For Cricket Lovers Only!

Zeemax

1) I have visited the site that you have suggested. This was the home page, so I took the liberty of going to the budget speech on the following site:

http://www.cbr.gov.pk/Budget/index.html

Unfortunately this document under item 40 (the same one I pointed out yesterday) carried the same content, which is,

quote:

the incoming passenger should pay duties on their accompanies and unaccompanies baggages in foreign exchange

unquote

This mentions all incoming passengers and not just tourists or visitors. Which means that if a Pakistan is to go on a trip and on his return was to bring some dutiable item he will have to pay in foreign currency. The question is where would he get the foreign currency. Obviously either from the interbank or open market since he would not be earning abroad (an assumption).

So the issue is that its not just on vehicles that will draw foreign exchange but other imports also. Now the issue is not that means much (since if we are to believe the press the interbank rate is about Rs.51.90 vs open market rate of Rs.53.25 see http://www.dawn.com/daily/19990616/forex.htm). But the issue is the message it gives. If the government wants more dollars than what it may get from the interbank market, it should intervene directly in the open market (nobody is stopping it) and if it wants to raise import duty by 2.60% (53.25/51.9) then it should just go outright and raise the duty, but it should stop doing thing in a convoluted manner.

2) I am not clear where you are getting your current unified exchange rate. As mentioned above the current rupee rate for international trade finance (not open market) is Rs.51.9/$. Even if we see one year point from May 28, 98, i.e., May 28, 99 the rate on that day was 51.79. Which beg the question what is your source of information.

I would like to clarify that Bloomberg does not quote open market rates (money exchangers) but only quotes rates by banks which basically means they restrict their information to the inter bank rates.

Dismissing the open market rate as being trivial tantramounts to denying peoples choice for choosing where they want to invest. Today we deny the citizens where to invest (or atleast try at our peril) and tomorrow we will try to compromise on what they can consume (drive white Suzuki Mehran cars only).

You have to realize there was a market before the advent of Kalia and Kalia and there will be a market after the closure of the exchanges. What is more important is that by rationalizing the financial sector and its instruments the government has to create credibility with the users of financial instruments.

I would also suggest that you may read the letters to the editors one of which complained about the unavailability of US$ at the quoted rate. The issue is that the determination of US$ rates is based on the supply and demand factors and any SBP strong arm tactics would only result in the creation of parallel exchange market. The open market rate did not jump to Rs.65 on day one but moved to that rate over several days. The main cause of it was the fact that people had lost confidence in the government and were willing to take a loss (withdrawing their deposits at Rs.46 and buy at Rs.65) and moved their money away from the arms of SBP.

2) Please read the Foreign Exchange Act of 1956 which prohibits holding of bank accounts in foreign countries with more than $100. Yes they can hold foreign currency accounts only in Pakistan. Furthermore, how is a person supposed to create an asset other than by purchasing in the open market which you have already condemned.

3) The 1.5 or 2% return the banks were offering to its customers would be the same that these individual would be able to earn abroad with institutions of superior credit rating. The SBP would offer 5% to the Banks which does not mean that the customers would get the 5% rate as there is the cost of intermediation. However, we have now substituted international banks with AA credit with AAA guarantees from the likes of FDIC (upto $100K US or C$ 60K from CDIC) rating for one which is rated SD (selective default) by S&P. Please invest at your own peril. Capital Flight would continue.

4) Perquistes have been taxed and they are now considered as any other income which basically means it does not matter if they are part of the basic salary or allowances.

quote:
62)
iii) At present, perquisites of employees drawing salary above Rs. 300,000 are being taxed lightly at a reduced rate. Thus, a person enjoying higher emoluments suitably couched in salary and perquisites pays less tax than a person drawing salary with no or little perquisites. It is, therefore, proposed that perquisites and salary may be taxed at similar rates.

source:
http://www.cbr.gov.pk/Budget/index.html
unquote

4) No agricultural income tax is currently leviable and no such tax seems to be leviable in the near future. With a 2/3 majority the Federal government is willing to amend the constitution they way it deems fit but when the point comes about agri tax they conveniently say its constitutional. Give me a break.

5)
quote:

5)The reserves condition for treasury stock is because the majority of listed companies have a habit of not paying divividends at all. So treasury stock can only be bought from share premiums or capital reserves, and not from current or accumulated income.

unquote

I am sorry but that is the most absurd thing that I have read. I would persume that you do not have any financial back ground for such a statement. ``Share premiums or capital reserves``. Pray tell me where do they come from and what difference would it make if buybacks are made from current or accumulated income. all money belongs to shareholders and I do not see the distinction between one accounting category versus another.

Amin Saleh :

1) I visited the Dawn site carrying Finance Minister`s speech. Para 76 refers to the import duty on vehicles as I stated. Para 40 refers to payment of hotel bills and duties on baggage by foreign nationals (visitors/tourists)in foreign exchange. All other import duties will continue to be paid in local currency. You may verify this on www.cbr.gov.pk.

