Tax and tariff regime should be simplified to provide level playing field to exporters
Interview with Mr Khalid Tawab – Chairman, Tawab Group of Companies
PAGE: Tell me something about yourself and your organization, please:
Khalid Tawab: I am Chairman of Tawab Group of Companies which is a renowned name in manufacturing of paper, board and steel. I have served as Senior Vice President and Vice President of FPCCI and Karachi Chamber of Commerce and Industry. I am honorary Consul General of Mozambique since 1989. President of Pakistan awarded me Sitara-e-Imtiaz in 2009 in recognition of my outstanding public services. My company got FPCCI Exports Awards two times and one time International Asia Award due to highest exports. I am also philanthropist and trustee of Aiwan-e-Tijarat-o-Sanat hospital. I have visited various countries in order to accomplish Pakistan government’s objectives to enhance economic and trade relations especially with the African countries, China, Malaysia, Iran, United States, Mozambique, Egypt, Oman, Poland etc.
I am an active member of Iron and Steel Association of Pakistan. I have been the member of number of official working groups on economic, finance, trade, industrial cooperation and economic corridor and presently member Board of Governors of various national public/private organizations.
PAGE: How would you comment on the trade relations between Pakistan and the EU countries?
Khalid Tawab: European Union (EU) is the second largest trading partner of Pakistan. The trade between Pakistan and the EU stood at US$ 13.1 billion with Pakistan’s export volume US$ 7.4 billion and imports volume US$ 5.7 billion. Pakistan is a major beneficiary of GSP Plus from the EU, which allows 20% of Pakistani exports to enter the EU market at zero tariff and70% at preferential rates. It was expected that Pakistan’s exports to the EU would increase by 20% or more during the next few years, which meant doubling the total exports to the EU in the next five years.
Pakistan’s export to the EU is mainly dominated by textiles and clothing which accounts 82% of total exports. In order to maintain GSP+, Pakistan has to keep ratification and effectively implement 27 core international conventions on human and labor rights, environmental protection and good governance. After availing the GSP Plus status, most of the products of Pakistan’s export to the EU has declined compared to pre GSP Plus period except textile and clothing. The EU assessment report some time back also indicated that Pakistan’s export to the EU is heavily reliant on one product, which indicates a risky situation for Pakistan. Here there is a need of investigation that why Pakistan’s exports of other products declined in GSP Plus period. Whether the competitiveness of Pakistani products has declined in the EU? As compared to Pakistan, the exports of our regional competitors indicated a rising trend in the EU.
PAGE: What must Pakistan do to increase its exports?
Khalid Tawab: Enhancement of exports is the need of the time that can contribute in economic growth, employment generation etc. For the enhancement of exports, we have to focus on industrialization. At present, there is no industrial policy in Pakistan and businessmen are unaware about the availability of the incentive for new industries. Moreover, we have to reduce our cost of doing business for making our products internationally competitive. We have to focus on innovation and inventions of the products with the global environment changes. In addition to above, we have to diversify our products and markets in order to increase exports. There is also a dire need of marketing of our products in the international market.
PAGE: What are your views on the taxation system at present?
Khalid Tawab: There are high taxes in Pakistan as compared to the regional economies. Most important is uneven collection of taxes as agriculture sector contributes around 20 percent in the GDP but its contribution in tax collection is less than one percent. While services sector contributes around 60% in GDP but its contribution in tax collection is less than 30% and the industrial sector also contributed 20% in the GDP while its contribution in tax collection is around 70%. The unequal distribution of taxes makes industrial sector uncompetitive in Pakistan. Moreover, in industrial sector, as per Ease of Doing Business Report, there are multiple taxes and companies pay 34 tax payments which require 283 hours. While in India there are 11 payments, which require 252 hours. Despite 29% corporate tax rate and 17% GST in Pakistan, firms are still paying 33.9% of their profits in taxes. Moreover, delay in payments of refund and complicated audit process is also hindrance in new investment in Pakistan. Tax on exports in Bangladesh is levied @ 0.25% whereas in Pakistan @ 1%. Moreover, after including indirect taxes and other levies comes to 11% of cost of exports.
Pakistan should also simplify the tax and tariff regime for exporters and consider other subsidizing measures to provide level playing field to its exporters.
PAGE: What are the problems of the business community?
Khalid Tawab: Business community is facing high cost of doing business in Pakistan. Our interest rate is very much high compared to all regional economies. Our utility prices are also very high particularly electricity and gas prices, which make us uncompetitive in international market. Moreover, rising petroleum prices also increase transportation cost. Internationally, our neighboring countries India, Bangladesh, and China etc. are giving incentives to their exporters for enhancement of exports while our government has abolished exports related facilities like removal of zero-rated scheme for five sectors and enhanced energy tariff for industrial production etc.