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Key proposals of EFP economic council for the forthcoming budget

Pakistan has promising future but chaos must be handled generously, says EFP chief

Pakistan & Gulf Economist sought views of the Employers’ Federation of Pakistan (EFP) Economic Council on the forthcoming budget 2019-20. The discussion with Mr. Ismail Suttar, Chairman of EFP Economic Council was as it is given below:

The EFP through its platform of Economic Council, has compiled a list of some very important budgetary proposals to target key areas such as broadening of tax base; simplifying tax procedures and reducing cost of doing business. As a matter of fact, we have also dedicated a special section to circular debt and economic development. We have proposed that the incumbent government must forcefully initiate pragmatic measures to broaden the tax base otherwise the existing tax regime will gradually compel many registered taxpayers to shift towards a non-documented economy. Moreover, the inflated circular debt and crippled state of economy, has made it obligatory for federal government to pursue viable measures to broaden the tax base.

For this, we suggested to use the NADRA-approach. The NADRA Smart National Identity Card (SNIC) is chipped with 36 security features, which speaks highly of its advanced and highly competent software developing and database technology. With a little effort, it can be used to track down non-filers and bring them into the tax net. It has been witnessed multiple times in the past how the nefarious tax concession schemes of government have deluded the public. This, I firmly believe has even discouraged the 1.8 million eligible taxpayers to file tax returns.

Pakistan has the potential to generate Rs. 8 trillion in tax revenue every year but the discordant, fragile and corrupt Federal Board of Revenue (FBR) machinery has snubbed tax to GDP at an unfortunate 12 percent. If a well-articulated incentive scheme is offered to businesses and common SNIC holders, such as a ‘Common Tax Identifier Card’ as mentioned in our 2020 Budget Proposals, then this challenge can be beaten. The card for example, will allow the tax filer stop preference in line for passport and driver’s license. Furthermore, we would like to see formation of a new Research and Development Wing at FBR. The back-log of closed cases on filers should be unearthed and ransacked. The laid-back attitude and incompetence of the FBR administration, in the past, has resulted in the offshoot of hasty and ad hoc decisions on policy-making. The coercive tax mechanism demands an R&D Department, consisting of talented graduates. The ‘FBR-R&D’ shall act as an ‘antiserum’ to counter the snowballed political influence in operations of FBR. Also, given it is equipped with NADRA’s cutting-edge technology, the progress-oriented team would play a crucial role in removing anomalies and discrepancies in the existing system and add non-filers in the tax net.

India’s industry is 9 times bigger than of Pakistan’s and the arch-rival boasts one of the largest growing electronics markets in the world. The government should build an investor-friendly climate for franchisers by partnering with stakeholders and offering special concession packages to startups on purchase of royalties. Instead of importing, get a grip over smuggling and rebuild local industry. The strong vertically integrated value-chains of large conglomerates need to be rattled, whether with an iron hand or warm offering.

The fast sinking vendor industry culture is dangerous for Pakistan. We must create space for small vendors to foster healthy competition in the entrepreneurial domain as it shall directly induce demand for technical skills which shall in turn whip up employment level.

In our EFP 2020 Budget Proposals, we have also pushed for promoting brownfield ventures and called upon the government to treat all new plants and machinery as ‘Greenfield’ by offering them same rebates. There are numerous best practices available of other countries in dealing with brownfield barriers, such as solid waste management, air pollution, and rainwater storage. These can be used to reactivate the degraded sites into hospitals, vocational centers and housing.

 

Finally, on industrialization, I would like to assert that investments on industrial land often fails to materialize because investors are mainly driven by incentives. Industrial zones should be made around scanty towns and tax holiday of up to 5 years be allotted to new, as well as existing companies, who wish to relocate there. Further, the cost of land (non-transferrable) should be fully borne by companies in the industrial zones with a 5-years installment plan. Here, I would like to clarify that if the land allotted remains unused for the intended purpose then it must be immediately seized and transferred to new owner on a 3 years contract signing.

Hooganzic – it is a new term I have coined for chaos. There is a lot of chaos largely due to dissemination of misleading information by the media. Anchor persons should put Pakistan First before contemplating on any sensitive economic issue. Why only confine to providing relief via only short-term measures?

The new economic team of honorable Prime Minister Imran Khan, must chart out realistic plans for long term survival that businessman can easily comprehend. As a first, circular debt must be completely outrooted from the system so that energy woes of businessmen are resolved. For this, we have suggested the formation of pilot wholesale electricity markets with carefully placed regional transmission operators. The ‘G’ from the CPPA-G, should be revised and private investors should be called in for a high-level meeting with the premier, to actualize this idea. We could use the proceeds to purchase the Chinese Ultra High Voltage electricity transmission system. The Doing Business Profile of Pakistan is widely published and indicators in general are not favorable. From the lengthy documentation to world’s worst tax collection machinery, Pakistan has literally suffered the wrath of failed economic policies of past two governments which has today, waved off local and foreign investors from our richly resourced country.

Anyhow, my gut, as a businessman, says that the future outlook of Pakistan looks promising. The stock market is performing reasonably well and given government’s policies towards building a knowledge-driven economy, I think Pakistan is on the right track. Yet, this chaos must be tackled shrewdly because for a country where literacy rate is alarmingly low, it can lead to a disaster. The import policy of government must be religiously geared towards stopping the illicit practice of smuggling. Consumers should prefer ‘Be Pakistan, Buy Pakistan’ and in the current condition, this perception begs to be developed among the general public.

Local manufacturers are miserably suffering because of cheap imported goods being dumped into our markets. Dumped largely owed to consciously ignored malpractice which has fueled the black economy and with it our lost revenue. Today, wholesale giants across Pakistan are conveniently shelving container full of smuggled goods due their cheap rates often with relabeled expiration dates. Many popular snacks and edibles are imported products and contain ‘haram’ and ‘harmful’ ingredients but the red flag has yet to be raised. Why? Lack of awareness.

The government must restrict imports to the very essential ones but obviously not all, as it will go against the World Trade Organization (WTO) conventions. Then there is an issue of imports carrying labeling with fake origin. As per traditional laws, every exported item should carry source of manufacturing. For example, goods being transported under Afghan Transit Trade Agreement (ATTA) should carry label of, ‘for use in Afghanistan’. With a few exceptions such as washing powder and soybeans, each individual item (pencils inside a box) should be marked not just the package. The government has already tightened custom laws but efforts to ensure their observance, seems dead. Why? Corruption. The government must adopt best practices from friendly countries for product inspection testing. Industrialization is the only way forward and any new policy affecting manufacturers must be carefully devised and in consultation with major stakeholders. For a spirited Pakistan, substituting ‘daal roti’ (pulses and bread) and maybe also ‘sabzi’ (vegetable) for luxurious imports should not be a problem and the tough times ahead of the IMF deal and surmounting debt of past two governments, this shall be tested. In my opinion, if we are to lift off, up until 2022, we as a nation must bar all non-essential (luxurious) goods from our basket of consumption.

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