- ECAP believes the move will place curbs on illegal channels.
- Says it will eventually eliminate the prevailing grey market.
- Rupee in the grey market has reached 267/270 against the dollar.
KARACHI: The Exchange Companies Association of Pakistan (ECAP) has advised the government to “fix” the dollar rate to reduce the volatility in the currency market as the country grapples with a severe economic crisis amid depleting forex reserves, reported The News.
“It is advised to fix the rupee/dollar exchange rate for export-import bills and remittances,” said Zafar Paracha, the general secretary of ECAP in a statement on Monday. These remittance proceeds could be brought in by banks and money changers at a fixed rate of 240 per dollar, he added.
The local currency ended at 228.34 per dollar, compared with the previous close of 228.15 in the interbank market. In the open market, the rupee was trading at 238.75 against the dollar. It was available at 238.50 on Friday.
Paracha suggested to the government to offer a rate of Rs240 per dollar to overseas Pakistanis and for inward remittance. He believes the move would help increase remittances, reduce Hundi/Hawala, strengthen the official channel, and eventually eliminate the grey market.
The rate of the dollar in the grey market has reached 267/270 versus the local unit, according to Paracha. For the purpose of getting the exporters’ proceeds, the offer could be made at 228 rupees to the dollar. And the rate for importers would be based on the weighted average of home remittance and exporter rates. It would benefit exporters and remittances, he explained.
“It will encourage exporters to bring dollars into the country, enhance the foreign exchange reserve, and strengthen the remittances segment of the exchange firms.”
Remittances from Pakistanis working abroad dropped 19% to $2.0 billion in December.
During the first six months (July-December) of the current fiscal year, the nation received $14.1 billion in remittances, which is a decrease of 11.1% from a year earlier.
Pakistan’s forex reserves held with the State Bank of Pakistan dropped by $1.2 billion to $4.3 billion as of January 6 — enough to cover barely three weeks’ worth of imports.
The country is currently experiencing a balance of payments crisis due to large foreign debt repayments and a lack of external finance, which have severely depleted Pakistan’s foreign reserves and led to persistent dollar shortages.
The government has restricted several imports to save dollars, and some businesses have shut down as a result of being unable to import machinery or parts.
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Pakistan’s steel prices are rising; get the latest figures here
Another increase in steel prices has resulted in higher construction expenses in Pakistan. The economic downturn and continuous shipping delays have resulted in sharp price increases for building supplies, which has an effect on those who are planning to construct homes.
Due to increased manufacturing costs and supply chain interruptions brought on by the Middle East crisis, the price of iron, commonly known as steel rebar, has increased by Rs5,000 per ton. Local and imported steel rebar now costs between Rs240,000 and Rs260,000 per ton as a result of this most recent rise.
The cost of branded iron went from Rs255,000 to Rs260,000 per ton, while the cost of local iron climbed from Rs236,000 to Rs240,000. Furthermore, the cost of scrap or unprocessed iron has increased to Rs160,000 per ton inin the iron and steel markets.
The impact of the skyrocketing steel prices will be exacerbated by any more interruptions in the raw material supply chain. The cost of cement, on the other hand, has somewhat decreased and is at Rs 1,246 per bag.
Up 30% to Rs 5.1 trillion by mid-February, FBR collected
The total increase in domestic taxes has been around 40%, whilst import duties and associated levies increased by 16% between July 2023 and January 2024.
With the recovery of the GDP and increased inspection of FBR collection, the growth in revenues accelerated.
Up to mid-February, FBR receipts increased by 30% to Rs. 5.1 trillion. Nevertheless, decreases in import tariffs over time and, more recently, import license limits implemented by the State Bank of Pakistan (SBP) to manage the country’s balance of payments in the aftermath of foreign exchange shortages, were mostly responsible for the decline in the rise of import taxes.
However, the impact of improvements in import valuation, which resulted in collections of Rs 151 billion, as well as the anti-smuggling campaign, which saw a surge of about 69% in the current fiscal year over the previous one, are also included in the income collected from imports.
The statement said that there was room to improve anti-smuggling operations by considering expanding Baluchistan’s customs force, which now only has 378 anti-smuggling employees out of 20,000 total.
The mobilization of domestic tax income, which accounted for more than 64% of all revenues received in the current fiscal year, was hailed in the statement as a welcome change.
In parallel, the percentage of import duties has decreased to 36% from over 50% just three years prior. The main drivers of this increase in revenue were the several taxes sources. From Rs. 1,751 billion to Rs. 2,447 billion, income tax receipts increased significantly—by 40%.
Banks, the petroleum and oil lubricants (POL) business, the textile industry, the electricity sector, the food industry, and a number of service industries were among the major income tax payers. Up to mid-February, FBR receipts increased by 30% to Rs. 5.1 trillion. Notable rise was also seen in sales tax receipts, which increased by 19% from Rs. 1,480 billion to Rs. 1,766 billion.
POL, the electricity sector, the food sector, the automobile sector, the iron and steel sector, and the chemical sector were important growth drivers.
The amount collected in federal excise taxes increased significantly by 61%, from Rs. 190 billion to Rs. 307 billion.
Taxes on tobacco goods, the cement industry, drinks, airlines, fertilizers, and the automobile sector were the main causes of this increase. The amount collected in customs duties increased by 14%, from Rs. 552 billion to Rs. 629 billion.
The POL, automobile, iron and steel, electronics, and food industries were among the main donors to customs duties.
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