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Pakistan Economic Forum IV

Pakistan Economic Forum


In the fourth edition of the Pakistan Economic Forum (PEF) held on 17th January, the Pakistan Business Council (PBC) made a strong case for government policies to be reviewed and aligned to promote manufacturing in Pakistan. The event was attended by key public-opinion leaders and decision-makers, including Mr. Haroon Akhter, Advisor to the PM on Revenue, Mr. Naeem Zamindar, Chairman, Board of Investment and senior officials from the Ministries of Finance, Commerce and the FBR. Speaking on the occasion, the Prime Minister Mr. Shahid Khaqan Abbasi supported the PBC’s view on the need to create jobs, promote value-added exports and encourage import substitution and agreed to establish a high level council to address the policy gaps. He also reaffirmed the government’s resolve to broaden the tax base and reduce the tax burden on the formal sector. He appreciated PBC’s evidence based advocacy to foster growth of the economy and congratulated the PBC members on creating an institution that put the national interest first.

Mohammed Ali Tabba, Chairman PBC acknowledged the government’s achievements on restoring law and order, addressing the acute energy shortage, kick-starting economic growth and securing the CPEC investment. The environment was therefore ideal to take GDP growth to 7% and beyond. Whilst short term measures are required to manage the immediate challenges, macroeconomics stability can only be sustained through fundamental reforms that require political will. With the election cycle approaching, some of the decisions will have to be fast tracked. PBC composed of the country’s most prominent businesses with substantial stake in the economy is keen to partner the government in fostering growth.

Ehsan Malik, PBC CEO, elaborated that the reason why Pakistan had to resort to the IMF on twelve occasions in the past 28 years was because fundamental reforms required to strengthen manufacturing had not been implemented and the country had become over-reliant on imports. Government policies were fragmented, often conflicting and some blatantly pro-imports and anti-manufacturing. He advocated a PM-led high-level body with PBC & representatives of the manufacturing sector for input, to fully align and monitor a Make in Pakistan thrust. Pakistan’s three imperatives: jobs, exports and import substitution had one solution: Make in Pakistan.

Dr. Ishrat Husain, former Governor of the State Bank outlined immediate and medium-term actions required to achieve and sustain macro-economic stability. These included encouraging the return of assets held by Pakistanis abroad, extension in tenor of short-term debts and incentivizing remittances. For the medium term he recommended the announcement of a a long-term export policy with monthly reviews led by the PM; reversal of retrogressive policies impacting local manufacturing; encouraging low and medium cost housing due to its multiplier impact on jobs and the economy and a sharp increase in bank lending to the SME sector. He also advised the government to set up a CPEC Commission to monitor progress of investment, optimize returns and provide clarity on foreign exchange flows.

Syed Shabbar Zaidi, Senior Partner, AF Ferguson & Co., highlighted the growing reliance of the fiscal policy on collecting revenues from imports through duties, presumptive and sales taxes on a ‘full and final” basis whilst manufacturing which represents 13.5% of GDP is burdened with 58% of the tax load and is harassed for more. The tax regime discouraged corporatization. Companies and their shareholders suffered an aggregate effective tax of 55%, amongst the highest in the world. Sales tax at 17% is also an incentive to evade. Law allowing funds to be transferred abroad, brought back and whitened needed to change. Tax policy making should be separated from tax administration to avoid knee-jerk actions to meet revenue deficits. He recommended the abolishment of presumptive taxes, withdrawal of super tax, tax on bonus shares and undistributed profit, minimum tax based on turnover, tax on inter-corporate dividends, restoration of the Finance Act 2007 group tax provisions and the levelling of tax rates on companies/their shareholders with those of sole traders and partnerships.

Ali S. Habib, PBC Director, bemoaned the long-term decline of domestic manufacturing; its poor growth relative to neighbouring countries; the significant lag in industrial investment vs. peers; and Pakistan’s loss of share in world exports. “A country with a population 208 million can provide the scale for competitive production for both the home and export markets. Instead even basic items like shoes are being imported”. He further advocated the abolishment of the presumptive, “full and final” tax regime for commercial importers; ensure fully cascading tariffs to promote local value-addition; and specific quantitative duties to check valuation and under-invoicing. As much as 25% of imports from China and UAE are under-invoiced. The imposition of RD on raw and intermediate materials was retrogressive. He advised caution on trade agreements with Thailand and Turkey and renegotiating, at minimum, parity with ASEAN in the FTA with China.

Khalid Mansoor, CEO of HUBCO, a PBC member whilst acknowledging progress on generation, he advised continued investment in generation to ensure energy security. As energy cost was unlikely to allow competitive tariffs in the medium term, the government would need to review taxes and subsidies to make industry competitive. He also stressed the importance of promoting indigenous fuels and the retention of RFO plants in light of the likelihood of an increase in the cost of LNG. Focus on conservation needed to be sharpened. Domestic tariffs for both gas and electricity needed to be reviewed to promote conservation and to create jobs in industry.

Syed Yawar Ali, PBC Director, highlighted the need to encourage growth of cotton to meet the needs of Textiles, Pakistan’s primary export industry, as also to reduce imports due to shortfall in supply. Cotton seed is also a good source of edible oil, import of which has been growing. Additionally, he advocated professionalizing the meat and milk sectors to provide a competitive basis for exports. These sectors are operating on a subsistence basis with substandard quality and higher than global cost. Pakistan was strategically located and could become a sourcing point for the ME, Iran and China.

Sustainable Macro-Economic Growth – Panel

Equitable Fiscal Policy – Panel

“Make in Pakistan” – Panel

Availability & Cost Competitiveness of Energy – Panel

Agriculture, Dairy and Livestock Potential