Foreign investors more bullish on Pakistan’s economy than locals: ACCA chief

LAHORE: It is indeed ironic that the foreign investors have more confidence in Pakistan’s economy than the domestic investors.

Sajjeed Aslam, head of Association of Chartered Certified Accountants (ACCA) Pakistan, expressed these views in an exclusive interview with The News. The following is the quintessence of that conversation, which mostly covered the state of the country's economy.

Q: How do you see the investment climate in Pakistan?

A: The foreign companies operating in Pakistan are constantly investing in technology and equipment. The domestic investors having resources and awareness of the huge opportunities that the country offers are holding back because they lack confidence in the system. Foreigners have recently acquired a leading local food company and a home appliance company. In fact the tax collectors are creating panic amongst multinationals as well by conducting surprise raids on their premises and suspending their bank accounts.

They have the right to take these extreme measures after serving the company 30 days’ notice. Confiscating records or freezing accounts without any notice is unethical and against the spirit of the law. The local investors are subjected to more frequent raids with the sole purpose of increasing revenues.

Q: How can revenue collection increase?

A: We have to probe rationally as to why the majority of entrepreneurs are avoiding coming into tax net. Most of the traders for instance pay more taxes indirectly than what they would pay as registered taxpayers. They pay high withholding tax when they buy a car or a property. They pay 0.3 percent tax on all their banking transactions above Rs50000. Utilities deduct advance income tax on their power and energy bills. There is an income tax on mobile phone bills above certain limit. All these taxes are adjustable at the end of the year and in many cases they may end up requesting for refunds. But they do not dare to come into tax net because they have been witness to the brutal treatment of their fellow entrepreneurs that opted to register themselves in the tax net. They have lost faith in the FBR and unless that faith is restored it would be difficult to widen the tax base. The tax collectors would have to give respect to the taxpayers.

Q: How can we restore taxpayers trust in the system?

A: The simple answer is through technology. We have to devise ways to facilitate taxpayers. Currently companies spend 350 man hours yearly to file different tax returns 47 times in a year. This heavy burden on taxpayers should be drastically reduced by following global norms for which technology is available. The corporate sector has to send annual accounts separately to the FBR, the SECP, and in some cases to the banks as well (the accounts sent to one usually are different from the accounts sent to the other).

To ensure transparency this account should be sent through XBRL (eXtensible Business Reporting Language). It is a language for e-communication of business and financial information worldwide. ... In short, it is an XML-based language that is being used for preparing a financial report of a company and submitting it to the relevant authorities. Pakistan unfortunately is not even a signatory to the latest accounting system.

Then there are issues between the FBR and the provincial revenue authorities on which service tax falls under which province’s jurisdiction. Technology is available worldwide and it has resolved these issues. The 52 states in the United States of America had no problem settling this issue among them and they do not drag the taxpayers in such controversies.

Q: Are you satisfied with FBR’s revenue collection in recent years?

A: Well, increasing the revenues from Rs2000 billion to 4000 billion in five years looks pretty impressive. But I have a problem with the way the revenues were boosted up. The mindset of the FBR is to increase revenues come what may.

The tax base was not broadened in these five years. The burden was increased on the existing registered taxpayers and indirect taxes were not only increased but new products were also included in the sales tax regime. The planners were not bothered whether capital formation increased as a result of revenue increase or how many new companies were registered during this period. The doubling of tax revenues did not correspondingly increase the tax to GDP ratio.

Q: What is the way forward?

A: The planners ought to take immediate steps and legislate, if required, reforms to make Pakistan rank 50th among 185 countries in the global ease of doing business index.

Similarly the country should also strive to be among the first fifty global economies in competitiveness.

Then we can hope of achieving an annual growth rate of at least seven percent for next five years. Special attention should be given to SMEs to ensure sustainable growth.