Imtiaz Gul
Let us first highlight the conclusion of this write-up and then explore why so?
Unless the Federal Board of Revenue (FBR) stops acting as an 18th century arm twisting bully – the Robinhood who is always on the prowl for booty – foreign investors – particularly small and medium businesses – will largely stay away from Pakistan.
Several conversations on Pakistan’s economy with top diplomats from Europe and Americas – both visiting as well as those based in Islamabad – are a mix of caution and wavering optimism.
Alarmingly, they agree on one thing; Pakistan’s bureaucracy – the steel-frame – continues to be obstructive and retrogressive. The taxation system is extractive and tailored to benefit only the willing elites who are ready to collude with a corrupt self-serving financial bureaucracy to promote their own businesses.
A few instances of the high-handed and extractive nature of policies that the FBR has pursued in recent years merit mention here to explain the issue.
In one instance, a European company set up a plant in Lahore with a 5 % duty on its imported input. Low and behold, FBR wizards jacked this duty four times to 20 per within 18 months – upsetting all the calculations on a cost that was supposed to last for at least one year.
Another European company established a unit in Lahore in 2016. The FBR hounds drove them crazy as officials from five FBR departments would knock at their door every now and then. This practice declined – declined not disappeared – only after an intervention at the highest level and complaint with the prime minister.
Another European firm agreed to set up a regional hub involving several thousand IT related jobs. This would have seen export of young Pakistani professionals into entire Asia. But the killer instinct of selfish FBR officials, instead of embracing the firm behind this venture, kept placing demands that eventually forced the company to abandon the project.
A Pakistan-origin CEO of a German company, eager to promote solar power in Pakistan, had to once run from pillar to post to get freshly-imposed duties on the cargo that had almost reached Karachi.
This abrupt raise in duty made no sense as the import was based on the then existing duties.
Between 2008-2019, the FBR acted as a robber baron – raising advance tax or arrears invoices on foreign companies. Most mobile companies have been enduring this practice and hence ending up spending time and resource on litigation with the authorities.
Little did the FBR thugs realise – or they probably ignored for their own vested interest – that all these high-handed actions did travel out of Pakistan to all places that matter as the central data bank for information on investment and business environment in Pakistan.
In a recent private conversation, a former senior official of the customs conceded that their department has played havoc with state revenues by tinkering with documents on requirements of foreign diplomatic missions . Fudging is the other name of this modus operandi which illegally bloats the figures from a single digit to double digits – all in the name of foreign embassies. (More on this issue in another article)
Let us glance through the bottle-necks that my foreign interlocutors identify:
a) Improvement in ease of doing business is laudable but it means little if the governance sector – and the approaches towards business – as a whole does not change.
b) Promises are good but lack of predictability in the taxation regime deters potential investors. Unless the investment regulations’ framework is predictable for at least for a specific time period – say at least five years – no foreign company will dare stick its neck out.
c) Complicated procedures: simplifying arduous investment Rules and Regulations – and adherence to them – can serve as the key to encourage and retain foreign investment
d) The economy will not take off without encouragement to and support for start-ups, small and medium enterprise (SME) in the services’ sector. SME’s and start-ups must be the focus of government ‘s business promotion strategies.,
e) Emphasize and strategize digitalization and e-governance. Cost-cutting, efficiency and prompt decision will be possible only through instituting and accentuating the use of e-governance in Pakistan.
Digitization is the only answer to take down the Biblical goliath of the British era governance regime, say foreign investors. To them FBR comes across as an 18th century arm twisting Robinhood, always out to extract ever more from the few big corporations including the cellular companies.
Without cracking this steel frame – the bureaucratic shackles on decision-making and implementation – reform for real improvement, growth, and development will remain a distant dream.
