The PTI and business community must get on the same page
This month saw disruptions in economic activity in the form of temporary closure of retail markets, suspension in the production of activities in large scale manufacturing industries, and protests by traders in almost all major commercial hubs of Pakistan. It is clear that the budget 2019-2020 hasn’t gone too well with the business community. Most protestors belong from the small and medium enterprise (SME) sector, and claim that the ‘change’ they voted for in 2018 has betrayed them.
The resentment is also expressed by some segments of large businesses and their associations. For example, the Overseas Investors Chamber of Commerce and Industry, says that corporate tax rate on their companies is now as high as 40% compared with the average of Asian countries at 22%.
The real estate sector remains sluggish owing to revised rates of land - value of land increased by up to 80% in government records for tax valuation purposes. According to a well known online property portal, only in Karachi, land prices in developed areas have shed their value by 15 per cent. While only a few would argue against 100% capital gains tax imposed on the sale of open plots within the first year, the timing comes as a surprise, particularly when the government is trying to bring back the dynamism in the property market.
In the case of industry, local sales of textiles will have to pay 17 percent general sales tax, up from 6% in the past year. The federal excise duty (FED) will be charged now on several edible and consumer products at a rate of 17 percent. Previously, this used to be a fixed tax per unit or weight. Similarly an increase in FED on automobile, cement and steel is in place.
Going forward, one can only suggest moving towards an economic vision which is shared by the business community.
Dr. Vaqar Ahmed
According to protestors, all this is in sharp contrast to what PTI’s manifesto had promised. In fact, the manifesto talked about reducing compliance costs faced by taxpayers; reducing monthly, quarterly and annual filing requirements; and rationalizing costs faced in tax audits and appeals. This departure from the promised goal is also discouraging for startups which saw promising growth since 2015. An average enterprise faces 47 taxes per year and will spend approximately 293 hours every year dealing with tax offices. It is no wonder that Pakistan ranks 173 out of 190 countries in World Bank’s paying taxes rank.
Going forward, one can only suggest moving towards an economic vision which is shared by the business community.
First, the PTI government requires a stronger economic team and better strategic communication on matters of economy. Only this month, we saw an utter lack of clarity on who the Federal Minister for Revenue is. The gentleman who was promoted to this position was removed and sent to another division within a few hours of his oath-taking ceremony.
Second, the process of consultation with the Economic Advisory Council (EAC) must be revived. After the coming of this new economic team, it seems that regular consultations with the EAC are not a priority. But it was a good move made by the PTI and should continue during its tenure. EAC members will not only give advice based on their experience and worldview but will also validate PTI’s good initiatives.
Third, synchronize planning exercises across the government. There are too many thought pieces in the corridors of power. The Planning Commission is working on its 12th five-year plan; commerce ministry talks about possible formulation of trade policy, SME policy, and Industrial policy in near future. Then on top of this, there is the Ministry of Finance and its host of economic commitments made in the letter of intent submitted to the International Monetary Fund.
The key question here is who will ensure that all these planning exercises are in harmony with each other?
Fourthly, quick successes with high impact are important at this stage. The Naya Pakistan Housing Programme has such potential. It can bring in jobs and votes for PTI. However, even this programme has been slow to take off and should be insulated from issues of slow land acquisition and other regulatory hurdles at the municipal level.
Finally, stronger capacities are required to formulate a shared economic vision, and equally important is the capability to execute good plans. This will require the government’s close collaboration with relevant institutions, particularly the judiciary. Many believe that unless the judiciary also has a comprehensive understanding of the economy, unfortunate episodes such as the international tribunal’s costly, $6 billion Reko Diq verdict will recur.
– Dr. Vaqar Ahmed is joint executive director at the Sustainable Development Policy Institute (SDPI). He has served as an adviser to the UN Development Programme (UNDP) and has undertaken assignments with the Asian Development Bank, the World Bank, and the Finance, Planning, and Commerce Ministries in Pakistan.
Twitter: @vaqarahmed
