SMEs in Pakistan (Presentation by AZ) 040213

8/3/2019 SMEs in Pakistan (Presentation by AZ) 040213

1/90

Small and Medium EnterprisesinPakistan

Atif S. Malik


2/90

Concept and Importance of SME Development

Situational Analysis of SMEs in Pakistan

Importance and Core Problems

Institutional Support and General Policy

Direction

Specific Issues Based on Functional Split

Globalisation

Presentation Contents


3/90

Concept of SME Development In 1958 the Ford Foundation made a five-year grant to

the Stanford Research Institute to analyze

programmes and policies that would be suitable in

Latin America and Asian countries for promoting smallenterprise development.

The major Stanford recommendation was the adoption

of the so-called Indian model - the recommendedgovernment programme for supporting small

enterprise development in India.


4/90

Indian Model The Indian model concentrated on the creation of

special public institutions and directed programmes forassisting the small enterprise sector. The governmentoffered assistance in all fields and directly

implemented the programmes - in the identification ofopportunities for small enterprise development, in theprovision of factory space on industrial estates, indirect financial assistance and in obtaining

government orders as well as advice and training forsmall enterprises. All these services and inputs wereto be offered on a subsidised basis (usually givenfree), since the small enterprise sector was regarded

as needing special help to overcome its weaknesses.


5/90

SME DEVELOPMENTEXPERIENCES FROM OTHERCOUNTRIES


6/90

% age Share of Enterprise on EmploymentUnited States of America

100 - 499

Employees

8.00%

10 - 99

Employees

38.00%

More than 500

Emp

4.00%

Less than 10Emp

50.00%

European Union

Less than 10

Emp

93.00%

More than 249

Emp

0.20%10 - 50

Employees

5.90%

50 - 249Employees

0.90%


7/90

UNITED KINGDOM:

SMEs constitute about 99% of businesses

Account for 57% of employment

Account for about 38% of total exports

Main source of new employment

GERMANY:


Account for about 58% of employment



8/90

ITALY:


Account for 77% of employment


USA


Account for about 60% of employment



9/90

SOUTH KOREA:


Account for 75% of employment of the totalnational workforce

SMEs represent about 92% of all manufacturingcompanies

SMEs represent 69.3%,46.3% and 46.5%,

respectively, of the employees, production andvalue-added activities


10/90

Economic Profile of Pakistan

GDP US$ 62 Billion Population 137 Million

Per Capita Income US$ 446

Exports US$ 9.2Billion

Ser vices

50%

Ser vices

10%

Mi ning, Constr uct ion & Uti l i t y

Dis t r ibut ion

8%

Manuf actur ing

17%

Agr i cu l tu re

25%

Tr anspor t, Stor age &

Communiac ti on

10%

Finance & Insur ance

3%

Owner ship of Dwell ings

6%

Publi c A dmn. & Finance

6%

Whole Sale & Retail T r ade15%


11/90

Employment TreeLabor Force35.9

Agriculture 16.96-Rural 16.4

-Urban 0.6

Non-Agriculture18.94-Rural 8.8

-Urban 10.2

Formal6.1-Rural 2.4-Urban 3.7

Informal 12.8-Rural 6.4-Urban 6.4

Non-Manufacturing 5.5 Manufacturing 3Non-Manufacturing 9.8Manufacturing 0.6

Labour Force in Pakistan (Millions)


12/90

Survey of Small & HouseholdManufacturing Industries (SHMI)

Work Force: 1,258,546 Small Establishments: 920,139

Household Units: 338,407

Urban: 572,170

Rural: 686,376

Male: 1,038,000

Female: 221,000

Establishments: 427,784

Small Establishments: 266,686 Household Units: 161,098

Urban: 175,078

Rural: 252,706

Average Asset Size by Units Rs. 76,775 per unit

Average Asset Size by Employment Rs. 26,096 per person

Average Employment Size 3 person per unit

Contribution to GDP

Rs. 34,303 million


13/90

Units and Persons Engaged

412,515

15,215

0 100,000 200,000 300,000 400,000

Upto 9

Persons

0 and Above

Split of Units

997,201

261,349

0 100,000 200,000 300,000 400,000

Upto 9

Persons

10 and Above

Persons Engaged


14/90

Sectoral SharesSectoral Share by Units

Other Indus.18%

Metal & Metal

Products

11%

Petro/Chem.

