Shifting the paradigm from revenue generation to job creation

LAHORE: Restoring any economy’s competitiveness is not an easy job as it not only needs a paradigm shift in policies but also a change in the culture of turning a blind eye and giving a deaf ear to violation of laws, while readjusting the emphasis from revenue generation to job creation.

The small enterprises fail to grow because they do not have the resources to import industrial inputs and when they buy these inputs from the commercial importers the cost goes through the roof.

The question is: why industrial inputs are subjected to duties and taxes that make the end products costlier than their imported counterparts.

Our tax regulators cannot even keep the trail of documented imports when all they have to do is ask the importer to furnish a documented proof of the disposal of the imported stuff.

Since they are supposed to provide the trail to them of their imports they under-invoiced. At the time of sales they charge the price-based duty-paid value on actual price.

The duties on many inputs are so high that the small manufacturers find it very hard to sell their products in competition with finished imported products. The result is that the small enterprises live on edge and barely survive.

The chances of exports are completely diminished. There are numerous imported inputs that are allowed at very high cumulative government levies. Take for instance the case of steel sheet where the import duty is 10 percent, 30 percent regulatory duty and 17 percent sales tax. The importers charge small manufacturers their margins.

Reducing duties and levies on industrial inputs would not resolve the problem. The government should take the courage to allow all industrial inputs at zero duty and levies.

The tax regulators might claim it would reduce the revenues. However, a study of the duties on industrial inputs would reveal the total impact not to be more than Rs10 billion. But this decision would unleash unparallel manufacturing activity.

Thousands of new jobs would be created and revenue generated from higher manufacturing production would more than enough to compensate the revenue loss.

To spur manufacturing activities the government should stop milking revenues at the earliest stage of manufacturing and wait until final stage.

Another matter that needs immediate attention of the government is the review all free trade agreements that have impacted our domestic industry.

In some cases the government has facilitated the import of numerous items from a free trade agreements partner at much lower rates than the duty on the raw material of that finished product.

Pakistan’s exports have suffered more in countries it has signed free trade agreements with.

Another worth noting aspect is the system in Pakistan under which almost every property that has been registered in any part of the country is undervalued. So in other words all property owners in Pakistan are thieves. Why this cannot be regularised through a prudent immunity scheme.

This time around instead of giving concessions on taxes the state should ask the property owners to deposit the tax on the actual value of the property in a specified time.

The government should refrain from increasing the sales tax levy that is already very high at 17 percent. It is in fact the high sales tax that induces smugglers to bring in goods without paying duties even on items where the duty to 5 percent.

More revenues would come not by increasing the tax rates but by increasing the economic activities,

confronting the tax evaders and making bureaucracy accountable for

tolerating the culprits that are not afraid of showing off their ill-gotten wealth.

Competitiveness would not be restored with one or two measures. The government needs to ensure level playing field for not one particular sector but for all sectors of economy.