A brief review on the overall impact the 2019 budget may bring on Machinery industry.
This year’s budget was specifically designed to narrow down the circle around tax invaders that is one of the reasons why some of the tax slabs, schemes and implementations were not widely appraised by general public and business sectors. Overall, country is in critical economic situation where we are observing downfall in many industries, government and private sectors. Many business firms have part their ways and reallocate their investments to neighboring countries. Let it be sports, textile, tobacco, construction or IT industry a decline in external investors is observed overall. In industrial sector where production is based on the machine is its running also feels the impact of overall economic dip in the country and hence the import and export transactions for heavy machinery may fall for coming next two years.
There were some heavy blows this budget had to offer to the public but it also carries some relaxations. Let us first look at some Pros and Cons of budget that can directly or indirectly bring an impact on the Industrial Machinery Industry.
1. 3% Value Added Tax was withdrawn from Oil and Gas and the prices are expected to go down a bit from coming months.
2. Exemption granted by government on custom duty implied on raw material imported for Pharmaceuticals, Paper, Refineries and textile industry.
3. 3% reduction on custom duty by government over import of pharmaceutical raw material
4. Complete exemption on imported ingredients for paper making, No custom duty will apply on any raw material that is included in paper packaging.
5. Reduction in custom duty implied over machinery parts and machine accessories that are used in industrial machinery more specifically in textile sector.
6. Base Oil has also been relaxed from custom duty and taxes that is used in industrial sector on large scale as a raw material.A proposed cut on custom duty on the import of plants and machinery that is used in Oil refinery.
Now, if we read above points and run an analysis then we can easily conclude that this budget is not completely unfriendly for those business owners that are running heavy machines in their factories. Specially those who are in the pharmaceutical, oil refinery, and paper or textile industry mainly, as reduction on imports can work positively and bring a positive impact on the overall profit and expense. Owners will be more enthusiasts in buying imported machinery to increase the overall production unit per annum and the efficiency of the products. They can easily allocate a budget on buying new equipment and work on the sale of their used machinery as well. With more equipment in the production means more finished products and more sales on user end. Overall successful dream run for any company.
But that is not all, and there are surely some vital elements that work against it and may bring an impact on machinery selling or buying.
IMF Loan impact: Country was in dire condition when new government takes control, in order to escape all the hardships IMF was the only hope and a new sanctioned loan was taken. Due to the policies of IMF and huge amount of loan an impact on several essential economical variants were observed.
Dollar Rate: USD to PKR value has gone up drastically which directly or indirectly changes the economic conditions of the country. In this situation buying any product from international market including machinery costs has a 10 times more impact than before. Rupee got devalued and selling locally won’t get you return as you expected.
Income Tax: This government is serious about tax collections and if you are still not a filer, then you should stop everything and start filing your income tax immediately. FBR shared their new tax charges on all levels for general public. Business owners can no longer avoid income tax and now they are liable to show their assets and income sources. So if you have heavy machinery in your company then you need to show them as your asset value and also if you have sold those machineries at any value then you have to show that income or saving against the sale of machinery. This is a basic example of how transparent every business man has to be in order to avoid any tax invasion. In such situation many business owners have postponed their plans on extending business production in the country for time being.
Gas and Fuel Price: Within the span of some 3-4 months Fuel and Gas prices have gone up drastically it was due to the GST and PDL petroleum development levy on them and also an impact of dollar rate due to which we observe the highest rate of per liter petrol, one of the reasons why industry owners restrain themselves from going towards further extension of their machinery.