PBC advises checklist for industrialisation

KARACHI: Pakistan Business Council (PBC) on Wednesday advised checklists for promoting corporatisation and formalisation of business, increasing exports, import substitution and growth of priority sectors.

The business policy advocacy group called for parity with unincorporated businesses on tax on profit distribution and with real estate on capital gains tax on sale of shares. There is a need for tax credit for formal sector to minimise transactions with the informal sector, separate tax revenue targets for new taxpayers and existing taxpayers, maximum limit on use of cash for major purchases and incentives for use of credit/debit cards.

PBC sought amendment into the Companies Act 2017 to remove section 452 – global register of assets – that compromise privacy in the corporate sector and discourages competent people from accepting directorship positions.

There is a need for incentives for provinces where smuggled goods are sold to cooperate with customs. Food authorities should pay attention to lose items in which adulteration takes place. Grey production especially of cold drinks and cigarettes seriously harms tax and corporate revenues. The government was advised to restrict cause for action to unaccounted wealth of public servants and exclude quality of decisions taken in good faith and with due diligence as grounds for action by the National Accountability Bureau.

Without clear sectoral priorities, it is not possible to shape specific vertical incentives. General incentives may not suffice to promote industrialization targeted at export markets. The use of the term subsidy for the export sector is misplaced and also risks the possibility of action under World Trade Organization rules. The tariffs offered to the five zero-rated export sectors exceeds marginal cost. Captive power production should be promoted until the grid can reliably substitute at a comparative cost. Incentives should be enhanced for non-zero-rated export sectors to offset uncompetitive energy tariffs.

Pharmaceuticals should be classified among zero-rated exports.

PBC has been pointing towards deindustrialisation for years. The country has prematurely deindustrialised, it said. Investment as a percentage of GDP significantly lags the region. Foreign direct investment is not export-oriented and mainly in consumer products. Share in world exports has declined with their over-reliance on USA and Europe. Agriculture, the bedrock of Pakistan’s economy and provider of livelihoods to the vast majority is struggling to feed the growing population at an affordable cost. It is also unable to provide enough cotton, the major input to the country’s largest export industry.

“With disproportionate burden of taxes, a long period of unrealistic exchange rate, unsupportive import tariffs, poorly negotiated free trade agreement with China, power outages and now uncompetitive energy cost, smuggling, under-invoicing, illicit trade and the crowding out of private sector from borrowing, the role of manufacturing in the economy has declined,” PBC said.