IN the backdrop of proposals being contemplated by the Government to strike a balance in efforts to sustain economic stabilization and the need to provide relief to different sectors to stimulate growth, the Pakistan Business Council (PBC), the country’s largest private-sector businesses and conglomerates, has proposed that tax-to-GDP ratio should be increased through promoting business and investment growth by directing it towards exports and indigenization, encouraging formalization, corporatization and listing of companies, and broadening the tax base to include the untaxed and under-taxed sectors. It has opposed unconditional and indefinite tariff protection for sectors where Pakistan has no comparative advantage but argued that given the high cost of doing business and Pakistan’s poor infrastructure, there was a good case for providing limited protection to offset the high cost to sectors that relied mainly on indigenous inputs.
The PBC members are playing an important role in the economy of the country as they contribute about forty percent of the exports and, therefore, its recommendations must be given due consideration. Prime Minister Shehbaz Sharif has fixed the target of $65 billion exports in three years and it is quite understandable that the target can be achieved with full facilitation by the Government and hard work of the industrial and business sectors. There is universal consensus that the cost of doing business is too high in Pakistan rendering its products uncompetitive in the global market. Electricity and gas tariffs are still very high and corporate taxes are becoming unbearable forcing businesses to shift to other countries including the United Arab Emirates and even to Bangladesh. There is definitely a need to increase the tax-to-GDP, an objective that is shared by the PBC, but this should be realized by expansion of tax net and not by burdening the existing tax-payers as has been the case for many years. It is also a fact that export target cannot be met without value addition of the traditional goods and diversification of exports. Luckily, Pakistan has a vast potential to increase its exports by focusing on IT and telecom and some measures have been introduced by the present Government for the purpose but here again heavy taxation and a suppressive environment pose major challenges.
Industrialization also offers prospects for increasing exports significantly but this needs local and foreign investment, which is deeply linked to the taxation policy and security environment. How can the country progress and prosper when the small number of research and development organizations that we currently have are facing threats of closure and non-provision of required funds. There is also logic in the demand that the China-Pakistan Free Trade agreement should be renegotiated as it is heavily tilted towards Beijing. While most of the recommendations of the PBC are understandable, one wonders why it is opposing plans to reduce taxes on the real estate sector. In a letter to the Prime Minister, it acknowledged the government’s efforts to stabilize the economy but recommended not to change tax policies for real estate. The real estate sector is facing a crisis due to excessive and multiple taxes by the federal and provincial governments and there are proposals under consideration of the Government to reduce or eliminate some taxes to revitalize the sector. The concern of the PBC about the nexus of the real estate sector and black money is understandable but it would be wrong to treat it as mere selling and purchasing of files of plots as construction activities give boost to 35 other industries as well. Heavy taxation has made it next to impossible for ordinary citizens to realize their dream of having a shelter of their own and, therefore, a revision has become a necessity.
