Regulatory reforms remain toothless sans transparency

LAHORE: Pakistan’s regulatory regime has so far been able to improve the quality of procedures from opaque to translucent, which is nothing to be complacent about, as in the absence of full transparency reforms only deform to spawn corruption, the ultimate nemesis of productivity and competitiveness. 

The autonomous and government institutions at federal, provincial and local levels are still operated on outdated regulations. These antiquated regulations are not in line with the level of openness in our economy. The enterprises that have attained sophistication are finding it extremely hard to operate in inadequate regulatory framework.  When these public departments try to enforce outdated regulations, the compliance cost of documented companies rise. This also encourages many entrepreneurs to operate informally. They either have to comply or pay bribes to bypass the law. In both cases the cost of doing business increases.

For instance in the presence of legal inadequacies and procedural deficiencies, it is very difficult to have an undisputable land title. The courts are unable to decide land disputes for decades because of this flaw. In fact, the huge backlogs of cases in courts are mainly due to unclear land records.  This ambiguity has a huge cost as in the absence of clear property rights lenders would not consider land as loan collateral without an original sale deed in the bank’s possession. The result is ‘dead capital’ or an informally held property that is not legally recognised. The uncertainty of ownership decreases the value of the asset and/or the ability to lend or borrow against it. This hinders leveraged investment, firm-level entry and efficient resource allocation.

We have been operating the National Savings Scheme (NSS) against the economic principles. The institution accumulates deposits and funds against its various schemes, which are passed on to the federal government for consumption. The deposits and funds are collected against various schemes that promise higher profits than what the commercial banks offer. Neither National Savings Organization (NSO) nor the government invests depositors’ money in risk free financial loaning. The NSO is acting as a debt accumulator for the federal government. Since the deposits are increasing on yearly basis and the government has consumed all the deposits it is paying high interest rate on that money through its schemes. There is a dire need to rationalise interest rates, utilise depositors’ money in productive ways to pay interest.

Capital market in Pakistan has not deepened because the incidence of tax on listed companies is higher than the unlisted ones. The disclosure laws for listed firms are more stringent, and rightly so, than unlisted firms.

The result is that very few firms dare to raise their capital by listing in the capital market because they save more tax by staying unlisted. It is ironical that trading investors are given incentives and tax concessions but the listing of new firms is discouraged through high taxation.