The Economic Quagmire and the Way Forward

By: Muhammad Azfar Ahsan

For having the 5th largest population, being the roof of the world with five rivers enriching its plains, and home ground to the oldest civilization in history, Pakistan is unfortunately marred with political instability, incompetence, a non-competitive trade regime, state bureaucracy, and inconsistent tax/tariff and economic policies, that have resulted in the inadequacy of institutions, well-entrenched corruption, weak governmental regulations, and lack of harmonization of rules across the board.

While stability and consistency are the keywords and boundless conversations on all fronts are now highlighting it, my focus will be on solutions for the new now concerning Taxation, Privatization, Special Economic Zones (SEZ), the IT industry, and Pharmaceuticals as some of the main streams that need urgent attention as their immense investment potential for Pakistan cannot and should not be ignored.

I will quote the former FBR Chairman Mr. Shamim Ahmed from his book The Equitable Tax; “Selfishness, short-term gains, and lack of vision blind us of the capacity to look into the future and comprehend the big picture.” Appreciation and support for wealth creation via industries and businesses is the best way to promulgate employment and opportunities yet we tend to penalize success rather than support it with a strong governance model. Additionally, over/under assessment of liability or biases, and insufficient analysis have created a small selective tax net that overburdens the salaried class and corporate indiscriminately. Out of the official population of 230 million, only 3 million tax filers pay for the entire country.

The unregistered but expanding retail sector stays exempted as does agriculture except for corporate farming of the dairy industry. Mega revenue-producing segments are exempted, and corruption takes care of the rest of it. I was caught by the statement ‘FBR sees Rs.1289bn tax gap for 2022’ – this gap exists because of selective taxation. There is a dire need to expand the tax net by including agriculture especially the ownership of agricultural lands. Vertically piling more tax on already suppressed customers is going to complicate the issue more.

Foreign investors in Pakistan regularly complain that both federal and provincial tax regulations are difficult to navigate through, and tax assessments are questionable and non-transparent. Since 2013, the government has demanded advance tax payments from companies, which has further complicated business operations. The recent 10% hike is a huge downturn for businesses and may just put the final nail in the coffin.

Strengthening the local and enabling the foreign investor is the way to go forward and this has to be without the glaring barrier of tedious and time-consuming approval processes. Vested interests or just lack of will is strangling Pakistan from its last breaths. Digitization can do away with the cumbersome and time-consuming approval process, with transparency and expedience.

When talking of Special Economic Zones, CPEC is right at the top. Hibernating for a good six plus years CPEC could have become a resource for major revenue-yielding industries, road transport, and IT corridors with the neighboring regions. Agri-Zones also await someone’s attention. These are investment goldmines. We know for sure that food security is on priority for almost all gulf countries and Pakistan can be a powerful collaborative trade partner. In fact, as Chairman Board of Investment (BOI), I had initiated a good plan with the Saudi government, and business houses were ready to bring in the investment. The plan of course fell prey to the consistent discontinuity of policies.

With the privatization of public sector enterprises, Pakistan can look at a quick recovery and long-term benefits in a short period. We will not need to chase a few billion US dollars in loans from IMF or friendly countries, for we will have the capacity to generate revenue way beyond such figures. What prevents all this is the elite capture, especially in the power corridors of the twin cities.  The performance of the Privatization Commission has been dismal and has lacked any proactivity.

There is an urgent need to analyze the industrial, corporate, and public sectors for more opportunities by weeding the dying or sick units and replacing them with potential privately owned entities. PTCL’s case of transfer of four agreed-on properties for FDI by Etisalat is still pending due to bureaucratic hurdles. PIA’s Roosevelt – an attractive impressive hotel property that stands haunted today in Manhattan pleading for the revival of its glory seems like a perfect metaphor for this grave economic situation. On the other hand, the privatization of Habib Bank, PTCL, Allied Bank, K-Electric, MCB, and UBL strengthened the corporate industry, illustrating mega opportunities for business and financial growth.

Similarly, the Petrochemical Policy was meant to be signed and closed in April 2022. We are into February of 2023 and that alone proves my point. Time and again we have wasted opportunities, let the trains leave the station, ignore our muscle, and then to compound all this, chase foreign interest-based heavy loans.

Either we don’t push the agenda or create multiple streams for the promotion of the same, giving way to collision and overlapping at the cost of time and quality. The creation of the Special Technology Zones Authority (STZA) for the IT industry is a good example of this blunder. The responsibility now lies divided and unaddressed. Like, Ignite (National Technology Fund) and PSEB (Pakistan Software Export Board) STZA should be a subsidiary of the IT and Telecom Ministry ensuring hierarchical progress and continuation of work without any conflict of interest.

We have examples of countries like Nigeria crumbling under the interest payments and recently Sri Lanka. Are we planning to do the same?

As for a message to the stakeholders, all I can do is quote Faiz here:

Tere Azar Ka Chara Nahi
Nashtar ke siwa
Aur ye safak maseeha
Mere qabze mein nahi
Is jahan ke kisi zeerooh ke qabze mein nahi
Haan magar tere siwa tere siwa tere siwa

*The author is the former Minister of State & Chairman Board of Investment. He can be reached at @MAzfarAhsan