Products

1%

Mineral Products

4%

Paper Products &

Print.

1%

Wood & Wood

Products

12%

Leather & Leather

Products

6%

Textile & Textile

Products

27%

Food, Bevg Etc

20%

Sectoral Share by Employment

Paper Products &

Print.

1% Wood & Wood

Products

10%

Leather &

Leather Products

5%

Petro/Chem.

Products

2%

Mineral Products

8%

Metal & Metal

Products

11%

Other Indus.

13%

Textile & Textile

Products

27%

Food, Bevg Etc

23%


15/90

Distribution on Employment andUnits

Number of Units - 1996-97

2 Persons

33%

3 Persons

15%

4 Persons8%

5 Persons

4%

6-7 Persons

4%8-9 Persons

2%

10 & Above

Persons

4%1 Person

30%

Number of Persons Engaged - 1996-97

2 Persons23%

3 Persons15%

4 Persons11%

5 Persons6%

6-7 Persons8%

8-9 Persons6%

10 & AbovePersons

21%

1 Person10%


16/90

Assets, Employment and Financing

39%

34%

19%7%

1%

0% 10% 20% 30% 40%

Upto 10K

10k to 50k

100k to 500k

500k to 2 mill

Over 2 mill

Assets and Employment

Sources of Financing

Financial

Inst

4%

Own

Resources

90%

Friends &

Relatives

6%


17/90

Census of ManufacturingIndustries

Work Force: 561,921 1 to 9 Persons: 4,073

10 to 49 Persons: 53,367

50 to 99 Persons: 35,589

100 & Above Persons: 468,892

Establishments:4,474 1 to 9 Persons: 671

10 to 49 Persons: 2,291

50 to 99 Persons: 511

100 & Above Persons: 1,001 GDP Contribution - Rs. Million

1 to 9 Persons: 423

10 to 49 Persons: 6,200

50 to 99 Persons: 4,673

100 & Above Persons: 81,749


18/90

Census of ManufacturingIndustriesReporting Establishments

Upto 9 Persons

15%

10 to 49

Persons

52%

50 to 99

Persons

11%

100 & Above

Persons

22%

Employment

50 to 99

Persons

6%

10 to 49

Persons

9%Upto 9 Persons

1%

100 & Above

Persons84%


19/90

Persons Engaged: 5,766,583

Employed: 3,485,596

Self Employed: 2,280,987

Establishments: 2,018,986

Urban: 1,202,159

Rural: 816,827

Census of Establishment


20/90

Establishment & Employment

97%

2.50%

0.20%

0.09%

0.08%

0% 20% 40% 60% 80% 100%

1 to 9

10 to 49

50 to 99

100 to 199

200 & above

Split of Units on Employment Size

60%15%

5%4%

16%

0% 10% 20% 30% 40% 50% 60%

1 to 9

10 to 49

50 to 99

100 to 199

200 & above

Employment by Unit Size


21/90

Status in EstablishmentsEstablishments

Urban

60%

Rural

40%

Employed & Self Employed

No of

Employees

60%

No of Self

Employed40%


22/90

Sectoral Split of UnitsSectoral Split of Units

Community

Services33.06%

Transport

0.94%

Finance &

Insurance1.74%

Trade, Hotels

49.67%

Electricity/Water

0.18%

Construction

0.04%

Manufacturing

14.37%Mining &

Quarrying

0.01%


23/90

Employment in Sectors

Employment Split of Community Services

50 to 99

7%

20 to 4911%

100 or more

24%

10 to 19

9%

Less than 10

49%

Employment Split of Manufacturing Sector

50 to 99

5% 20 to 49

9%

100 or more

35%

10 to 19

12%

Less than 1039%

Employment Split of Hotel & Trade Sector

Less than 10

96%

10 to 19

2%

100 or more

1%

20 to 49

1%

50 to 99

0%


24/90

SME Development Downward SpiralInformal SMEs

Adverse Govt Policy

Lack of Formal Credit

Lack of Investment

Low Technology Base

Low Quality Standardisation


25/90

Extent of Formal Economy

99%

77%

47%

27%

0% 20% 40% 60% 80% 100%

1 to 9

10 to 49

50 to 99

100 & Above

Share of Unregistered Firms inManufacturing Sector


26/90

Structure of Establishments

IndividualProprietorship

82.72%

Others

7.58%

Govt/Corporat

ion/Local-G-

Est

6.71%

Companies

(Public/Privat

e ltd)

