Must take wise and consistent policies for tax collection, rupee stability and for resources strength
Great CPEC projects help change Pakistan’s image in the region and in the world
Interview with Mr Shamim A. Firpo – Chairman, (Firpo Group of Companies)
PAGE: Tell me something about yourself and your organization, please:
Shamim A. Firpo: I started a struggle at a very young age. When I was six-year old, my father died then my mother played a vital role in building my personality and my future. My mother motivated and encouraged me in every walk of life. I am determined and optimist kind of a person and always believe in Allah Subhanahu wa ta’ala that He always has good for everyone. As a person, I am very simple and result-oriented. I am also very much interested in social welfare work. In my whole life I have worked hard and made my life as I dreamed. I am a self-made person and I feel pleasure whenever I share my success story with students and young entrepreneurs in mentoring sessions while visiting universities and educational institutes to motivate them.
At a very young age I started my business journey. That was 1968 when I established my food business with the name of Firpo Restaurant at Tariq Road in Karachi. With the blessings of Allah Subhanahu wa ta’ala and my mother’s prayers, my business got success and popularity. The name Firpo was so popular that it has become part of my name. I am proud to say that there may be thousands of Shamims but there is only one Firpo, so whenever the Firpo name is taken anywhere across Pakistan, people come to know that it is only Shamim A. Firpo.
After food business, I diversified my business and started trading, import and export business with the name of Sohail Enterprises in 1975. I constantly worked, with the flow of time and my sons joined me in business and Alhamdulillah our business has now converted into Firpo Group of Companies. In 2018 we are celebrating 50 Years Golden Jubilee of our business. If I talk about my business, we mainly deal in auto lamps and auto parts. We are well-known amongst automobile industry in Pakistan. All the top auto manufacturing companies use our bulbs and parts in their vehicles. We are doing our business globally and have established offices in China, Sri Lanka, and Romania. Our working partners are China/Hong Kong, Taiwan, Vietnam, Thailand, Japan, USA, Germany, Hungry, UAE, Romania, Ukraine, Sri Lanka, Iran and Afghanistan. Firpo is our registered brand name which is known as a name of trust and a symbol of quality in market.
I am also holding different public and private portfolios and also have interest in business politics and have served the business community of Karachi as President of Karachi Chamber of Commerce & Industry (KCCI) for the year 2016-17. I am very much satisfied and happy with my life and thankful to Allah SubhanahuTa’ala for giving me this respect and success.
PAGE: How would you comment on the economic condition of Pakistan?
Shamim A. Firpo: In my opinion, the economic condition will be better with the time as the new government has courage to face economic challenges and has full capabilities to meet their goals and fulfill its commitment. The new government is exploring all other opportunities to strengthen the national economy. I must say that they should have come up with more policies that help the country to come out of the present economic condition. As we know that due to the fall in rupee since 2017 the economy is suffering and our forex reserves are under pressure. Although Pakistan’s economic growth has soared to nearly 6 percent, the fastest pace in 13 years, the structural problems with the economy are coming to the fore. It is similar to 2013, when foreign currency reserves dwindled and Pakistan narrowly escaped a full-blown currency crisis.
Over the past few months the new government has enacted a series of measures to combat its ballooning current account deficit, including hiking tariffs luxury items and devaluing its currency. In the first quarter of FY 2019, the current account deficit narrowed slightly from the same period in FY 2018. This was due to higher remittance inflows, particularly from the United States, the United Kingdom and the Middle East. These inflows helped to balance a sharp rise in the import bill, which itself was stoked by higher oil prices. However, the rupee has lost significant value against the US dollar since the first quarter ended, hitting multi-year lows in October, which could further inflate import costs going forward. More positively, in recent weeks Saudi Arabia and China have both agreed to provide some financial support to Pakistan.
The current economic situation definitely has some opportunities for Pakistan’s growth as the new government has will for working for better Pakistan. But the country also has some serious long term economic challenges. Unless the longer term challenges are decisively tackled, such growth opportunities will only lead to episodic bursts of growth rather than a sustained upward economic climb. Despite having so much turbulent time, Pakistan has witnessed the time of fastest growth in South Asia region but the inconsistent policies and short term measures taken by every government weakened this state many times. These variable policies are still freezing the Pakistan to live among the developing world.
I always say that Pakistan is rich in every type of resources but despite of having vast reserves of coal, oil, gold, gas and many other valuable minerals, Pakistan is depending on international assistance for its economic and social revival. Pakistan has also a large pool of human resource which can be turned into productive one by adopting a wise and consistent policies.
I am very much hopeful with the new government that they have vision for prosperity of our beloved country. They know all the challenges and seem honest with Pakistan. In my opinion, Pakistan can also become a trade hub in the region for important countries such as Russia and the Central Asian countries. Iran, India and China, in particular, must be included, with their combined population of over two billion. If Pakistan would become a trade market of region this would allow Pakistan to boost its economy by providing services and taking trade commissions in the form of tariffs, taxes, and transit tolls from these countries for using services without investing and manufacturing any products of its own.
