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  • Aug 19th, 2017
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Pakistan Business Council (PBC) has recommended restructuring of export package to promote value-added exports because short-term measures are not sustainable. A PBC delegation led by its CEO Ehsan A Malik apprised Prime Minister Shahid Khaqan Abbasi of this recommendation at a meeting with him where the two sides discussed proposals to accelerate growth of the economy.

The PBC delegates said that Pakistan's exports at US$20 billion didn't reflect the capability of the country with huge resources. They said that while global recession was partly to blame, input cost disparities particularly energy cost, slow refund of taxes, delayed settlement of incentives and the structure of the export package need to pondered upon because these factors were impeding growth. They also discussed a gradual adjustment in the value of the rupee to counter loss of competitiveness. They cited that countries such as Vietnam and Bangladesh have achieved exports under long term policies.

The Strategic Trade Policy Framework now being revised should have the buy-in of all ministries. Exports should be overseen by a high-level body, ideally led by the Prime Ministter, PBC delegation proposed. With rising labour cost in China, there is a significant opportunity for Pakistan to become a key value chain partner of the Chinese textiles and other labour-intensive industries. 20 million jobs are likely to be displaced in China; therefore, Pakistan should try to obtain at least 3 million of these.

However, as Chinese private sector works at the direction of the Chinese government, PBC urged the Prime Minister to copy that model. They said Pakistan's domestic industry had been severely undermined by poorly negotiated trade agreements, smuggling, under-invoicing and mis-declaration of imports. While energy shortfall and cost would be addressed in time, the "Priority Pakistan" approach should focus on strengthening the competitiveness of manufacturing in the country.

Specific rates of import duty based on volume/weight, a fully functioning NTC which gives benefit of the doubt to locally produced goods, withdrawal of the full and final tax regime for commercial importers and replacing it with a minimum tax and a requirement to file tax returns would go a long way, according to PBC delegation.

They said that there are still raw materials and intermediate goods that are subject to higher import duty than finished products. They said that these tariff anomalies should be removed to promote local manufacturing. Indeed, duty on raw materials and intermediate goods should be revised sharply downwards to promote import integration into our exports. Successful models of this exist in other countries.

PBC delegation emphasized that as Pakistan renegotiate the FTA with China, it is a must to approach fresh agreements with caution. PBC has a wealth of research which has been provided to the Ministry of Commerce. Specifically, in the CPEC, which PBC believe, will be a game changer for Pakistan and beneficial to China as well, Pakistan must ensure that arrangements are configured in a way to maximize indigenous participation, promote jobs by strengthening local industry and protect tax revenues.

The PBC said Pakistan had an unfortunate history of gross misuse of transit facilities. As debt is a material component of financing power projects, notwithstanding NEPRA tariffs, there is scope to reduce financing cost to make energy available at a more competitive rate.

On investment, the PBC said, there is significant potential to tap overseas Pakistanis to invest in infrastructure on a non-repatriable basis. LNG projects could be a start. The country also needs to find ways to encourage return of resident Pakistanis' wealth abroad. Pakistan tax regime needs to promote capital formation, accumulation and consolidation. Change in the group tax relief rules, imposition of cascading tax on inter-company dividends, tax on retained reserves, tax on bonus shares and the continuation of super tax in the third year; these all work together to discourage investment, impede scale and thwart the broadening of the capital markets. Shareholders in listed holding companies by virtue of cascading tax on dividends, super tax etc., now suffer an effective tax rate of 55%. Pakistani companies are subject to higher tax rates than the global average.

The GST rate of 17% is also high and accentuates the uneven playing field for the formal sector. PBC also advocates a higher difference between taxes on filers and non-filers and to make withholding tax (WHT) a penalty for non-filing as opposed to a revenue collection tool.

PBC is organizing a full-day Pakistan Economic Forum in the coming December to bring all stakeholders together in developing a national consensus on the economy and invited Prime minister to make the inaugural keynote address.



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