Are we looking at bankruptcy?

Afsandyar Farrukh

Co-Founder Chain Store Association & Managing Director HUB

This is what it boils down to. We have up until this point seen the views of large industry sources. But with the country where it is, what happens to the shops? To the retailers? To those doing business and selling directly to customers? Over the past year, the cost of doing business has gone up, the taxation burden has risen, and people’s purchasing powers are falling. So will we now start seeing shops board up their doors?

“As far as the chain store association is concerned, we are cross cutting across textile, footwear, supermarkets, leather, books, electronics, bakeries, pharmaceuticals etc. Largely I would say that the challenges right now in the short term are supply side. Since we are non-exporters there are important imports that need to be utilised,” says Asfandyar Farrukh, the co-founder of the Chain Stores Association. “That supply is broken at the moment and we are not able to import and manufacture since we don’t even have the raw materials. For a retailer, we need to make sure our shelves are stocked. We can’t invoice or deal in black market goods. Within the documented supply chain the official imports hurt the entire supply chain.”

“We deal in leather goods for example. Things like outsoles need to be imported or procured locally through imported sources. Chemicals are required in tanneries. Then there is the cost associated with doing business. Our utility costs, salary bills, and rentals are all rising. For the last one year, our costs have risen by at least 60%. As a result, margins have dwindled. You can’t increase prices so much that your sales bottom out because people also do not have as much purchasing power now. We were hoping

What can be done?

Amir Pasha

President Overseas Investors Chamber of Commerce & Industry (OICCI)

“We have already seen the IMF, World Bank and other credible organisations issuing their forecasts about negative economic growth in the current financial year ending in June 2023. A revenue shortfall against the target is also being reported by the FBR and therefore, the Government must squeeze its spending even more to control the fiscal deficit.

Given the revenue shortfall, the Government may opt to further increase taxes on the formal sector which is already suffering (due to limited imported raw materials, high borrowing cost, super high inflation, deep exchange devaluation of PKR, imposition of su- per tax and minimum tax, etc.) This measure may worsen the negative growth of industry as forecasted by the World Bank for 2023. Other than LC approval issues and business continuity challenges, foreign investors are also unable to remit dividends to their parent companies, with an 82% decline over the last year. This coupled with steep devaluation and an uncertain business environment is expected to continue to impact the flow of FDI into the country.

Considering the above, the OICCI recommends taking steps towards broadening the tax base and documenting the economy. If the right steps are taken, Pakistan can increase Tax to GDP ratio upto 16% without further burdening existing taxpayers. The Government must also work on reducing its footprint from the economy. The government must focus on rationalising expenditures. With restructuring or privatisation of loss making SOEs to help the government address fiscal deficit.

In April, the OICCI has also shared its recommendations with FBR on a broad range this would be resolved in the second quarter but we are now looking at a best case scenario where things settle in the fourth quarter. That will require political stability and as a result there will be some kind of delay which we are expecting. The backlog clearing will take a very long time.”

“There is a lot of uneasiness and uncertainty. Things are so unpredictable that one can’t cope either. Building on top of that is that the budget is going to be announced and we won’t know what happens until the last possible moment. We are looking at more tax burden being thrown at us since we are registered retailers. This is always going to be a problem. Going forward, how much more is purchasing power going to be affected? People are now looking at rolling back any plans they had to grow. We are actually looking at bankruptcy for all intents and purposes. We aren’t running a plant, we have shops and a staff and if we don’t have stock or that stock doesn’t sell, where will our fixed costs of rent and utilities go? We can’t just shut shop and leave.” of tax reforms, which include:

• The allocation of significant (30-40%) resources including use of AI technology.

• Capacity and capability building - private sector can assist.

• Re-introduce CNIC requirement on all cash transactions above PKR 50,000/-

• POS system to be made mandatory for Sales tax and integrate it with their traders Income tax returns.

• POS for income tax purposes should be made mandatory for service providers like doctors, private hospitals, lawyers, etc.

• Promotion of digital payments through fintech, POS invoices, e-Invoices, mobile wallets etc

Finally, and most importantly, we urge all stakeholders to address the political instability along with opting for predictable, consistent, and transparent policies. I am confident that these measures will help address the decreasing business confidence and put Pakistan on the track towards economic recovery.”