0.50%

Partnerships

2.50%


27/90

Importance for Pakistan


28/90

Enterprises Based on EmploymentSize

97%

2.50%

0.23%

0.1%

0.09%

0% 20% 40% 60% 80% 100%

1 to 9

10 to 49

50 to 99

100 to 199

200 & above

Slightly above 2 million enterprises out of

which the share of MSMEs is 99%


29/90

Estimated Employment Size

TradeServicesManufactu2,014, 4891,508,796875,449

45,664584,124439,0445,056205,383112,217

2,014,489

45,6645,056

1,508,796

584,124

205,383

875,449

439,044

112,217

Trade Services Manufacturing

Micro Small Medium

1,426,710

2,298,3032,065,208

The MSMEs generate 78% of the non-agrisector employment


30/90

SME Contribution to GDP Estimated GDP Contribution is 8%

It is underestimated due to unavailability of

data on services and trade sector in medium

sized enterprises Total contribution to GDP can be safely

estimated at 20% to 25%

20%-25% of total GDP equals 35%-40% ofthe non-agri GDP


31/90

Definitions of MSMEsinPakistan


32/90

Definitions of MSMEs No single definition of MSMEs at a country level Results in absence of MSMEs in the policy

formulation process

Definitions currently recognized, formulated to

cater to the needs of manufacturing sector smallfirms

Definitions formulated to meet credit

requirements of the small manufacturing

concerns

Need to regularly compile statistics to build aprofile of the MSME sector in Pakistan

N if d fi iti f MSME


33/90

Non-uniform definition of MSMEs

Institutions Micro Small Medium

State Bank ofPakistan N/A

Capital assets upto Rs. 20 million

(excl. l & b)N/A

Federal Bureau of

StatisticsN/A

Less than 10

employees

N/A

Small BusinessFinanceCorporation

N/AProd. Assets ofRs. 20 million

Prod. Assets ofRs. 100 million

Punjab Small

IndustriesCorporation

N/A

Fixed inv. upto

Rs. 20 million(excl. l & b)

N/A

Small & MediumEnterpriseDevelopmentAuthority

Less than 10employees

Prod. assets uptoRs. 2 million

10-35 employeesProd. Assets

Rs. 2 20 million

36-99 employeesProd. Assets

Rs. 20 40 million


34/90

Nature of SME Incentives

Exemption from

Corporate Income tax

Exemptions from

withholding tax on

foreign loans

Tax exemption on

pre- operation &

organization

expenses

Extension periods

to avail export

incentives

THAILAND

Tax exemption for

5 year period

Reinvestment

allowance of 50%

5% abatement tolarge industries on

purchasing from

small industries

Full exemption from

import duties on

machinery &

raw materialsPreferential treatment

in govt. purchases

Soft loan scheme

with priority given to

loans less than $5

million

MALAYSIA

Tax exemption for a

5 year period

Other benefits

according to the

technology &

production used by

the enterprises

PHILIPPINES

30% tax abatement

on approved

investment in

machinery

Grants for developing

business

opportunities in all

markets

Grants upto 50% of

direct developmentcost for product

improvement

Soft loans for

upgrading &

business expansion

SINGAPORE

Reduced corporation

tax rate

Special 14%

depreciation rate of

the initial acquired

machinery

Deduction of charges

from the members

incomes as expenses

Special initial

depreciation on 29%

of the amount drawn

from reserves

Special deduction for

retained profits of

co-operatives

Reduction or

exemption of certain

local taxes

JAPAN

Source: Kim Seung Jin and Suh Jang-Won : Cooperation in SMI Industries in ASEAN (1993; 117-118)


