The profit repatriation of multinational companies and foreign investors nosedived by 92.88 percent during the first two months of the fiscal year 2022-23 compared to the same period last year.
The slowdown in business and economic activities due to floods and an increase in the cost of operations, high taxation, and eroding the purchasing power of the consumers affect their profitability and their repatriation subsequently.
The latest data released by the State Bank of Pakistan (SBP) shows that the repatriation of profits and dividends nosedived to $28.2 million in July-August against $396.4 million during the same period a year ago. Pakistan has failed to attract a significant amount of FDI for more than a decade, but the recent political turmoil has further damaged the country’s image abroad.
Analysts and economists believe the significant drop in profits and dividend outflows is also because of a ‘super tax’ imposed by the government on the corporate sector, besides poor economic activities in the country.
The government imposed a 10 percent super tax or poverty alleviation tax on large industries to relieve the general public of tax pressures. Accordingly, the tax rate on selected sectors has increased from 29 percent to 39 percent. The tax would be applicable to 13 sectors, including cement, steel, sugar, oil and gas, fertilizer, LNG, textile, banks, automobiles, beverages, chemicals, tobacco, and airlines.
According to the central bank data, the outflow of profits from the manufacturing sector fell to $0.6 million in July-August FY23 from $159.3 million during the same period last year, reflecting the poor state of the economy.
The outflow of profits from finance and insurance was $0.3 million compared to $75 million last year. Information and communication sent out no profit compared to a net profit of $46.9 million in the first two months of FY22.
The outflow from transportation and storage was $1.2 million against $45.4 million last year. Mining and quarrying was the only sector that showed a higher outflow of $11.2 million during the period under review, compared to $1.4 million last year.
The country-wise outflows were $2.9 million to the UK against $94.8 million last year; $8.5 million to the United States against $86.9 million; $1 million to the Netherlands against $47.3 million, and $3.1 million to China against $37.5 million.
The significant drop in profit repatriation may not sound well for attracting foreign investment in real sectors. Economic managers should work wisely to restore the confidence of foreign investors to enhance foreign investment in the country.