2)The calculation is as follows : Rate on May 28 1998 (Freeze date)= $1/46, Current unified rate $1/50. Percentage change = 8.7% on base rate of $1/46, i.e. 4/46%=8.7%.

A more accurate calculation will be to work it the other way around i.e. if Rs 46 bought $1 on May 28, 98` (@Rs.1=$.022) and now buys only 92 cents(@.020) then the percentage change would be 9%.

Above rates are the official import/export and conversion rates for $ a/c holders.It must be kept in mind that the local open market rates on which many analysts base their opinions (including Bloomberg) are highly mis-leading and must not be used for serious analysis. The reason being that the open market (cash, hawala)volume is no more than $ 3-5 million per day, which can be manipulated easily by any single broker or investor. This is the reason that when $ crossed Rs. 60/-in the open market the State bank applied arm twisting tactics and the rate swiftly came down to 52/-. It would actually make no difference at all if all open market forex dealers were shut down. They`re being kept open only to keep an avenue open for home remittances other than banks.The point made here is that the open market rate is irrelevant in the overall economic set-up of the country being only 2-3% of the total forex turnover. It does have a pyschological aspect though.

Pakistan`s currency is ring-fenced because of not being convertible on the capital account. You`re correct about this being the reason for the Asian crisis. But you`re mistake re fredom to hold foreign assets. Pakistanis can hold any amount of foreign assets and bank accounts, non-taxable, though they have to declare them if so required at any time.

The recent SBP measure is again a sound measure both for the banks and customers. The banks were charging a 1% handling fee on cash deposits to forex accounts, and giving a return of no more than 1.5 to 2% by placing these funds with their foreign branches/correspodants, resulting in capital flight. Now these funds will remain in the country`s reserves and the customer will get a higher return after deduction of bank`s intermediation costs.

3)An oversight on my part. In fact the perquisites have not been aditionally taxed. Rather, the post retirement perquisites and benefits to senior Govt. employes have been withdrawn.

4)Perhaps with evolvement of a better assesment system for agri incomes with consensus of provinces, the agri tax can be implemented. No such system exists at the moment.

5)The reserves condition for treasury stock is because the majority of listed companies have a habit of not paying divividends at all. So treasury stock can only be bought from share premiums or capital reserves, and not from current or accumulated income.

Zeemax

Zeemax

quote:
1) The requirement for import duty to be paid in foreign exchange has solely been levied on motor vehicles.
unquote:

Please refer to the following website:

http://www.dawn.com/events/bud1999-2000/speech.htm

Payment in foreign exchange

40. In order to earn foreign exchange it has been decided that all foreigners should pay their hotel bills in foreign exchange. This amount will be deposited by the management of hotel in the State Bank at inter-bank rates.In addition, the incoming passenger should pay duties on their accompanies and unaccompanies baggages in foreign exchange. In the future customs duty on cars will also be paid in foreign exchange. I will present its details later.

quote:

Pakistan has not lost faith in it`s currency, which has only depreciated by 8.7 % despite the severe crises of 1998. In comparison, Indonesian currency depreciated by 75 % and Thai currency by
54.5% after their respective crises.

unquote

Please advise me how this 8.7% was calculated. According to Bloomberg Financial Information the exchange rate was Rs.44/$ on Jan 2, 98 and by December 25 it stood at Rs.49.85/$. On June 11 it was quoted as 51.74. So to sum up, 1998 errosion was about 13.3% and to date it would be 17.6%.

Ofcourse, you do have to consider that while the Indonesian and Thai economies did not have capital flow restrictions, Pakistan does not allow its citizens to freely hold foreign asset (i.e. abroad).

Infact, the SBP is so tempramental that it initially allowed the banks to invite fresh FC deposits in July 98 and allowed them to place deposits abroad. And now forces them to place funds with SBP at below market rates (below from the sense of the credit rating of Pakistan).

Pakistan should build up foreign exchange by pursuing prudent policies and not by coersion. It needs to improve its credibility with the investors and citizens as a whole. Adhoc decisions keep people afraid of committment which is only resolved with higher risk premiums.

quote:

2) Three tax slabs have been introduced for individual taxable incomes over Rs. 500,000/- (almost Rs. 42,000 a month) which does not cause additional burden on general populace. The rationale is to encourage corporatization and thus documentation of the economy. Under the previous slabs it was beneficial for businesses not to incorporate themselves or rather form sole proprietorships etc., which do not have audit requirements. The new slabs are - 500,001 to 700,000= 25 %, 700,001 to 1,000,000 = 30 %, and above 1,000,000 = 35 %.