35/90


36/90

SME SMEs LargeShare Companies

No. of Firms 99 % 6.47 million 0.06 million

No. of Employees 78 % 42.27 million 11.89 million

Mfg Output 51 % $ 1.13 trillion $ 1.07 trillion

In 1996 alone, the Japanese Government spent

$6 Billion

to support SMEs

RESULTS (1994)


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JAPAN :SME Support Network


38/90

SmallandMediumEnterpriseCoope

ratives

Organization

National Federation of Shopping Districts Promotion Association

National Federation of Small Business AssociationPrefectural Fed. Of Small Business

Association

Guidance Japan Chambers of Commerce & Industry / National Federation ofCommerce Industry Trade Associations

Chamber of Commerce (513)Commerce-Industry Trade Asc.

(2822)Prefectural Federation of

Commerce-Industry TradeAssociations (47)

Sub-

contracting

Information

Investment

Finance

National Center for Promotion of Information of Small & MediumEnterprise

Small & Medium Business Investment & consultation Co.

Japan Finance Co. for Small Business (59 Branches)

Institute for Small Business Management & TechnologyHRDevelopment Japan Small Business Co. Human Resource Development

National Association for Sub-contracting Enterprise PromotionPrefectural Fed. Of Sub.contracting

Entrepreneurial Promotion

Regional Information Centers (47)

Prefectural Federation of ShoppingDistricts Promotion Associations 52

CreditInsurance

Small Business Credit Insurance Corporation

SME Agency Prefecture & City GovernmentBureau of International Trade & Industry

People Finance Corporation (152 Branches)

The Shoko Chukin Bank (107 Branches)

About 241 Consultants

About 982 Consultants

About 9,000 Consultants

a

Prefectural Credit InsuranceAssociations (52)


39/90

Pakistan - SME Support Network

Provincial AgenciesTraining InstitutionsFederal AgenciesFinancial Agencies,

NGOs & Programs

- Establishment ofindustrial estates forsmall scale industries

- Provision of credit forSMEs

- Marketing of SMEproduce

- Training programs forartisans

- Setting up of LocalTechnology ServiceCenters (LTSCs)

Industrial Estates

Punjab;14, NWFP; 9,Sindh; 15, Baluchistan; 1

Small Business FinanceCorporation (SBFC)- SMEBank

financial assistance on softterms for small/ cottageindustries

SMEDA

- Apex policy advisorymaking body for SMEs

- Provide and facilitatesupport services generateemployment opportunities

- Revitalize small businessthrough aggressive supportprograms

Pakistan Industrial TechnicalAssistance Corporation(PITAC)

provides advanced training

to industrial personnel inmetal trade, toolengineering designs and inproduction of tools, mouldsand fixtures

Agencies & Programs

Punjab Small IndustriesCorporation

Sindh Small IndustriesCorporation

Sarhad Small Industries

Development Board

Directorate of SmallIndustries, Baluchistan

Self Employment Scheme(SES)

loans granted tounemployed youth/skilledprofessionals for smallbusinesses and smallindustries

SBFC and 7 participatingbanks

Khushali Bank

First Womens Bank

NRSP / PRSP / AKRSP -

Rural support programs

Kashf Foundation

Aurat Foundation

Skill Development Councils

Assess training needs,facilitate training of workers

through training providers inthe public and private sector

Technical Education &Vocational Training Auth.

Facilitation of technical &vocational training inPakistan


40/90

Summary of Issues General findings: Absence of a uniform MSME definition

Lack of awareness of policy formulation and its impact

Centralisation in policy making

Non recognition of impact on employment generation

Generally MSMEs are considered to comprise only manufacturing sectors

Short term nature of policies

Survival strategies reforms opposed to long-term market demands

Extremely low awareness of all industrial laws

Large number of laws resulting in greater complexity

Lack of availability of laws in national or regional language

Gap between design of policies and laws and their subsequent implementation

Inconsistencies in policy direction

Lack of SME representation in industry and trade associations


41/90

SMEs Origin of ProblemsAbsence of SME

Definition

Centralisation inPolicy Making

InconsistentPolicies

Complex RegulationsNumbers and Content

Absence of RedressLack of ComplianceCapacity in SMEs

Extremely LowAwareness Levels

DiscretionaryPowers

Negative Impact

on SME Growth


42/90

Structure of Regulatory FrameworkHow this becomes the core? Policy Level:Where the Government realises the

importance of an issue and lays down the strategy

framework

Regulations: Where Government formulates laws in the

shape of Acts, Ordinances and Statutory Regulatory Orders

(SROs)

