It seems that the business community has a lot of grievances against the present tariff structure of the government. In a meeting between the delegation of Pakistan Business Council (PBC) and Special Assistant to Prime Minister on Revenue, Haroon Akhtar, the PBC raised a number of issues concerning the business community with particular focus on challenges facing the manufacturing sector and presented a set of proposals for their solution. In particular, FBR was asked to remove tariff anomalies and abolish full and final tax structure on the commercial importers to make local manufacturers more competitive, as final tax liability of such importers had placed local manufacturing sector at a disadvantageous position. The sales and value-added tax structure was not supportive of local manufacturers as they are charged on the cost of the product, freight cost, distribution cost, marketing expenses, etc., whereas the commercial importer only pays sales tax and VAT on CNF price of the product. As a result, Pakistan's manufacturing sector has declined considerably. "In the last quarter century, our share in the world manufactured exports has sharply declined. Our current trade deficit is at dollar 32.5 billion and the manufacturing sector's contribution at 13.5 percent of GDP." The government of Pakistan should study other countries' models on ease of doing business. Our growth rate in the manufacturing sector is strikingly low at 4.9 percent compared with 7.99 percent for India and 11.9 percent for Bangladesh and Vietnam. Responding to the proposals of the PBC, Haroon Akhtar said "the government believes in facilitating the business community by providing them a level playing field and an investment-friendly environment." He has reiterated that the government is keen to work with the business community and requested the PBC to prepare a comprehensive and realistic plan for the resolution of issues facing the business community.

The meetings between the government and various delegations including those from the business community are a routine matter to express the concerns and limitations of each side. However, the present meeting between the PBC and Haroon Akhtar was more thought provoking and to the point as it focused on the real issues and their resolution would be very productive for the country. PBC has rightly proposed to discontinue the final tax liability on commercial importers, as sales tax and VAT are not supporting manufacturing sector in Pakistan. Such a policy puts the local manufacturers at a disadvantage as all the expenses incurred are taxable whereas the importer has to pay fewer taxes who also usually undervalues the products at the import stage. Furthermore, the local manufacturers also suffer from poorly negotiated trade agreements, unfair competition from the informal sector, heavy taxation, shortage of cotton and other agricultural convertibles, energy shortages and higher input costs than competing sourcing countries. Besides, it is very difficult and cumbersome to start a new business in Pakistan where the business community has to cross many hurdles and take a longer time whereas in India it now takes only 17 days to start a new business. As critical mass leading to greater industrialisation and competitiveness has not developed, fewer jobs are created and Pakistan is becoming a nation of traders content on consuming imported items. Shopping malls full of imported items in bigger cities is the new norm in Pakistan. Haroon Akhtar has promised that it was the endeavour of the government to spur growth in the manufacturing sector through a realistic and consensus-based plan of action. Hopefully, while the government may strive to meet the expectations of PBC, the business community also needs to redouble its efforts to accelerate the growth of manufacturing sector, substitute imports by locally manufactured products by improving their quality and reducing their cost of production by innovative ways and increase and diversify exports. The relevant data show that LSM has shown an improved performance during the last few months and it is a very good omen. The resolution of policy issues by the government and more efforts by the manufacturing class could help the country narrow its trade deficit.

Copyright Business Recorder, 2017