The draft ordinance released by the Federal Board of Revenue (FBR) to facilitate SME exporters and export oriented units is 'not exporterSME friendly' and requires a simpler set of rules.
This has been highlighted in a working paper on 'Export Oriented Units and SME draft rules' prepared by Muzzammil Husain, Chairman, Towel Manufacturers' Association of Pakistan (TMA) and forwarded to the Trade Development Authority of Pakistan (TDAP) following the meeting held between the two bodies here on December 15.
The draft ordinance released by the FBR for wetting is only restricted to temporary importation of raw materials, including fabrics, to be used as inputs for export products, and that too through a scheme on the pattern of manufacturing bond rules in the 1950s. TMA has observed that the draft does not follow the projections of Trade Policy 2007-2008 in a fair manner.
Following issues have been noted: a draft is needed on the issues related to levies and labour. EOBI, social security, educational cess, profit participation fund and compliance and these aspects are considered as part of the scheme.
There is a clause wherein the charges have to be paid for the custom staff posted at a bond which was the practice in 1950s but was not practised in SRO 67, 68, 69, 722 and 410 etc, and currently the prevalent SROs meet all the requirements.
There is no relief for SMEs. All the SMEs who will be given the status of Export Processing Zone (EPZ) in addition to the above facilities can always benefit from these SROs as they suit them. The condition of exporting 100 per cent for new units is impractical. Competitiveness of our exports is diminished when the incidence of duties and levies are not neutralised on exports, and the industry needs access to real zero rated raw materials and utilities.
The SME sector is the backbone of the economy. There are about 3.16 million SMEs in Pakistan, which contribute over 30 per cent to GDP, generate 25 per cent of the manufacturing exports earnings, and contribute 35 per cent in value addition. Development of SME sector is vital for creating employment, reducing poverty and boosting exports.
SMEs face many barriers to growth, particularly small size firms find themselves over-looked under the recent SME policy. The small enterprise lacks access to bank financing in the absence of collateral, while access to finance is strongly correlated to firm size & age, and mark-up rate is too high.
TMA desires that the following barriers to growth that are generally faced by SMEs should be considered. Taxation, finance, labour legislation (to be as of EPZ), human resource development (skill development board), technology up-gradation, market and industry information (mechanism by TDAP required), lack of infrastructuregetting business site. To make it cheaper, City District GovernmentKarachi Building Control Authority - (CDGKKBCA) should allow construction of ground plus six or more story buildings in industrial areas. Environmental issues and compliance, social compliance issues, and law and order situation.
To overcome these difficulties, TMA has made following suggestions: the mark-up on finance for SMEs is high. SME require special prudential regulations for lending and at lower mark-up rates than for large industries, application of EPZ labour laws (ie, free hire and fire), no SESSIEOBIprofit participation, etc shall apply. Certification and audits to be carried by concerned town associations (where ever exist) trade association of particular productchamber of commerce and industry. Women and other marginalised groups have been proposed to receive special focus within the policy, and introduction to bankruptcy laws with dedicated and effective judicial process.