KARACHI: Pakistan Stock Exchange (PSX) demanded of the government to announce a perpetual tax amnesty scheme to bring undocumented wealth into the equity market, its head said on Saturday.

Managing Director PSX Richard Morin said PSX proposed a perpetual amnesty scheme to the government to form a bridge between undocumented money and the equity market.

“PSX has forwarded a proposal to Finance Minister Asad Umar for a permanent amnesty scheme to attract the undocumented capital into the equity market,” Morin said. “The minister has been quite receptive and we expect such a scheme in the coming finance bill.”

PSX chief was addressing a moot ‘Financing to Support Make in Pakistan’, organised by Pakistan Business Council (PBC).

Morin said 70 percent of the Pakistan’s economy is undocumented, and the wealth could not come to the capital markets as it is undocumented.

“If only a fraction of this capital comes to the market, the market capitalisation to GDP ratio will reach 25 percent from 18 percent, lowest among the regional peers.”

PSX managing director said capital markets play a vital role in an economy, as the market enables formation and efficient allocation of the capital. “There can be no economically successful Pakistan without a vibrant capital market.”

Morin said money dumped into the national saving schemes should come to the capital markets.
“Government is paying Rs100 billion/year as interest on the money it borrows through the saving schemes,” he said. “It is a huge case for government to restructure and reform the national savings.”

MD PSX urged the government to remove structural as well as regulatory impediments.

Musadaq Zulqarnain, chairman of Interloop Limited, hosiery exporter and manufacturer said challenges of current account and fiscal deficits could be dealt with only through increased exports and import substitution.
“And for this purpose, the country’s manufacturing sector needs massive investment for capacity enhancement, technology upgrading and value addition,” Zulqarnain said.

Interloop Limited is in the book-building phase of the country’s largest initial public offering. The company aims to raise a capital equivalent of $40 million.

“Raising capital through the equity market is a way viable and better than obtaining credit from the banks,” Zulqarnain added. “If the manufacturing sector wants to grow on a massive scale, bank credit is not the answer.”
Ehsan Malik, chief executive officer of PBC said Pakistan is facing a premature deindustrialisation, which would lead to unemployment, current account deficit and declining tax revenues.

“If the industry is unable to create jobs, there will be a social discord, while increased value-added exports and import substitution is required to deal with the balance of payment situation,” he said. “And more importantly the country needs a broader tax base.”

PBC chief said Pakistan might approach the International Monetary Fund 13th time.
“There is something fundamentally wrong,” he added. “Our manufacturing growth is 6.5 percent, which is lowest among the regional peers.”

Malik said free trade agreements were poorly negotiated, which resulted in growing import bills. “However, the government is listening to the business community and we hope the much-needed structural reforms will take place.”

Published in The News International