSDP to be raised by 14%: minister ** Not Meaningful The federal Public Sector Development Program (PSDP) will be increased by 14% in upcoming budget for FY17 from PKR 700Bn to PKR 800Bn while provincial PSDP would increase by 7.5% from PKR 813.7Bn to PKR 875Bn. In this regard, Planning, Development and Reforms Minister Ahsan Iqbal has said that federal ministries and related departments had demanded a PKR 1,800Bn development 175 budget where Finance Ministry has been requested to allocate PKR 900Bn for the next financial year. However, as per agreed with 165 IMF framework, development budget cannot exceed local development budget from PKR 655Bn (foreign component is PKR 145Bn). 155 BR. ECO cargo train The Economic Cooperation Organisation Chamber of Commerce and Industry (ECO-CCI) has urged its member countries to initiate the Islamabad-Tehran-Istanbul cargo train project for promoting trade in the region. It has pledged to work on a roadmap to remove hurdles in closer economic cooperation and promotion of trade between Pakistan and other member countries. Dawn. 145 135 SBP for enhancing cooperation to mitigate cyber threats State Bank of Pakistan (SBP) Governor Ashraf Mahmood Wathra has said that the Regional Consultative Group Asia (RCG Asia) should expand cooperation and enhance active monitoring of financial technology developments to mitigate potential cyber risks while allowing financial technology to thrive. He said this during his opening address to the members of RCG Asia, emphasising the importance of financial technology and cyber security in an increasingly technology dependent world. Daily Times. OMV pledges $ 45Mn investment in Pakistan this year Austria-based OMV has announced that it will pump $ 45Mn into tapping hydrocarbon reserves this year to meet Pakistan energy needs. OMV Aktiengesellschaft Executive Board Chairman has said that OMV has invested $ 2.5Bn in oil and gas exploration since commencing operations in 1991 in Pakistan and now OMV is producing 8% of Pakistan’s total natural gas output and is increasing investment. He further said that the company has established itself as the largest international gas producer in Pakistan with a volume of more than 110,000 barrels of oil equivalent per day. Tribune. Footwear traders cancel import orders Footwear traders have decided to cancel the import of hundreds of their containers after the customs authority raised the valuation of the imported items. They said that this 100-350% surge in values has increased the duty and taxes on a container to PKR 3.4Mn from PKR 1Mn earlier. Industry representative said that around 300 footwear containers are imported every month but due to upcoming Eid, they had booked around 2,000 containers of low-end footwear from China and Thailand and these consignments would not be cleared at such unreasonable transaction values. Tribune. EUR, 27-May-16, 116.9 125 115 105 95 USD, 27-May-16, 104.7 85 75 May-15 Aug-15 USD GBP Nov-15 Feb-16 EUR May-16 Source: KCCI Research ; Oanda.com Quote of the Day "Reliance on what worked in the past is no longer sufficient." LoI issued for second LNG terminal at Port Qasim The govt. has issued Letter of Intent (LoI) to award the contract for setting up second LNG terminal at Port Qasim in Karachi. The Board of Directors of Pakistan LNG Terminals Limited (PLTL) approved a financial bid submitted by Pakistan Gas Port Limited (Consortium) which includes Fauji Oil Terminal and Distribution Company Limited (FOTCO). They offered a levelised (service) charges of $ 0.4177/mmbtu for handling of 600 Million Cubic Feet per Day (MMCFD) of LNG at the terminal. BR. Govt. took $ 1.4Bn from foreign banks in 10MFY16 Pakistan received $ 204.8Mn as economic assistance from the multilateral and bilateral donors during Apr.’16. Meanwhile, the country has received $ 5.7Bn from the donors during 10MFY16, having only 62% of the estimated foreign assistance of about $ 9.18Bn for FY16, which also includes grants and loans. The govt. has heavily depended on the loans from foreign commercial banks as it took $ 1.4Bn during 10MFY16 as against the budgeted amount of only $ 200Mn. The govt. took these loans at massive interest rate of up to 5.25% in order to increase its foreign exchange reserves. The Nation. GBP, 27-May-16, 153.3 Felicity Menzies Chart of the Day DIRECT INVESTMENT FROM CHINA TO PAKISTAN 600 500 400 300 200 100 0 -100 FY13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Pak-Thai FTA to be finalised by end of this year: envoy Thai Ambassador Suchart Liengsaengthong has said that the free trade agreement (FTA) between Pakistan and Thailand would hopefully be finalised by the end of CY16 and Pakistani businessmen should prepare themselves to take full benefit from this facility to promote trade with Thailand. While addressing the business community, he said signing of FTA between the two countries would be a new milestone that would take bilateral trade to higher levels. The ambassador said that a 12-member Thai trade delegation would visit Pakistan in Aug’16 to explore business matchmakings with Pakistani counterparts. Daily Times. Major Currencies Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Power sector: PKR 208Bn subsidy sought for FY17 Ministry of Water and Power has reportedly sought a PKR 208Bn subsidy for power sector in upcoming FY17 against PKR 144Bn earmarked for the outgoing FY16, showing an increase of 44%. The govt. had earmarked PKR 118Bn in the budget of FY16 as Tariff Differential Subsidy (TDS) to maintain equal tariff within Distribution Companies (Discos) across Pakistan, including K-Electric. However, after inclusion of PKR 9Bn subsidy to AJ&K, PKR 10Bn to FATA and PKR 7Bn to agriculture tube-wells in Balochistan, the total amount of subsidy is PKR 144Bn. BR. Change Daily FY14 FY15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Govt. to abolish 5% customs duty slab The govt. may abolish the 5% customs duty slab in the new budget under a condition of the IMF, but at the cost of increasing the rates on semi-finished and finished goods to compensate for the PKR 35Bn revenue impact of the decision. Finance Minister Dar has reportedly approved to abolish the 5% customs duty slab, under which most raw materials are imported. Most of these raw materials, vegetable and fruit will be shifted to the 3% slab, lowering the price of these items.However, semi-finished and finished goods would be moved over to the 10% slab, thus increasing the prices of tea, coffee, wheat, cosmetics, garments etc. To compensate for the negative impact of abolishing 5% slab, the government would increase the 10% slab rate to 11% and 15% slab rate to 16%. Tribune. Economic Indicators 10MFY16 Source: KCCI Research, SBP Disclaimer This report has been prepared by KCCI Research & Development Cell. The information contained herein have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith. Such information has not been independently verified. icon represents the sole viewpoint of the KCCI R&D Cell, and is stated to enrich the readers' understanding of the news item. The