Observer Report Islamabad
The Federal Board of Revenue (FBR) has estimated that approximately 25 percent of the companies in Pakistan are zombie firms involved in tax evasion due to persistently declaring losses.
Efficient allocation of capital plays a key role in economic development by nurturing innovation and increasing industrial productivity.
However, the reallocation of capital towards less productive firms at the expense of more productive ones harms the growth of industries.
This was stated in the latest research produced by the Pakistan Institute of Development Economics (PIDE) and Directorate General Strategic Planning and Reform & Statistics (SPR&S-FBR) for FBR Biannual Review report.
Recently economists have indicated the existence and rise of zombie firms, which slowed down growth in several countries including South Asia. A zombie firm is characterized as a loss-making firm that has lost the ability to generate enough profits to cover its interest payments.
These firms survive only by repeatedly refinancing their loans. In the competitive market, zombies have to either exit or restructure, the report revealed.
The report identifies that approximately 25 percent of the companies in Pakistan are zombie firms also involved in huge tax evasion due to persistently declaring losses.
FBR report on “Zombie Firms in Pakistan and Tax Revenue Drag” explains the phenomenon of these firms.
FBR has included PIDE’s research on the Zombie Firms, which was originally written by Dr. Naseem Faraz and Dr. Mahmood Khalid Senior Research Economists at Pakistan Institute of Development Economics (PIDE).