Execution: Where the regulatory framework is implemented

through the Governments administrative setup


43/90


44/90

Impacts of Regulations on Business Entry

TradeServicesManufactu2,014, 4891,508,796875,449

45,664584,124439,0445,056205,383112,217

0 2 4 6 8 10

India

Pakistan

Thailand

Singapore

USA

UK

No of Procedures Screening

77

50

35

22

4 4

0

20

40

60

80

India Pakistan Thailand Sin a ore USA UK

Business Days required to receive

operational legal status

Source: World Bank The Regulation of Entry 2001


45/90

SME Perception of Government PoliciesBased on a Latest survey of 500 SMEs conducted by World Bank

The small entrepreneurs spend, on the average, overRs. 15,000 per year and 12% of their entrepreneurialtime in coping with government regulations, mostly ontop of or around the legitimate government demands.

More than 90% of the respondents highlighted one oranother hurdle posed by the government in theirsmooth functioning. The principal focus was on therising cost of business due to government taxes (56%),corruption (39%), enhanced utility charges (30%) andoppressive role of local officials (26%).


46/90

Key Indicators of RegulatoryEnvironment -Problems71% 70%

65%

56%52%

Sales Tax /Excise Tax

Income Tax Governmentinterference

Governmentlaws and

Regulations

Nonavailability of

financeBased on a Latest survey of 500 SMEs conducted by World Bank


47/90

67%

45%

42%

0% 20% 40% 60% 80%

Govt Tax

Structure

Labour

Regulations

Registerations

& Assoc Costs

SME Perception of Government PoliciesBased on a Latest survey of 500 SMEs conducted by World Bank


48/90

Business Operations


49/90

Key Observations Business Structures

lack of awareness regarding Impact of business structures on operations

Business decision making rarely effected in micro & small firms by

structures

80% of MSMEs exist as Sole proprietorship and Partnerships

Regulations biased in favour of medium and large firms

Intellectual Property Laws

Low awareness level in respect to intellectual property rights

Under utilization of Intellectual property laws benefits due to time

consuming procedures Different ministries govern different intellectual property laws

Poor monitoring and enforcement

Pakistan still not a signatory of the Patent Cooperation Treaty (PCT)

Adverse impact on international sub contracting & export marketing


50/90

Administrative SetupSecurities & Exchange

Commission of Pakistan

Registrar ofCompanies

Private / PublicCompanies

Registrar ofFirms

Partnerships

Provincial Department ofIndustries


51/90

Management of RegulationsIntellectual Property Laws

Copyrights Trade Marks Patents

Ministry of Education Ministry of Industriesand Production

Ministry ofCommerce


52/90

SMEs Opportunityfor Equity Financing USA Under federal securities law, companies that seek to raise

less than USD 1 million within 12 months are excused fromregistration requirements

A specialised method known as SCOR (small companyoffering registration) can be used by entrepreneursseeking capital of less than USD 1 million through publicsale of stocks

Turkey

Plans to establish new stock market for small start-upswith growth potential


53/90


54/90

According to a study conducted by SMEDA in

collaboration with ILO:

Statistics

78% of SMEs do not access credit from any

source

Out of the remaining 22%, less than half ever

approached the formal lending sector

Success rate among those who approached the

formal lending sector lies between 20% & 66%


55/90


56/90

Key Observations Low awareness level amongst micro & small enterprises as compared to

medium & large scale enterprises

Due to lack of access to formal credit, 90% of MSEs are equity financed

Lack of familiarity with accounting systems within micro and small sized

firms

Similar credit evaluation system used by financial institutions for all typesand size of businesses