PAGE: What must be done for import substitution?
Shamim A. Firpo: Everyone knows that growing imports are a problem of every economy, which result in expanding current account deficits and eventually higher external debt. In my opinion, import substitution is very essential for balancing trade for an importing country like Pakistan therefore, I emphases on that the trade policy must be a mix of export promotion and import substitution mechanism. Pakistan’s external sector is under growing pressure due to high dependence on imports and falling foreign direct investment. Unfortunately the policymakers have ignored the need of an effective import substitution policy in Pakistan. I must say that if the non-oil trade deficit continues to widen in Pakistan, exports keep falling and remittances stagnating, foreign exchange reserves will further shrink in no time. It is the need of time that the government should address issues being faced in promotion of import substitution, at least in those areas where Pakistan has a domestic advantage. Pakistan, being an agriculture country, I have a question that what sense is there, in allowing imports of dairy products cheese and milk-based confectioneries or fruit juices that tend to widen the trade gap? Imports are also damaging local producers several industries have closed down because of the high cost of production and stiff competition from cheaper imports. At present in some cases, manufacturers have closed their units and are importing goods and selling them in the local market with their own brand name. Through unrealistic policies, a comparative disadvantage has been created for the local manufacturers. Over the past few years import of consumer items has been increased. According to the State Bank of Pakistan data, Pakistan spends millions of dollars every year on import of consumer items like value added food products, personal care, home appliances and other household items. The under-invoicing and smuggling of foreign goods give an unwarranted competitive edge to local products. Investors are discouraged to set up local manufacturing units or expand their businesses. Our local products are lacking in variety and range. Local manufacturing units are mainly smaller in size and find it hard and facing stiff competition to compete with low-cost Chinese goods as low technology items like plastic toys, earphone, bulbs, handbags, stationary are being imported from China in bulk. But the most essential step for the future strategy is the formulation of an all-encompassing import substitution policy. The first essential part of the strategy is to identify areas for investment in manufacturing, which can cater to domestic needs that are currently being met by imports. Businessmen want to work but the Government should provide them favorable environment and long term polices for growth of local small and medium industry to promote import substitution. We should encourage local investors to manufacture local products that are currently being imported. Import substitution requires domestic investment and appropriate local technology. The new government should focus on an integrated imports substitution policy which is still missing especially for food items. Some attempts have been made to boost oilseed production; plantation of olive is being promoted and production of packaged milk has been increased. But it is not enough. I emphasize on promotion of local products for which we need more expo-centers and exhibition halls in our country in addition to Karachi and Lahore, such centers and halls must also be set up in other cities of Pakistan like Faisalabad, Sialkot, Hyderabad, Multan etc. Recently FBR has imposed Regulatory Duty on various luxury items to curb imports and promote import substitution but the desired impact requires reinforcement by appropriate nontariff barriers against dispensable imports and incentives for domestic production, especially in the Food Group. Today, in the wake of CPEC, Pakistan has the domestic advantage to incentivize the production of consumer goods locally so that imports of all such goods can be reduced. This will help in easing out pressure on the trade deficit and improve balance of payment as bulk of consumer goods are imported from China. The value of imports from China shows that there is a huge scope for import substitution as most of consumer goods listed above require simple technology.
PAGE: Your views on the taxation system:
Shamim A. Firpo: Taxation in Pakistan is a very complex system including more than 70 different taxes and nearly 37 different government agencies administer the tax system. According to the data, around 10 million people are registered to pay taxes but only 1.9 million people pay taxes in Pakistan. Government collect taxes from its people in order to spend the collection on the welfare of its people which includes national defense, debt servicing and other welfare related issues.
Tax system is most effective when it is designed on the basis of equal and fair treatment to tax-payer money therefore, a country should account the equity and justice for its people while formulating the tax policy. But in case of Pakistan the situation is bit different, as a nation we are in debt by the foreign and domestic lenders which is due to our extra expenses more than revenues incurred due to high imports, war on terror, our habit of corruption at national and international level and we are also tax averse society in which we do not feel ourselves responsible to pay taxes because of unfair use of tax money. Our current tax collection system is very weak and narrow. Today Pakistan is facing a problem of undocumented and black economy. According to a research more than 30% of Pakistan’s total economy is undocumented resulting in low tax revenues which in turn results in increasing tax rate and increasing tax burden on people who fairly pay their tax dues.
One of the reasons Pakistan is not been able to progress as much as other emerging countries is because of the lack of proper infrastructure, low quality of education, and lack of government’s ability to spend on public welfare. In the eyes of people, they pay their taxes to the government so that it could provide essential facilities of life to them whereas almost all of the tax collected by government is spent on either defense or on debt servicing.
