‘Withdraw limit to retain, invest export earnings abroad’
June 9, 2020
June 9, 2020
KARACHI: Government needs to permit exporters to retain and invest more than 10 percent of export earnings to acquire foreign capital assets needed to promote Pakistan-owned brands in the international markets, a business policy advocacy group said.
Pakistan Business Council (PBC) said the government should abolish the requirement for exporters to take permission from the State Bank of Pakistan (SBP) for investment of up to $5 million and from the Economic Coordination Committee (ECC) for larger investment in acquiring capital assets abroad.
Currently, exporters are allowed to retain 10 percent of their export earnings and to spend as they deem fit for market development. The PBC said there are no Pakistan-owned brands in the international markets other than some food brands targeted at the diaspora. Even these are sold mainly through ethnic shops and not through mainstream retail chains, which carry established brands and demand a listing fee, with just-in-time deliveries.
“As consumers move from high street to online shopping, it is vital that Pakistani brands and other exports are made available on platforms such as Amazon,” it said in a document. “This entails warehousing in the markets where such platforms are located so that shipments can be affected to shoppers within 24-48 hours.”
The PBC said export rules in the country were designed for commodities and need to be modernised to address the present day realities. The council’s members account for 40 percent of the country’s exports and seven out of top ten exporters belong to the PBC.
“Exports have been evolving from commodities to value-added products but this process needs to be accelerated to maximise export earnings,” it said. “With the downturn in demand and disruption in distribution post-Covid, there will be opportunities to acquire brands and strengthen the distribution presence, especially on online platforms. Regulatory agility is to facilitate acquisition of and development of brands and regulations that permit overseas warehousing and deferred export realisation.”
The PBC said Pakistani brand exporters desirous of investing more than 10 percent of the annual exports to establish and entrench their share abroad would be required to present their proposals to obtain permission from the SBP. The proposal should outline the expected benefits over a three-year period.
“The brands covered must have audited annual sales of an average of Rs500 million in Pakistan over the three most recent full years,” it said. “They should have achieved an average annual growth of 10 percent per annum over three years, of which at least a third should have been derived from volume growth. The brand owners must possess or have access to professional marketing and sales expertise suitable for the categories and the markets intended to be developed.”
The PBC said brand owners will need to provide audited statements of sales and marketing expenditure abroad and where applicable, explain why actual sales are not in line with the original projection.
“SBP may on an annual review of performance, terminate or amend the amount to be made available for market development,” it said. “If the SBP determines that the amount allowed for market development has been misspent, it can require the exporter to limit ongoing expenditure to the standard 10 percent. It may additionally, levy a fine. Companies that own more than one brand may avail this facility for up to three brands at a time.”
The PBC further proposed that exporters should be allowed to ship goods either to their own warehousing facilities or to third parties to hold until sold to a customer. There should be no restriction on the period of such warehousing provided an independent auditor’s certificate of stock is submitted on a quarterly frequency. However, exporters availing this facility will be bound to manage annual sales from the warehouse equal to four times the average inventory during the year.
“Exporters should also be bound to arrange remittance to Pakistan of an amount equal to sales less the custom duty and taxes paid in the warehousing country less 20 percent of sales value to cover warehousing and distribution expenses or the freight-on-board value of goods sold during a year, whichever is higher,” it said. “Whilst the principle of remitting profit to the parent company from which the investment was originally funded and to the country that provided the foreign exchange is sound, a period of five years must be allowed for the investment to be entrenched. Thereafter, if profit does not materialise or is insufficient due to ongoing expansion to remit, the parent company should explain the reasons. The SBP should review and allow more time depending on the strength of the case.”
Published in The News InternationalDownload