Businessmen, industrialists disapprove rate hike

KARACHI: Industrialists and businessmen have expressed concern over the increase in the discount rate by the State Bank. They have asked the government to reduce its expenditures and broaden the tax net to control inflation.

After the increase of 0.5 per cent, the discount rate stands at 13.5 per cent.

Sadiq Muhammad, the chairman of the North Karachi Association of Trade and Industry, said that industrialists were expecting that the new SBP governor will reduce the already high interest rate.

“We expected something good from the new SBP governor. Instead of reducing the rate, he has raised it, which will hamper the domestic industrial production,” said Muhammad. Furthermore, industrial growth will also suffer with the imposition of the reformed general sales tax regime that the government has decided to start from October 1 this year, he said, adding that considering the industry’s problems, the government should not levy the reformed GST.

Shahid Ismail, the chairman of the Federal B Area Association of Trade and Industry, said: “We obviously condemn this SBP decision.”

The increase in interest rate will also hamper domestic exports at a time when the country needs to increase its exports, he said. “We are asking the chairman of the Federal Board of Revenue to broaden the tax net,” he said.

The SBP has raised interest rates over concerns of rising inflation but “our government will not be able to arrest inflation unless we pay heed to our low tax collection”, he added.

“Our tax-to-GDP ratio is the lowest in the world. Until and unless we broaden the tax net, our economic indicators will continue to paint a dismal picture. We are neither able to control inflation nor interest rates,” Ismail added.

Abdul Majeed Haji Muhammad, the President of Karachi Chamber of Commerce and Industry (KCCI) said that the decision is not good for businessmen as the increase in interest rate will further raise cost of doing business in the country.

When asked what steps can the government take to reduce inflation,  he replied: “The government should reduce its expenditure instead of increasing benchmark interest rates.”

However, he added that, “I don’t know if the government can reduce its expenditure or increase the tax net because there is no tax culture in our country,” he said.

Published in The Express Tribune, September 30^th, 2010.