Sunday December 03, 2023

Investment promises

November 21, 2023
The IMF logo and Pakistan flag. —The News File
The IMF logo and Pakistan flag. —The News File

LAHORE: Uncertainty impedes investment and economic development. Despite the best efforts of the past two years, we have not been able to convince investors of the continuity of economic policies.

For instance, the previous political government and the relevant circles clearly agreed with the IMF that there would no longer be any amnesty for tax evaders. In fact, the caretaker government has announced certain measures to bring tax evaders into the tax net. However, the PML-N leader, Nawaz Sharif, has again announced that if voted into power, his government would allow the establishment of industries without asking about the source of money (he is one of the favorites to win the next election). This blatant amnesty is against the promise given to the IMF and would also put on hold many investments by genuine businessmen. They would be angered that those who have illegally minted money would be investing tainted money to compete in the market. No questions asked means that the authorities would not even investigate the source of their accumulated wealth.

The black money avenues would still be open to them, and they would operate more freely under the cover of legitimate business. They would be operating on ill-gotten money. This is unacceptable. This way, we would never be able to get rid of malpractices that are prevalent in our society. Strict adherence to the rule of law is the only way forward. Short cuts have never paid off in the long run. Such measures might add a few jobs, but the loopholes for creating black money would remain in the system.

Then how could we expect a tax evader, a smuggler, or a black marketer to operate a legitimate business according to the rules? Being documented does not mean that there would be no attempts to evade taxes. We have seen many sectors filing their production records inaccurately to save sales tax. There are loopholes in the system.

The tax collectors are abetting this evasion. We have to plug the loopholes to ensure that any registered business cannot dilute its tax liability. We have technology that could plug the under-filing of production. The monitoring could be done remotely through a third party. But we have not installed the necessary gadgets at manufacturing facilities accused of under reporting production. The sugar mills, cement sector, and the steel mills are operating without technological scrutiny. The manual oversight is prone to corruption.

In the past two years, enough has been done to bring sanity to the economic affairs. Everyone, even the creditors of Pakistan, is hoping that the reforms instituted would be continued and strengthened by the next elected government. However, the promises and claims made by all political parties intending to contest elections are contrary to this belief. One wonders how the minimum wage could be doubled in an economy that is still struggling, but some politicians think it can be done.

It would, in fact, be a great achievement if they could ensure that every worker in this country gets a minimum wage. The part-time workers must be paid a minimum hourly wage based on the minimum wage of 8 working hours per day.

No foreign investor would enter Pakistan if we allow crooks to establish businesses from tainted money. The genuine investors would avoid committing their resources if tax collectors continue to facilitate tax evasion and under reporting production or if imported goods are allowed at lower than actual rates to save import duty and sales tax.