Fiscal policy realignment sought to promote capital formation

KARACHI: Pakistan Business Council (PBC) sought realignment of fiscal policy that tends to promote capital formation and investment as the government mulled IMF’s bailout to support the faltering economy.

PBC said the existing fiscal policy does not encourage capital formation, accumulation and consolidation.

“Fiscal policy making should be separated from tax collection, (while it) should address the medium- to long-term objectives of creating and sustaining the scale and competitiveness of industry as well as of country’s tax revenues,” the council added.

The business policy advocacy group said the government currently relies on withholding taxes and import duties for revenue, while tax rates, especially general sales tax, are high for an undocumented economy.

“This creates incentive to evade,” it said. “Combination of tax policy making and tax collection under the FBR (Federal Board of Revenue), results in knee-jerk measures to meet revenue shortfalls.”

PBC said a well-structured program is the only way to revive industry, generate jobs, boost exports, and encourage import substitution, leading to macroeconomic stability.

“An essential enabler of this is the broadening of the tax base, closure of avenues of tax and wealth leakages and the simplification of processes to make it easier and cheaper to do business,” the council said.

“This is an opportunity to break out of the recurring crises that has seen Pakistan go to the IMF on 12 occasions in the past 28 years. Otherwise, the country will suffer pain without sustainable gain.”

PBC hoped that the program would take a holistic view of the factors leading to the present crises instead of merely managing them.

The policy advocacy group said cascading taxes on inter-corporate dividends and the reversal in 2016 of group taxation rules enacted in the Finance Act 2007 have negatively impacted the formation of holding companies and the floatation of subsidiaries.

“This impacts the capital market,” it added.

PBC further said there is opportunity for Pakistan to benefit from the tariff surcharge imposed by the US on goods from China.

“In the immediate time horizon, this would be from utilising spare capacity and existing capabilities,” it added. “In the medium term, textile industry in particular should team up with Chinese companies to relocate plants to this country.”

PBC said the Chinese could help upgrade skills, transform product quality and help in diversifying market focus.

“Provinces should review the policies that inhibit industry in general and exports in particular,” it said. “As land in big cities is expensive, vertical factories for apparel and light industry and plug and play industrial estates with adequate utilities, infrastructure and transportation facilities should be developed.”

Published in The News

Download