Foreign firms voice concern over overdue tax refunds

KARACHI: Foreign investors expressed willingness to increase investment in Pakistan, but they are concerned over pending tax refunds and financially-strained energy sector that they said hurt ease of doing business.

In a survey, seventy five percent of foreign investors indicated willingness to recommend to their parent companies new foreign direct investment in Pakistan.

“Whilst foreign investors participating in the survey have shown concerns with some areas of doing business, the case for business growth potential and opportunities in Pakistan is supported by over 7 out of 10 survey respondents,” Shazad Dada, president of Overseas Investors Chamber of Commerce and Industry (OICCI) said with reference to the chamber’s biannual perception survey 2019.

“Foreign investors are cautiously optimistic of growth potential and looking forward to improved level of public- private partnership to deliver on the true economic potential of the country.”

The survey was conducted during last quarter of 2019. OICCI member companies contribute about 33 percent of the total annual tax revenues collected in Pakistan.

OICCI’s members remained positive and are upbeat on the performance of their respective business entities in Pakistan, according to the survey’s findings. In the past two years, OICCI members reinvested $2.5-3 billion annually in new capital expenditure.

The federal government was found better engaged with stakeholders, in this survey compared to 2017, on policy issues and its senior functionaries appeared to have better understanding and commitment to resolve investors’ issues. However, foreign investors are concerned about overdue tax refunds of around Rs80 billion and the energy sector’s circular debt.

More than 70 percent of OICCI members are partially satisfied with the policy framework relating to business and have concerns on the implementation of policies. More than half of the respondents are concerned on the consistency and predictability of monetary and fiscal policies.

Major concerns for them also include rupee devaluation, lack of policies implementation, increasing tax burden, high cost of doing business, and increase in borrowing cost.

The survey respondents said resistance to documentation of the economy, delayed action renewal of cellular mobile operators’ licences, extended time in processing of corporate remittances, and capacity constraints of regulatory bodies affected them.

Investors said nearly 30 percent rupee devaluation, increase in the central bank’s discount rate from 6.5 percent to 13.25 percent led to an increase in cost of doing business in one and half year.

A number of companies belonging to the fast moving consumer goods, food and healthcare sectors, identified counterfeiting, illegal imports and dumping of cheaper imported products as major risks to their businesses.

Foreign investors further expressed concern on lengthy timeline in contract enforcement with over two-third respondents saying resolution of commercial dispute takes around five years.

Majority of the respondents said right policies and improved perception could attract new foreign direct investment in the China-Pakistan Economic Corridor projects.

Three quarters of the respondents said negative image of Pakistan influence their parent companies. Nearly 35 percent of the respondents said they would increase manpower going forward. Two-thirds forecast increased sales and half of the respondents expected increase in profits.