3)Tax on perquisites too does not cause any burden on the general populace. Corporate employees in any case are compensated by their respective emloyers for these increases.

unquote

So the corporates are supposed to compensate its employees for governments stupidities. This increases the cost of doing business for the company rendering it cost ineffective in the international markets.

And its very interesting to see that those who draw a high salary are not part of the general populace but those that might be making crore of rupees from agricultural income are...

quote:

Agri tax is highly controversial and even if implemented will disappoint versus collection from
industry. Since industrial progress yields revenue in many forms i.e. import duties, sales tax, excise and so forth, the Agri tax if implemented is estimated to yield only a fraction of that. Further, it`ll be a highly contentious issue as regards distribution to provinces re their share. So the Govt. has for the time being left it to provincial Govts as they choose, and concentrating on incentives to industry instead.

unquote

Again its the governments ineptitude. If they cannot get their officers to go to the rural areas to collect taxes then why not just collect more and more taxes from its taxpayers in the cities.

And Agri taxes that are currently defined are a poor disguise of property tax. It has no relationship with how much income is earned from the land but only expected earning capacity (similar to estimated rental value of house property).

quote

5) The main issue to be decided for treasury stock is whether to allow companies to buy their stock
below par value, which would deprive common investors. A decision on this matter will be reached soon. In general, treasury stock will boost the equity markets.

unquote

SEC regulations for stock buyback runs into 10s of pages outline all possible conditions that have to be met before undertaking this activity. In Pakistan`s case the company has to set aside reserves. what sort of a condition is that.

quote:

Let me clarify that Institutional investors have not been exempted from income tax, rather only the
withholding tax.

unquote

I stand corrected.

Re : Amin Saleh, Ras Siddiqui

I`m working on the budget document, however since it takes a while before an article is posted, I`ld like to reply briefly to the points brought up by you :-

1) The requirement for import duty to be paid in foreign exchange has solely been levied on motor vehicles. Since an excess capacity exists for motor vehicle manufacturing in Pakistan this step would help the local industry. The cars imported right now into Pakistan are invariably the luxury variety i.e. BMW, Mercedes and 4x4 vehicles which are not produced here, so the importers of these cars fall into the topmost income bracket.For overseas Pakistanis this should not cause any additional expense. Mind you all other levies on vehicles import i.e. sales tax, income tax and CVT have been abolished.

Pakistan has not lost faith in it`s currency, which has only depreciated by 8.7 % despite the severe crises of 1998. In comparison, Indonesian currency depreciated by 75 % and Thai currency by 54.5% after their respective crises.

Pakistan has to pursue all reasonable avenues to build up foreign exchange in order not to fritter away the time gained through donor agencies.

2) Three tax slabs have been introduced for individual taxable incomes over Rs. 500,000/- (almost Rs. 42,000 a month) which does not cause additional burden on general populace. The rationale is to encourage corporatization and thus documentation of the economy. Under the previous slabs it was beneficial for businesses not to incorporate themselves or rather form sole proprietorships etc., which do not have audit requirements. The new slabs are - 500,001 to 700,000= 25 %, 700,001 to 1,000,000 = 30 %, and above 1,000,000 = 35 %.

3)Tax on perquisites too does not cause any burden on the general populace. Corporate employees in any case are compensated by their respective emloyers for these increases.

4)Zila tax and Octroi has been abolished to simplify tax structure and increase revenue through these sources which has been mostly been misappropraited by corrupt officals and contractors for collection. For example, the octroi revenue is estimated to be in excess of Rs. 500 crore while the Govt. was only getting around Rs. 50 crore from the contractors.

Agri tax is highly controversial and even if implemented will disappoint versus collection from industry. Since industrial progress yields revenue in many forms i.e. import duties, sales tax, excise and so forth, the Agri tax if implemented is estimated to yield only a fraction of that. Further, it`ll be a highly contentious issue as regards distribution to provinces re their share. So the Govt. has for the time being left it to provincial Govts as they choose, and concentrating on incentives to industry instead.

5) The main issue to be decided for treasury stock is whether to allow companies to buy their stock below par value, which would deprive common investors. A decision on this matter will be reached soon. In general, treasury stock will boost the equity markets.

6)Let me clarify that Institutional investors have not been exempted from income tax, rather only the withholding tax. This means they will not have to pay income tax in advance on receipt of profit from TFC`s but rather pay it on their final assessment. This would help their cash flow to some extent. The rationale is to encourage a shift of corporate bank borrowing to corporate debt instruments thus making bank credit cheaper.

Loving Pakistan certainly does not mean loving the Govt. or the budget, but it certainly means loving the State, and an understanding of the vital isues here.

Re: Zeemax

Quote:

Okay .. I like to write about Pak`s economics but many people like to hear only criticism when I
have many positive opinions .. so a litle disheartened with all the Paki bashing by our bretheren ..
nevertheless I`ll post something soon ... on the budget perhaps which was presented yesterday.

