Morning Briefing for August 18, 2011

Karachi: Record GST collected in July despite rate cut

Despite reduction in the rate from 17% to 16%, the net sales tax have shown record collection of Rs 55.513bn during July 2011 against Rs 40.800bn in the corresponding period of last fiscal year, indicating an increase of 67%.

According to Standard Capital, a decent balance has been maintained in General Sales Tax (GST) regime in the budget with reduction in rate from 17% to 16%, however, levying GST on tractors, pesticides, fertilizers and few other items have resulted in a record growth of around Rs 15bn in GST alone in July 2011.

Current account regains deficit position in July
The current account has shown a deficit of US$75mn in the first month of current financial year despite standing at surplus position in the previous month. Current account deficit decreased by 88% in July 2011 as compared to the same month of the previous fiscal year in which it stood at US$631mn. High import bill on the surge of commodities’ value and quantity reflected the negative balance of payment despite handsome remittances and exports earnings. The trade deficit stood at US$1.029bn in July with US$2.12bn exports and US$3.15bn imports. The imports of petroleum products have increased the weight of balance despite handsome exports values. On the other hand, remittances and foreign investment offset trade deficit impacts with inflow of US$1.096bn and US$62mn.

Pakistan to borrow US$300m from local banks to build gas pipeline
Pakistan plans to borrow US$300mn from local banks to build a pipeline that will carry natural gas from Iran, easing its worst energy crisis that is curbing economic growth. State-owned companies will provide about US$210mn in equity for US$1.3bn pipeline, said acting managing director of Inter State Gas Systems Ltd, who is responsible for gas pipeline project.

Textile industry: Manufacturers moving to Bangladesh
Faced with a chronic energy crisis in Pakistan, many textile manufacturers in Faisalabad, the country’s textile hub, are moving their manufacturing units to Bangladesh. Bangladesh has been offering a lot of incentives, including uninterrupted power supply (at cheaper rates than in Pakistan), tax-free status for the first ten years and tariff-free access to markets in the European Union. These incentives have convinced many Pakistani businessmen to invest heavily in Bangladesh. The owner of Tauseef Enterprises has already invested Rs300mn in setting up a textile factory in Bangladesh. Others, like K&M Textile, are considering doing so.

Busy day for ECC: Oil marketing company margins increased by 32%
ECC increased the margin of OMCs on petrol by 32% and fixed it at Rs1.98 per litre against the current margin of Rs1.5. The dealers’ profit on petrol was increased by 26.7% or Rs0.5 per litre. The total increase on petrol prices will be less than a rupee. The margin of OMCs on diesel was increased by 30% or Rs0.41 per litre. The new margin is Rs1.76 per litre against the current margin of Rs 1.35 per litre. The dealers’ margin on diesel was increased by almost 47% or 70 paisa per litre, to Rs2.20 per litre. The total increase in diesel prices will be Rs 1.20 per litre.

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