Tax burdens and exports of South Asia


Muhammad Nadeem Bhatti

South Asia holds on to its top spot as the world’s fastest growing region, with growth set to step up to 7.0 percent in 2019, then 7.1 percent in 2020 and 2021, but the region needs to increase its exports to sustain its high growth and reach its full economic potential. South Asia or Southern Asia, is a term used to represent the southern region of the Asian continent, which comprises the sub-Himalayan SAARC countries and, for some authorities, adjoining countries to the west and east. Topographically, it is dominated by the Indian Plate, which rises above sea level as Nepal and northern parts of India situated south of the Himalayas and the Hindu Kush. South Asia is bounded on the south by the Indian Ocean and on land (clockwise, from west) by West Asia, Central Asia, East Asia, and Southeast Asia.
The current territories of Bangladesh, Bhutan, Maldives, Nepal, India, Pakistan, and Sri Lanka form South Asia. The South Asian Association for Regional Cooperation (SAARC) is an economic cooperation organization in the region which was established in 1985 and includes all eight nations comprising South Asia. The latest edition of the South Asia Economic Focus, Exports Wanted, finds that the region’s growth, while still robust, is mainly driven by domestic demand, which in turn swelled imports and far outstripped exports, further widening trade gaps and current account deficits, and triggering currency depreciation in some countries. South Asia’s exports performance has dropped in the last few years to languish at far below its potential and while growth still looks robust we are concerned about whether this can hold up over the longer term.
Across South Asia, imports grew much stronger than exports in the last two years, reversing the region’s exports dynamics of the early 2000s. Strong domestic demand, fueled by a consumption and investment boom, resulted in high import growth of 14.9 percent in 2017 and 15.6 percent in 2018, which is nearly twice as high as the region’s export growth. In comparison, exports grew by only 4.6 percent in 2017 and 9.7 percent in 2018.
Bangladesh GDP is forecast to average 7.3 percent in 2019. Activity will be underpinned by strong infrastructure spending and robust investment with expanding credit growth. However, a slowdown in economic activity of trading partners could restrain the contribution of net exports to growth next year. Bhutan GDP growth is expected to remain solid at 5.4 percent in FY2019-20 and to remain above 5 percent over the forecast horizon, supported by tourism and retail trade. India GDP is forecast to expand 7.5 percent in FY2019/20. Credit growth will benefit from relatively more accommodative monetary policy amid benign inflationary conditions. Support from delayed fiscal consolidation will partially offset the effects of political uncertainty on economic activity. In Maldives economic activity is forecast to expand by 5.7 percent in 2019, and to moderate to 5.3 percent over the medium term, as investment projects converge to historical averages. In Nepal GDP growth is projected to average 6 percent over the medium term. The services sector is forecast to benefit from strong tourism and manufacturing will be supported by the opening of Nepal’s largest cement factory next year. In Sri Lanka GDP growth is expected to pick up to 3.5 percent in 2019 and to converge towards 4 percent over the forecast horizon. The recovery will be supported by a pickup in the services sector and solid infrastructure investment. In Pakistan GDP growth is expected to slow further to 2.7 percent in FY2019/20, as domestic demand remains depressed. Macroeconomic imbalances, reflected in large fiscal and current account deficits, are expected to resolve gradually. Remittances flows are likely to support growth and the current account balance next year. A relatively more stable external environment is seen as helping a pickup in economic activity starting from FY2020/21. After making comparison of these existing economies they are working well and giving good kind of taxes to their governments moreover it should be remembered they are being given subsidiaries and better privileges to their industries. But existing government is less aware about this objective. It seems our country is not in secure hands to enhance their exports because in four months they are enhancing third time fuel value in rupees which shall enhance the cost of production and effect to the number of values of our exports. In this regard our rupee will more devalue and we will not be able to watch the radiant exported future of Pakistan.
According to the economic circumstances of Pakistan every political party is trying to D-Grade others politicians. And consequently there is no exchange of worth of wealth which they alegate to others they have been taken away somewhere out. In this object they are trying their level best to put all burden of taxes on nation which are less educated and less aware about taxation. Although tax is the most important source of government revenue. Revenues earned by the federal government are then reallocated for federal government’s and provincial government’s expenditures. One of the complexities of our economic system is the ‘tax problem’ that I keep pointing out time and time again.
FBR is putting all burden on already filler of tax and it’s not searching or creating new fillers. So ultimately all tax targets are forced on existing fillers of tax. The problem lies with the tax base, that is considerably very narrow as compared to other countries. The reasons behind the low tax base are large number of exemptions given in sales taxes, excise duty, income tax and custom duties and huge number of incidences of tax evasion. This leads to eventual pitching of tax rates resulting in more opportunities and incidences of tax erosion and even higher tax rates; making it a never ending vicious cycle. What could be the other possible reasons apart from the fact that people lack the sense of responsibility? Do we actually not pay taxes? According to the stats, only 1.21 million citizens pay taxes making it less than 1% of the total population. But according to state bank of Pakistan’s annual report, 57.5 million people are employed and obviously are earning some income and thus 57.5 million people should be paying income tax one way or the other. Moreover FBR is consequently failing to bring people into the tax network. They are not making polices on this objective instead they are increasing high rates of sales tax and other taxes and putting huge burden to the existing tax payer. If it happens 50% of tax payer they drop their work and take away their business to somewhere out of this country, then indecent policies of FBR to put maximum taxes on existing fillers how it would be able to get benefit. Although foreign investors are not ready to invest in Pakistan due to political uncertainty.
—The writer is an entrepreneur & senior economic analyst (Chairman) Federation Pakistan chamber, garment industry committee, Small & medium industrial association bund road Lahore, Pakistan columnist council Lahore Pakistan. He can be reached at [email protected]

Previous articleChinese firm to start another online cab service on Aug 10
Next articleMCB continues strong fiscal performance with 14pc growth