Import restrictions impacting 9 of 10 businesses: OICCI survey

KARACHI: Import restrictions as well as limits on remittance of profits ranked the highest in factors negatively impacting nine out of ten businesses in the last three months, a survey revealed.

Overseas Investors Chambers of Commerce and Industry (OICCI) survey, based on the views of its members showed that import/remittance restrictions negatively impacted 20 percent businesses. Rupee devaluation as the next reason that impacted 17 percent businesses negatively, while inflation and energy costs impacted 15 percent businesses.

High taxes/pending tax refunds have negative impact of 13 percent, while inconsistency in policy and political instability have a negative impact of 10 percent each. Regulatory delays and law and order each has negative impact of six percent, the findings of survey revealed.

The remittance of dividend being the top issue of the overseas companies in Pakistan, OICCI leadership presented four options before the government to resolve this issue.

The options included permission to remit 10 percent of pending dividends within the next 2 months and the rest in quarterly instalments over two years; or pending dividends be hedged at current exchange rate and be remitted in next 2 years.

Besides, it said that pending dividends be allowed to be invested into a profit generating bank account to be notified by the State Bank of Pakistan. The profit and the principal dividend be repatriatable and lastly pending dividend be allowed to be re-invested in the expansion of local subsidiary and be treated as additional foreign direct investment from the parent company.

“We have proposed these options to the government and central bank,” Amir Paracha, President OICCI and Abdul Aleem, General Secretary told a selective group of journalists on Tuesday. Sharing the details of the survey and the future outlook, both were not so hopeful about the acceptance of these proposals because of the current foreign exchange situation of the country.

They, however ruled out any possibility that overseas companies would go for international litigation for these pending dividends.

They said that the FDI of $784 million for the first eight months of 2022-23 was dismal and 40 percent less than last year. For a developing country like Pakistan, FDI is expected to be over 3 percent of the GDP against the current level of less than half percent. This is a dismal outcome and is no comparison of FDI inflow in other countries in the region.

They said that OICCI has suggested workable options to SBP to gradually reduce the build-up of pending dividend remittance including the option to allow pending dividends to be invested in the expansion of the local subsidiary and be treated as additional foreign investment.

Considering the recent World Bank forecast of 0.4 percent GDP growth during the current fiscal year, OICCI estimates that most of the businesses in Pakistan, including foreign investors, would be affected and show subdued fiscal results and thereby lower tax contribution.

The chamber in its taxation proposals for 2023-24 to be submitted to the government soon is proposing massive push to broaden the tax base, including collecting tax from all segments of the economy, especially trade and agriculture sector, as per their share in the GDP, they said.

OICCI recommended to arrest the large revenue not paid segment of the economy comprising of undervaluation at imports, excise duty not paid in key sectors like tobacco (Rs80 billion), and abuse of Afghan Transit Trade facility affecting the economy.

The chamber has recommended increasing the tax-free income from Rs0.6 million to Rs1.2 million and eliminating or substantially reducing minimum tax especially for listed companies. The chamber has also recommended substantial reduction and reform, from current 200 rates of the withholding tax regime and many other measures to make tax compliance business-friendly.

OICCI leaders said that the current crisis is although grave, it could be tackled through conversation and dialogue with the overseas investors. However, they deplored that this was missing on part of the government.