Unquote.

Most interested in your coverage of the following issues:

1) Has the government lost faith in its own currency when it requires import duty to be paid in hard currency.

2) No Tax increase budget has taxes maximum slab increased on individual, AOP and HUF from 20% to 30%.

3) No Tax increase budget has taxes on perquisites

4) No taxes on Agricultural income being touted as provincial matter yet zila tax is being abolished.

5) Treasury Stock introduced. Yet one year back the law minister feigned ignorance on this issue on chowk.com. Regulations surrounding this issue has not been completely addressed and therefore will not be effective from control and implementation point of view.

6) The government is still trying to work on identifying on the anomalies in the tax structure of instruments and continues to add more anomalies into the system (Institutional investors are exempt from taxes on TFCs).

Love or Leave Pakistan!!! equal Love the government equals Love the budget???

Good article. Unfortunately like many others I`m
kind of distracted these days with the Kashmir
situation.
Zeemax, I`d like to see something written on
Pakistan here on CHOWK that offers a viewpoint that it will survive and is not falling apart.
Critics will have their fill on CHOWK but I`m
the kind of person who likes to believe in the
strength of a people. And believe me, in spite
of all the adversity, Pakistanis are an amazing
lot and as long as they retain hope, Pakistan
can have a bright future (beyond Cricket even).

Ras

Re : hielme

Okay .. I like to write about Pak`s economics but many people like to hear only criticism when I have many positive opinions .. so a litle disheartened with all the Paki bashing by our bretheren .. nevertheless I`ll post something soon ... on the budget perhaps which was presented yesterday.

Dreams are dreams after all ...

But atleast u got the half part right about the pakistan team gettin thru ...

All thats needed now is 2 consecute wins by any one of these four teams and they have the cup

irrespective of who plays who ...

And common says that its anyones cup from here on ...

Pakistan have an edge because they have had a string of 3 defeats before the last game and so are like to win at least one of the next 2 matches ...

If in the final ... the odds are again in pakistans favour because they did come thru the premilinaries with the maximum points ...

A great article though Zeemax ... how about one on the conomics of this country and one on the politics....

would love to hear your views

cheers

Re: NasreenK # 10

There was a match? Against whom? Who won? As to sarcasm after the match, that would depend on whom our petulent players played against. I still think that the odds are against the warriors of Allah in this tournment. If perchance they won against some team from a banana republic, that still does not mean they can defeat Australia or India or South Africa to win.

Whatever happens, the game fixing boys from Pakistan had a good innings in this tournment!

Re FerozeK

Really? You sounded petulant not sarcastic. How about some sarcasm after today`s match?

Re : JR

Thanks. Very encouraging comments. I hope I can connect with readers on other subjects too.

Rgds.

Re : SR .. Well I got so worked up arguing about Pak economy / nuke test and so forth that I fell asleep and had this dream. And Yes .. hun aish karan dey eahoey maidan reh gaey nain ..

Cheers Mate !

I cannot but lavish praise for this wonderful piece. You have captured the essence of what it means to be a true cricket fan. I think the title is appropriate. Those non-fans should stay out, bail out and bowl out of this exclusive terrain that is sacred to the cricket fan. I could not help feeling exactly in tune with you. Good work, keep it up. A writer must connect with his/her readers and you have.

``For Cricket Lovers Only`` you claim. Well, that completely rules me out yet I cannot help but notice with amusement whence commeth your jollies these days. Surely, I am a spoilsport to interrupt your wet-dream about, of all things, cricket -- ah, how age alters a man`s libido! -- by reminding you that no matter how well the white clad buffoons (or are they wearing different color clothes now?) juggle the red ball (or is it yellow now?), the reality in the streets of subcontinent shall remain unchanged. The solutions to the problems of the average person will be no closer to realization the morning after the dream. In ancient Rome the masses were kept amused by a constant display of gladiator `sports` while the rot, corruption, and injustice went on. Not very far have we come over two thousand years, have we?

Enjoy your dream, for being awake may be a real nightmare. (Good to see a contribution from you.)

cheers...SR

Re: NasreenK

Ever heard of sarcasm......I was joking and you need to chill hard before you have a stroke or something!

Re: Temporal

Agreed! Just as the articles on the infamous Delhi-Lahore bus, this is another example of overkill on Chowk. Ten days to go before this nightmare ends.

Zeemax:

Thanks for sharing your dream with us. Let me share mine with you.

I had a dream.

I had a dream that I was going to dream about World Cup..........then

I had a dream that the world cup was on.

I had a dream that of the thirteen articles on Chowk`s Page 1 less than half were about cricket.

I had a dream that if one more article on cricket appears, I would stop dreaming.

And then your dream appeared. That is 7 out of 13. Oh how I wish you had kept sleeping.

..................yawn, time for me to dream again.

regards