KARACHI: The government needs to widen the tax base and bring back assets held abroad to tackle the bloated external account gap and step up crucial reforms, a business advocacy body said on Saturday.
The think tank, Pakistan Business Council (PBC), composed of the most prominent businesses in Pakistan, including 25 of the largest multinationals from 12 countries also welcomed the appointment of the new leadership at the helm of the country's finance and economic affairs.
“PBC is particularly encouraged by the team’s resolve to broaden the tax base, reduce tax rates and encourage the return of assets held abroad to alleviate the pressure on the external account and create space for reforms,” it said in a statement.
“PBC believes in (and hopes that the government will move swiftly to) encouraging domestic industry to create much needed jobs, build scale to develop export competitiveness and encourage import substitution.”
PBC said Pakistan has had to resort to the International Monetary Fund (IMF) 12 times in the last three decades, but “the only sustainable way to avoid recurrent cycles of external account pressure is to strengthen domestic industry”.
“Over the last decade, manufacturing as percentage of GDP has declined, Pakistan has lost share of world exports and manufacturing has been impacted by energy shortfall, disparity in input costs, ill negotiated trade agreements, disproportionate burden of taxes, a fiscal policy that relies on imports and presumptive taxes to the extent of 75 percent and discourages corporatisation, capital accumulation and consolidation to build scale and competitiveness. “
The statement said corporatisation is further discouraged by the discriminatory and impractical provisions of the Companies Act 2017 which need to be revised.
“The PBC notes the government's desire to allow the rupee to find its market value and advocates a gradual approach to allow the economy to adjust to this reality.”
It also hopes that some of the anomalies that have developed as a result of the introduction of regulatory duty on raw and intermediate materials can be removed swiftly and a perfectly cascading tariff regime be introduced to help local manufacturing as also import incorporation through value-added exports.
PBC calls for the withdrawal of the presumptive tax regime which favours imports over local manufacturing, a review of import valuation policies to stem under-invoicing and an aggressive approach to counter smuggling and the misuse of the Afghan Transit Treaty.
An effective tax rate of 55 percent on shareholders of holding companies as a result of multiple taxation of profits and inter-corporate dividends and the perpetuation of Super Tax is retrogressive, as is minimum tax based on turnover as opposed to profit, particularly in the early years of business.
“A tax relief of a minimum of three years for startups and a tax regime which makes broadband connectivity affordable and available will go a long way to reposition Pakistan in the knowledge economy,” the statement added.
PBC is cognizant of the role that the private sector needs to play in upgrading capacity and capability to add sophistication to the product profile and to diversify export markets. In this context it welcomes the opening up of sectors hitherto restricted to a few players.
“Through greater competition, consumers will determine success and their rights must not be compromised. Equally, industry must be given an opportunity to create jobs to generate disposable income for consumption,” it said.
Predictable, long-term policies that promote investment will yield better results than the 12 to 18-month export packages. “Likewise, well-aligned policies that promote domestic industry in a country with a consumer base of 207 million people have good probability to result in scale and competitiveness,” the business group added.
‘Make in Pakistan’ is a thrust that will add jobs, promote value-added exports and encourage import substitution.
“Hence avoid the recurrent cycles of external account crises. Jobs are and should remain the main focus of economic policy. In addition to the aforementioned steps to strengthen domestic industry, kick-starting low and middle-class housing and aggressively driving bank lending to the SME sector can add millions of jobs.”
from The News International - Business http://ift.tt/2EiNBk0
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