According to resource the current tax-to-GDP ratio in Pakistan is roughly 11-12 percent, which is lowest in the region. If we compare this ratio with any of the developed countries, we are far below in numbers. The tax-to-GDP ratio in Australia is 25.8%, in America 26.9% and all European countries around 37-39%. Pakistan is a big country by population if we exclude non-working people still millions of people in Pakistan do not file their income tax returns most of them are landlords, traders, farmers, working class though all of them require facilities, but are not ready to pay taxes.
In the light of above given facts, it is difficult for any government to function and fulfill the basic needs of its people. Due to low tax collection the government borrows loans from the local banks, other countries or financial institutions in order to finance development projects in the country. These loans all come not only with finance costs but other implicit costs like putting pressure on the government to take steps which negatively affect the lives of common people.
The ever-increasing budget deficit is also putting the nation under more and more debt burden every year. At present the government has main focus on indirect taxes. Though the indirect taxes provide revenues to the government but they have their worse effects on the lives of ordinary people. Broadening tax base is perhaps the most significant economic challenge facing Pakistan. After 71 years of existence, the country has less than two million income tax filers, one of the lowest tax-to-GDP ratios in the world, and a tax system which riddled with inequity and corruption. Tax reforms are very essential for increasing revenues and broaden tax net. In recent years governments have put in place various measures to increase tax revenues. However, wide-ranging reforms aimed to document the informal economy and broaden tax sectors of the economy are necessary.
PAGE: Your views on the depreciation of rupee?
Shamim A. Firpo: Pakistan has witnessed various rounds of rupee depreciation since December 2017, which resulted in the decline in value of the rupee against the dollar. At present Pak Rupee is facing ongoing depreciation pressures against the US dollar and touched historic level. Businessmen are worried over a massive depreciation of rupee in the last few months as this will have a devastating effect on the ‘already beleaguered’ economy. The depreciation will increase prices of all the essential items and will result into high inflation prices of imported food products.
I would say that currency devaluation for a country like Pakistan will have negative economic implications in the long run. At present, the importers have adjusted import prices while exporters are happy to have additional gains, but imports will become costlier for new foreign purchases and exporters will also bear the brunt due to rise in cost of imported raw materials. As we know petroleum products have major share in import bill of our country so as oil prices in the international market are increasing, import cost will also escalate.
In my opinion rupee depreciation may provide some incentives and short-term jubilation to the export sector of the country, but due to rise in the cost of imports, production cost would further go up that would affect the competitiveness of our exports too. Although the current-account deficit narrowed in past months, a consistent increase in the oil-import bill, on account of rising international oil prices, has exerted pressure in the foreign-exchange market.
Pakistan has also finally decided to approach the International Monetary Fund for help, but the rupee is expected to remain under further pressure in coming days. I have deep concerns about the serious devaluation of rupee against dollar as it will have a devastating effect on all segments of society but I am hopeful for improvement and would say that the new government will take urgent measures to bring stability in the value of domestic currency as the continuous fall in the value of rupee would bring imported inflation in the country and curtail domestic demand leading to further slowdown in the economic growth of the country that would not be in the best interest of the country.
It would also adversely affect employment generation and give rise to a new wave of price hike in the country. Pakistan mostly depended on imported capital goods and raw material for industry, but the falling value of rupee would make all imported goods and raw material costly. It would also increase the prices of petroleum products and would further enhance the cost of debt servicing leading to more pressure on our forex reserves. While formulating the strategy, the Government of Pakistan should think that our imports are much higher as compared to our exports and rupee’s continues depreciation would thus bring more problems to the overall economy.
PAGE: Your views on the CPEC:
Shamim A. Firpo: Pakistan and China have a friendship since forever. My views are very much clear on CPEC as this great project would reshape the future of Pakistan as Pakistan is in deep international debt and these countries have granted debt on very intense and strict terms and conditions and Pakistan only way out from this situation is this great project as after completion of this project Pakistan economy would stand on its own feet and would be able to pay back its loan.
In my opinion, the CPEC will not only benefit the economy but also improve the development structure of Pakistan as various developments projects are part of this project which will help the Pakistan rapid progress and development. People of Pakistan welcome the great initiative of China as all the provinces will be equally benefited from this great project. I even consider CPEC a game-changer although smaller provinces had some reservations on the route but now all are on the same page. I am of the view that all people should think for Pakistan above than their own personal benefits. In a recent visit of Prime Minister of Pakistan to China they have agreed to review CPEC projects and consensus has developed over the inclusion of new projects. They have signed new contracts. We will see that after completion of the project, the CPEC will not only benefit China and Pakistan but will have positive impact on Iran, Afghanistan, India, Central Asian Republic, and the region.
China Pakistan Economic Corridor is a journey towards economic regionalization in the globalized world. It founded peace, development, and win-win model for all. CPEC is a hope of better future of the region with peace, development and growth of economy. CPEC has attracted the world’s attention towards the Pakistan and our beloved country would become the hub of world’s economy through the Gwadar sea-port.
I pray to Allah Rabul Aalameen that He makes us able to do what we say and give us strength to act with sincerity and faith, good for our country. Let deeds correspond with words: Pakistan Zindabad!