Approximately 80% MSMEs have loose structures in place such as

proprietorships and unregistered partnerships

Time consuming credit evaluation procedures of financial institutions

SMEs unable to meet high collateral requirements of financial institutions

Limited financing options available in the country

Difficulty to benefit from schemes like Export Refinance, etc


57/90

Prevailing Disbursement PatternsA Comparison

India

High

High High

Low

Accessto loans

Timelinessof loans

Affordabilityof Loans

Indonesia

High

High High

LowAccessto loans

Timelinessof loans


Pakistan

High

High High

Low

Accessto loans

Timelinessof loans


Source: The SMEs and the Global Market Place, ITC publication


58/90

Time FrameMonths

2

2

5

2

6

4

6

4

4

3

Indone sia Banglade sh Pakistan India Ave rage

A roval Disbursement

Source: The SMEs and the Global Market Place, ITC publication


59/90


60/90

SME Credit Guarantee

90%

85%

65%

Canada

United

Kingdom

France

% age of Loan Guaranteed

1.75%

1.50%

0.60%

Canada

United

Kingdom

France

Interest Rate Premium


61/90

Labour


62/90


63/90

Key Observations Lack of awareness about laws & policies amongst small & medium scale

enterprises

Due to low literacy level

Due to non-availability of laws in simplified Urdu or regional languages

Lack of awareness plays a catalytic role in enhancing inspectors discretionary

powers

Lack of proper mechanism and implementation machinery

Large number of overlapping laws

Inefficient labour judicial system

Negative perception regarding Social Welfare Schemes

Size of enterprise as a condition for compliance serves as as incentive for non-

compliance

Minimum wages are not aligned with the inflation rates

Laws not run in consonance with latest developments in industries


64/90


65/90

Administrative setup(Factories act, 1934)

Regulatory Agency - Directorate of Labour Welfare Recognition of Enterprise size - Yes Applicable on 10 or more workers

Variation by Region - Yes provincially

Powers & Penalties

Power to exempt any factory from the provisions of the Factory Act 1934

Inspectors discretionary powers

To enter without warrant

To inspect documents

Instruct to adopt any measures

The penalties range upto Rs. 2,500


66/90

Findings and Observations(Factories act, 1934)

Grey Areas

Complex act

Covers a vast range of specification for compliance

Inspectors discretionary powers

The fines are not deterrent

Discretionary power of granting festival holidays

Sindh & N.W.F.P has discretionary power

No welfare officer requirement for SMEs

As applicable on the limit of 500 or more workers

Impact on MSMEs

High cost of compliance

Considerable pressure due to inspector`s discretionary powers Lack of awareness in respect to health & safety provisions

Lack of awareness due to non-requisite of welfare officer

Duty of welfare officer to make the factory comply with law


67/90


68/90

Labour Judicial System Labour Judicial System comprises of

Labour Courts

Labour Appellate Tribunals

Function as Civil Courts

Labour Appellate Court is the final Adjudicatingauthority

Appeal can be made to High Court if a point oflaw is involved

Flow of adjudication in labour laws:

Non-observance of time limits to decide a case

The existing Labour Judicial setup isinadequate for timely disposal of cases whichis evident form the number of pending cases inLabour Courts and Appellate Tribunals

Appeal to Supreme Court

Appeal to High Court underarticle 199 constitution of

Pakistan

Labour appellate tribunal(Judgement to be given in 60

days)

Labour court(Judgement to be given in 7

days)

After challan or fine

Appeal to befiled with in

60 days

In reasonable time asdecided by the High

Court

Appeal to befiled with in 30

days

Application tobe filed with in

30 days


69/90

Performance of Labour courts

0

2000

4000

6000

8000

10000

12000

14000

16000

1995 1996 1997 1998

no of cases pending

no of cases instituted

cases diposed off

balance


70/90

Taxation


71/90


72/90

Key Observations

Negative perception of the tax agencies

Lack of awareness about the taxation system

No MSME recognition in tax system

Complexity in procedures results in high cost of compliance for micro and

small sized firms

Tax policy is biased in favour of large-scale enterprises (Additional sales tax for

sourcing from informal sector)

