Sindh SMEs seek cut in cost of production for survival

May 23, 2024

Ahmed Khan Malik

The small and medium enterprises (SMEs) in Sindh are almost on the verge of collapse due to the high cost of production and demand that the federal and provincial governments provide them with a level playing field, reports WealthPK. “This sector has been struggling hard against the high cost of production and the entrepreneurs have been forced to cut production and lay off employees,” Masood Taqi, leader of the SMEs Association, told WealthPK. He said the promotion of SMEs sector is crucial amid the escalating challenges of poverty and unemployment in Pakistan. This sector serves as the backbone of the national economy, with more than 5.2 million SMEs operating across the country in both formal and informal sectors, engaging in diverse activities from manufacturing and trade to services. Comprising about 90% of exclusive private businesses, the sector provides employment to 30% of the total workforce, contributing 40% to the annual GDP. Despite playing a vital role in economic growth and poverty reduction, the SMEs sector faces numerous constraints that impede its optimal potential.

Talking about the challenges faced by the SMEs, Naveed Rehman, Senior Member of the Executive Body of the Sindh SMEs Association, said these are mainly policy issues. Varying definitions of SMEs at the national level create regulatory hurdles, with different institutions regulating and facilitating these enterprises. Another significant challenge faced by the SMEs is the complex and convoluted tax regime, creating a nightmare for the entrepreneurs. He suggested the government should focus on simplifying the tax system. Additionally, in spite of the State Bank of Pakistan (SBP) introducing various schemes and credit facilities for SME financing, the role of monetary policy is not supportive, as access to finance remains a barrier for the sustenance, expansion and modernization of SMEs. The sector only receives 6-7% of private sector financing, lacking a dedicated SME banking network. Furthermore, the manufacturing SMEs struggle with an outdated technology for processing and production, coupled with a lack of adequate skill and training facilities for their workforce.

Naveed proposed facilitation and incentives in the next budget for modernization of plant machinery, the adoption of advanced technology, increased productivity, and the training of manpower in marketing, management and international business practices. The other challenges, he said, are the high cost of production and sales cost adding to the sector’s woes. The SME sector eagerly awaits effective solutions to address these constraints and challenges in the near future. About taxation, he recommended reducing the rate of Further Tax to 1.5 percent on sales to unregistered entities. This will discourage evasion and drastically curtail fake and flying invoices, leading to the full recovery of sales tax revenue. All manufacturing units can be easily identified through their commercial connections of electricity, and they can be brought into the tax net through registration based on the electricity bills.

Credit: INP-WealthPk