KARACHI: Pakistan’s leading business advocacy forum on Wednesday emphasised a need of ‘greater transparency’ in CPEC (China-Pakistan Economic Corridor) projects to identify its impact on local industries, saying the country is ‘prematurely’ de-industrialising.
“CPEC will no doubt be a game changer for Pakistan and there is hardly a facet of the economy that will not be touched by it,” the Pakistan Business Council (PBC) said. “However, there needs to be greater transparency on how CPEC will impact the competitiveness of existing domestic industries and the safeguards that will be deployed to prevent it becoming a channel for cheap imports.” PBC, in a 16-page ‘agenda for economy’ report, said industries to be established in special economic zones under CPEC are expected to enjoy extensive concessions. “Pakistan should leverage CPEC to attract a meaningful percentage of the millions of jobs that are likely to move out of China given the rising labour and conversion cost there.”
The business advocacy platform represents local and foreign businesses from 13 manufacturing and services sectors. The council said formal sector faces an uneven playing field versus smugglers, counterfeiters and under-invoicers and those who misuse the Afghan transit treaty.
“Many markets in Pakistan brazenly deal in smuggled goods. Local authorities must cooperate with customs to stop this,” it added. “The National Tariff Commission must give benefit of the doubt to local manufacturing. Presently the law works to delay effective protection of domestic industry against dumping.”
PBC said quantities of goods, bound for Afghanistan market under the transit agreement, are not commensurate with the size of Afghanistan’s population. “The types “imported” are not in line with consume tastes/preferences; and in some (cases) Afghanistan lacks industrial capacity to convert raw materials into finished goods. Such items are either smuggled back to or never leave Pakistan,” it added. “Pakistan has a poor record of managing leakages from transit trade. A repeat of the experience with the afghan transit treaty on transit of Chinese goods could wipe off many industries.”
The council advised the government to demonstrate caution on proposed free trade agreements (FTAs) with Turkey and Thailand as existing FTAs could not help in reducing trade deficit. In fact, the country’s trade deficit shot five-fold to over $15 billion under the FTA signed with China.
“FTAs must deliver more local employment three million people need to find gainful employment every year, additional tax revenue from improved profitability of domestic industry and higher value-added exports,” it said.
PBC advocates of national consensus around a ‘Make in Pakistan’ approach. “📎Make in Pakistan encompasses the maximisation of local manufacturing and all services within the extended value-chains,” it said. “Lack of political will, unaligned and unpredictable policies, weak and fragmented bureaucracy, vested and short-term interests have together worked to convert Pakistan into a nation of import-reliant traders, costing jobs, creating repeated cycles of pressure on the external account and resulting in the loss of tax revenue necessary to fund social development.”
The government was also urged to address the growing fragmentation of authority between federal ministries and the federation and provinces. The council said the country is becoming consumption-driven with poor investment and saving levels. It accounts for 80 percent of GDP as compared to 69.4 percent in Sri Lanka and 36.1 percent in Indonesia.
Currently, manufacturing sector accounts for 13.5 percent of GDP, as compared to agriculture (19.5pc), retail and wholesale (18.5pc) and services sector as a whole (59.6pc). The sector carries the highest 58 percent of tax burden, as against agriculture (less than one percent), retail and wholesale (one percent) and services sector as a whole (37pc).
“Pakistan’s corporate tax rate is much higher than global average,” PBC said. “Withholding tax on non-filers has become revenue raising tool rather one that incentivises more to join the tax base.”
Companies in the country bear corporate tax rate of 38 percent, including workers welfare fund, workers profit participation fund and super tax, compared with Singapore (17pc), Sri Lanka (15pc), Bangladesh (25pc) and Vietnam (22pc). There are 47 types of various levies