Pakistan Is The Hidden Market For Investors Say Boomberg

                  
The Sufi shrine that dates to the 8th century in Karachi’s posh Clifton neighborhood has served as the area’s defining landmark for decades. Not anymore.

Dwarfing the monument today is a gleaming 62-story highrise, coming up right next door. The building is one of at least half a dozen projects springing up in the locality as developers from Dubai’s Emaar Properties PJSC to local tycoons change the face of Pakistan’s financial hub and the skylines of many smaller towns.

The construction boom also marks the nation’s emergence as a frontier market after Prime Minister Nawaz Sharif averted a balance-of-payments crisis with help from the International Monetary Fund and resumed selling stakes in state companies. He is boosting infrastructure spending as the $232 billion economy expands at the fastest pace since 2008 amid the cheapest borrowing costs in 42 years.

“It is the best, undiscovered investment opportunity in emerging or frontier markets,” said Charlie Robertson, London-based chief economist at Renaissance Capital Ltd. “What’s changed is the delivery of reforms -- privatization, an improved fiscal picture and good relations with the IMF.”

Shrugging off sectarian violence, bombings, killings and kidnappings, the benchmark KSE100 stock index has advanced about 16 percent in the past 12 months, featuring among the world’s top 10 performers.

D.G. Khan Cement Co., controlled by billionaire Mian Muhammad Mansha, and Cherat Cement Co. have announced expansion plans, while steelmakers are selling shares.

Steel IPOs

Amreli Steels Ltd., the nation’s biggest maker of steel bars used in construction, is planning a share sale to help double capacity. Mughal Iron & Steel Industries Ltd. completed an initial public offering in April.

Pakistan’s cement industry has rallied 57 percent in the past year, more than triple the gains by the benchmark, according to data compiled by Bloomberg. D.G. Khan Cement, the third-largest maker of the construction material, has jumped 62 percent and Maple Leaf Cement Factory Ltd. has surged 161 percent and Fauji Cement Co. Ltd. has gained 81 percent.

“The construction industry is seeing a boom, and there is still juice left in the cement rally,” said Mir Muhammad Ali, chief executive officer of UBL Fund Managers Ltd. that handles about 56 billion rupees ($550 million) in stocks and bonds in Karachi. “Overall economic improvement has also helped.”

Sharif, who took power in May 2013, boosted infrastructure spending by 27 percent to 1.5 trillion rupees for the year starting Wednesday, July 1.

IMF Program

Pakistan is making “significant progress” in meeting targets under its $6.6 billion loan program, the International Monetary Fund said in May. The lender predicted a 4.5 percent growth in the economy in the year starting July 1, following a 4.1 percent expansion last fiscal year.

Easing prices are also set to buoy consumer spending. Inflation in South Asia’s second-largest economy slowed each month this year through April as transport and food prices fell, prompting the central bank to cut the benchmark interest rate in May to the lowest level in 42 years.

Moody’s Investors Service upgraded Pakistan’s sovereign credit ratings for the first time since 2008 in June but said stalling of the ongoing IMF program or an unstable political environment would be credit negative.

China

Violence, mostly from Taliban-linked insurgents who want to impose their version of Islamic law, has claimed more than 60,000 lives since 2001. Sharif survived a scare last August when opposition parties demanded his resignation over accusations he rigged the elections in 2013. He denied the allegation but agreed to a probe by a tribunal.

Standing by Pakistan is the nation’s long-time strategic ally. In April, Asia’s biggest economy, China, signed deals for $28 billion of investments in Pakistan as part of a planned $45 billion economic corridor that includes power plants and dams.

The development in cities and smaller towns is trickling down and is good news for smaller contractors as well .

“Business has been very good, and there’s no doubt my work has tripled in five years,” said Mohammed Hassan Bakshi, 43, a builder in Karachi. “There’s huge demand from the middle class for affordable housing.”