Timeframes for various procedures are neither followed nor implemented

Informal enterprises are not given incentives to become a part of the formal

economy


73/90

Tax Policy Shift

Tax Revenue 1990-2000

0

20

40

60

80

100

120

140

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-

2000*

In Billions

Direct T axes

Customs

Sales

C entral Excise

Change in

Policy

Change in policy direction from revenues earned through Indirect to DirectTaxation (excluding Sales Tax)

Procedure for filing returns for


74/90

sole proprietorships & Partnerships

Assessment by Tax Department

Calculation of total taxableincomeTax deductions

Calculation of tax at applicableslab rateApplication of surcharge

Deduction of tax creditDeduction of advance taxesTotal tax payable with return

(Total income deductions) *slab rate + Surcharge tax

credit- Advance taxes = final taxpayable.

BooksRecords

Profit and LossAccount

Balance Sheet

Maintenance of books of accounts for financial/income year

Preparation of accounts for f inancial year

Computation of income tax

Filing of Income Tax returns forFirms/Partnership & Partner

Form of income tax

returns IT 11A4 Tax paymentChallan IT 31(A,B,C,D)


75/90

Sale Tax Act 1990 - ExampleSales Tax Refund Rules SRO 417(1) 2000

- Refunding criteria :

Gold category - 72 working hours (9 days)

Silver category - 15 days

Others category - 30 days- The categorisation is based on the credit

capability, history and track record of

businesses

- The requirement for the gold category of audited

accounts again restricts the small exporters- Process of sales tax refund is defined with in

the law to take place in a max. 30 days

- This does not take place on a practical

level

Scrutiny

RELEASE OF REFUND

Sale Tax Officer

Report

Senior Auditor or superintendent

7 days

3 days

Scrutiny

Sale Tax Officer


76/90

Impact of Sales Tax act on MSMEs Categorization based on credit capability, track record and history

severely restricts small & medium enterprises from.

New exporter are also detrimentally effected.

The time period defined for the refund does not take place on a

practical level, resulting in shortage in working capital.

This seriously hampers the growth of small and medium scale

enterprises


77/90

Trade


78/90

Key featuresTrade policy is formulated by the Ministry of Commerce

It shows the drift of country towards its economic approach Becomes inconsistent due to rapid amendments

Due to non-existence of any uniform definition of MSMEs, the policy formation has

to a certain degree been sector specific and at times inharmonious

The laws covered under trade sector are:

Import & export control act

Exports quality control order

Import and export procedures

Anti dumping laws

Trade organisation ordinance The registration of export houses order

Various Statutory regulatory orders

Customs Act


79/90

Key Observations Short-term nature of trade policies

Lack of planning to deal with international issues like WTO (case in point Auto-ind)

Lack of proper monitoring to protect local industry against dumping and

international subsidies

Under utilization of schemes and incentives by MSMEs due to low awareness levels

Generally schemes are only meant to facilitate the large-scale sector

Rapid induction of SROs nullifies the effect of trade policy

Complexity of procedures, cumbersome trade procedures and delays in

adjudication results in low utilization of incentives

Cash flow problems particularly for the SMEs in refunds of rebates and tax

Incentives available to direct exporters are not available to indirect exporters

comprising the MSME sector

Minimal representation of MSMEs in policy making

Textile Quota Management policy


80/90

BACKGROUNDAttributes 1992-93 1994 1995 1996 1997-98 1999-2000

Defined

Time

Period

Jan.92-

Dec.961994-Dec.96 1995-Dec.96 Jan.96-Dec.96 Jan.97-Dec.99

For the year

1999 & Year

2000

separately.

NewcomerNo

provision

-10% of

growth quota

for new units-25% of

growth quota

for rural areas

and

transferable

-10% of growth

quota for new

units

-25% of growth

quota for rural

areas and

transferable

-10% of growth

quota for new

units

-25% of growth

quota for rural

areas and

transferable

All

discretionary

quotas

abolished

including new

units and rural

areas.

