Call to provide incentives to SME sector

KARACHI: The Union of Small and Medium Enterprises (UNISAME) in response to the request of the Small and Medium Enterprises Development Authority (SMEDA) submitted recommendations for the serious consideration of the policy makers in the forthcoming budget and trade policies in order to stimulate the economy which can only be done by promoting the majority SME sector wholeheartedly and giving them a conducive environment.

UNISAME believes that SME promotion and development is no charity but it is the right of every SME and responsibility of the state to uplift the sector. The state must provide them equitably and make dedicated efforts to make doing business easy.

The SME sector is the majority sector and the SMEs are traders, manufacturers, farmers and service providers. Many hospitals, schools and consultants are SMEs. There are millions of SMEs all over Pakistan. We were told 15 years ago that there were 3.2 million SMEs but we are sure if you also include the SME farmers there would be almost 6 millions by now said Zulfikar Thaver president UNISAME.

Thaver said we have created awareness about the importance of the sector and identified the impediments and have submitted recommendations every year for inclusion in the budget, trade policy, industrial policy and have urged the ministry of industries to revisit the SME policy made in 2007. We keep voicing the requirements of the sector all the time.

The SME issues are poor law and order, energy crisis, lack of finance, poor infrastructure, lack of information, lack of transfer of technology, lack of incentives, defective taxation system, corruption, non implementation of SME policy in right earnest.

Law & Order: SME Liaison Committee (SME-LC) on the pattern of the CPLC to arrange for collective protection squads in industrial areas is urgently needed as the SMEs are threatened by gangsters and politically patronized miscreants. The SMEs need a strong committee to work as liaison between the police and the entrepreneurs and to exert pressure on the police to trace the culprits and prosecute them. The SME-LC chief must get the status of honorary first class magistrate to prevail on the police department and the relevant S.H.O.s

Energy Crisis: We have suggested that alternate energy systems must be promoted and those SMEs willing to install alternate energy devices of solar, wind, Biomass be encouraged and the government needs to exempt the import of alternate energy systems on 0 duty and leasing facilities must be provided on special affordable mark up .

Finance: This is a very important issue as banks are demanding immovable property as collateral. The banks need to be educated on the subject of SME financing and taught risk management. The commercial banks need training and education on collateral management, warehouse financing, also financing on the basis of positive cash flows and the government must promote Islamic financing, leasing, hire purchase, commercial property leasing. The union has urged the government not to privatize the SME Bank but make it an SME Bank in the real sense.

The union has also urged the State Bank of Pakistan (SBP) to establish the SME Guarantee Insurance Company to insure SME financing and indemnify the banks against default by the borrowers. The SME needs venture capital and the system of venture capital needs to be promoted.

The SMEs are looking forward to the establishment of the Exim bank as promised in the trade policy.

Infrastructure: The infrastructure is poor and the SMEs are disabled due to poor infrastructure in the industrial areas. There is need for industrial estates and the need for government to allot land at concession for industrial estates. The leasing companies must adopt commercial property leasing to finance the SMEs to buy shops, workshops, warehouses and factories under commercial property leasing.

Technology Transfer: The SMEs need to import technology to manufacture quality goods and the government should facilitate collaboration with advanced countries to enable SMEs to manufacture goods with indigenous raw material and also import substitution goods in Pakistan.

Information & Co-ordination Centres: SMEDA needs to register all SMEs location wise and industry wise and set up information centres to provide them information on the subject of imports, exports, taxation, incentives, productivity and registrations relating to trade and industry. The centre can also co-ordinate between the SME promotion and development institutions like the provincial Small Industries Corporations, NPO, PCSIR, TDAP, Nationalized Banks, SME Bank, SME Leasing, Business Support Fund and the non government organizations working for SMES uplift.

Duties & Taxation: The import duties on raw material and packing material is high and calls for a revision and reduction to lower the cost of production. Taxation system needs to be revised for SMEs as association of persons (AoP) are required to file tax returns for the firm and the partners as well, although belonging to the same family and secondly the tax rate for the SMEs needs to be reduced. The SMEs need incentives to put up new industries and innovative industries and the entrepreneurs need tax holidays for setting up industries in rural areas.

Facilities: The SMEs need their own chamber of commerce & industry, an SME export house, SME ombudsman and implementation of the SME policy 2007 made by SMEDA in 2007.

Priority: The SMEs need to be facilitated, supported, motivated, encouraged and given priority.

The union also recommends priority for the housing sector as it will promote almost 32 different industries in the sector.

Smuggling & under invoicing: The depreciation of the rupee is also bothering the SME importers as it is increasing the cost of imported raw materials and it is recommended that imports be allowed only against declared money. Huge imports are being made for luxury goods by under invoicing and abuse of transit goods facilities which find their way back to Pakistan or never transited to the declared destination but disposed in Pakistan.

Strengthening SMEDA there is need to strengthen SMEDA by increasing its scope and providing SMEDA with men , money and material to enable it to enhance its activities to reach the SMEs in rural areas and educate the farm sector to modernize their farms.

The ministry of finance will need to make provision for implementing the above proposals and the union has urged the government to provide for them in the budget accordingly.