Builders in Pakistan are seeking technology from China to help cut down construction and project execution times to as little as six months from as long as five years, he said.

The nation’s construction sector grew by 11.3 percent in the year through June 2014, almost double the 5.7 percent target, according to central bank data. Pakistan is a reform story like neighboring India’s, but only better, said Renaissance’s Robertson.

“All of this is a big change on 2013,” he said. “Credit rating agencies are beginning to recognize this.”

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Tax proposal: Service providers to pay 8% of revenue as minimum tax

The issue of making the advance income tax as minimum, final or adjustable tax for the service providers dates back to 2006 when the tax authorities wanted to make the advance income tax the final liability of the telecom companies. PHOTO: FILE

ISLAMABAD: 

In a move that may cause jitters for the telecom industry, the National Assembly may today (Tuesday) pass a tax proposal that will force all service providers to pay 8% of their revenues as minimum tax.

However, the positive aspect is that the country is saved from losses of billions of rupees on account of backdated refunds that the Federal Board of Revenue (FBR) could have given to some influential companies.

According to the revised Finance Bill 2015 that will be tabled in the National Assembly on Tuesday, the government has withdrawn an amendment to Section 153 of the Income Tax Ordinance of 2001, which had been proposed on June 5. The amendment was aimed at allowing telecom companies to claim tax refunds from 2009 – a move that is thwarted by the Federal Tax Ombudsman.

Read: Taxation proposal: Solar power businesses seek duty-free imports

The FTO wanted the FBR to treat the service providing companies on a par with individuals and the Association of Persons whose advance income tax is treated as minimum liability.

According to the June 5 budget proposal, the FBR had proposed that telecom companies should be allowed to claim adjustments on 8% advance income tax. The proposal was also aimed at giving backdated refunds to telecom companies from 2009.

Sources said the FTO agitated against the move, which was aimed at giving benefits of billions of rupees to the companies. After that, the government withdrew the amendments to clause 153 of the revised Finance Bill 2015.

If the National Assembly approves the revised proposal, the service providing companies will be forced to pay 8% of gross revenue in taxes. This is expected to increase their tax liabilities as earlier they were paying taxes on net profits, said officials in the FBR.

If approved, the FBR would charge 8% of revenues in taxes from July 1.

The proposal to charge 8% tax as minimum liability was not part of the Finance Bill 2015 that the finance minister tabled in the National Assembly on June 5.

The last-minute amendment will deny the service providing companies the right of getting 8% tax adjustment against their actual liabilities. Although the proposal will increase the tax burden of telecommunication companies, the FBR was simply following directives of the FTO, said the officials.

Read: Budget proposals: Govt might tax hitherto exempted items at 5%

The FTO had passed an order, asking the FBR to treat the tax withheld on payments received by a company as minimum tax.

At present, the FBR is treating the 10% advance income tax paid by the Association of Persons and individual tax as minimum tax.

The issue of treating advance income tax as minimum, final or adjustable tax for the service providers dates back to 2006 when tax authorities wanted to make the advance income tax final liability of the telecom companies.

Three years later, the FBR declared that the advance income tax will be the minimum tax for the service providing companies.

Again, in 2011, the FBR through a Statutory Regulatory Order (SRO) allowed the companies to claim adjustments against the advance income tax. Since then, the companies have been claiming adjustments, said the officials of the FBR.

Through SRO 1003 of September 2011, the government inserted Section 79 into Part III of the Second Schedule. It allowed the companies to claim adjustments.

Terming the adjustment mal-administration, the FTO has passed an order, asking the FBR to withdraw Section 79 from the Second Schedule and start collecting advance income tax from the telecom companies as minimum tax, said the officials.

Instead of agreeing to the FTO’s proposal, the FBR in the Finance Bill proposed an amendment in Section 153 of the Income Tax Ordinance 2001. Through the amendment, the FBR not only transported the 2011 amendment in the schedule into the 2001 Ordinance but also allowed adjustments from tax year 2009.

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