No Provision

Allocation

Basis

Performance

Holders:

50%

Q:50% V

Only on

Quantity

based

Only on

Quantity based

Only on

Quantity based

1st

Year:

75%Q:25%V2

nd

Year:65%Q:35

%V3

rdYear

onward:

50%Q:50%V

Based on

Quantity

Textile Quota Management policy


81/90

BACKGROUNDAttributes 1992-93 1994 1995 1996 1997-98 1999-2000

Defined

Time

Period

Jan.92-

Dec.961994-Dec.96 1995-Dec.96 Jan.96-Dec.96 Jan.97-Dec.99

For the year 1999 &Year 2000

separately.

ResidualQuota

Throughauction

Through

auction andnon-

transferable

Throughauction and

transferable

Through

auction andnon-

transferable

Growth and

residual

quota boththrough

auction and

non-

transferable

Growth and residual

quota both throughauction and non-

transferable

Quota

TransferTransfera

ble

-Forperformance

holderstransferable

-nonperformance

holders, not

transferable

-Forperformanc

e holders

transferable

-performanceand open

market

transfer able

-auctionquota non-

transferable

-performanceand open

market

transfer able

-auctionquota non-

transferable

-performance andopen market transfer

able

-auction quota non-

transferable-New passbook

holders have to ship

90% of quota

allocated.


82/90

Globalisation

Globalisation


83/90

The idea of a global economy key image is thatof a borderless world. i.e. stress on increasing

transnational macroeconomic links

Many organisations adopting a Global Rationale

in management and marketing

Stress on strategic networking where coordinationof a Single Face is achieved by independent

companies working together

Facts Regarding Globalisation


84/90

In 1998, General Motors had sales of $178 billion. That

figure is greater than the Gross Domestic Product of108 countries

The world's top 25 industrial companies each have

annual revenues greater than $60 billion. There are 86countries whose GDP is smaller.

Seventy percent of all international trade is controlledby transnational corporations . Now nearly one half of

all international trade consists of transfers of goods or

services between different branches of the same

company operating in different countries. Globalisation: Impact on SMEs in Pak.


85/90

Declining trend of tariff barriers

New era of Non-Tariff Barriers; quality & process

standards and systems

Formulation of trade blocs across the globe

Increasing role of transnational companies

Implications of IPR non-compliance

Phasing out of TRIMs

Elimination of direct subsidies

Enhanced usage of anti-dumping and countervailing

duties and safeguard measures


86/90

Financial Sector ofPakistan

Financial Sector in Pakistan


87/90

Million Rupees

55.8754.9058.69

91,56166,94124,62035,16824,24310,925

56,39342,69813,695

163,893121,94341,950

B: Specialised Banks and DFIsSpecialised BanksDFIs

19.14

26.87

19.1010.70

6.09

167,722

113,37126,44520,0867,820

38,595

28,870

3,7413,232

2,752

129,127

84,501

22,70416,854

5,068

876,514

421,933

138,490187,656

128,435

A: All Commercial BanksDomestic Banks

Nationalized Commercial BanksPrivatised BanksPrivate Banks

Foreign Banks

Totalark-upPrincipalAdvances

NPLs asa%age ofAdv.

Non Performing LoansAs on 30-06-2002

Category

Banking Sector Deposit & Lending Rates %


88/90

Recent Developments in the Financial Sector


89/90

Exposure to a limited set of products and sectors

SBP undergoing restructuring, NBFIs management with SEC. SBPwill have two divisions; one dealing with monetary policy and one

with financial sector and banking policy

Appointment criteria for Board Members and CEOs of Banks, family

representation on BOD limited to 25%

Rapid privatisation of nationalised commercial banks resultantly

limiting their dominance to 20%from 100% in 1991

Consolidation in the financial sector. Banks required to increase the

paid-up capital to Rs. 1 billion from existing limit of Rs. 500 m

Development of new prudential regulations for the SME sector

Establishment of SME Bank and Micro credit bank, etc

Establishment of CIRC for revival of sick units

Credit Rating system for the financial sector


90/90

Documents

SMEs in Pakistan (Presentation by AZ) 040213