April 28, 2002	Sunday	Safar 14, 1423

KARACHI, April 27: In rich states, taxes are lowered to pull economies out of recession or when the initial signs of a slow-down appear.

And emerging economies like Pakistan need investment-oriented taxation policy to spur economic growth and reduce poverty.

As budget deficits become unmanageable, governments, however, tend to opt for revenue-oriented taxation whose yields decline when investment and growth stagnates.

Both the growth and the tax revenue potentials are thus not realized. This is the situation that prevails now in Pakistan.

Singapore, an emerging financial hub of Asia, which houses regional head offices of multinationals, now plans to reduce corporate tax rate to 20 per cent from 24.5 per cent and personal income tax from 26 per cent to 20 per cent over the next three years.

The changes are designed to spur growth and create a more attractive business climate.

These recommendations put forward by a panel of Singapore’s Economic Review Committee led by Finance Minister Lee Hsien Loong are seen as the central plank of official moves to re-engineer a faltering economy.

In Pakistan, the corporate tax is 35 per cent for listed companies and 45 per cent for other companies. Pre-budget representations sent by brokerage houses and firms to the Ministry of Finance have sought 5-10 per cent reduction.

Under pressure from the IMF, the government has reduced tax on bank incomes from 55 to 50 per cent and finance minister Shaukat Aziz has indicated that the rate may further be brought down to 46 per cent. Press reports suggest that the corporate tax may be cut to encourage investment.

How higher taxes tend to retard growth is also evident from the varying growth rate of mobile telephone sector. The sector grew fast from 300,000-350,000 to 742,000 subscribers, showing an increase of 228 per cent in six months, after the incoming calls were made free.

However, sixty per cent increase in activation tax (AT) on a mobile telephone, (from Rs1250 to Rs2000 in July 2001) the growth rate fell sharply to 21 per cent during July 2001-February 2002. The subscribers numbered 900,000 at the end of February.

Quoting these figures, the CEO Pakcom, Iain Williams told Dawn that according to his estimate, the sector has a tremendous potential for growth. The current number of subscribers of around one million can be raised to ten million.

Aware of the business potentials, four telecom companies have committed to invest over $120 million this year, to increase their capacity and coverage. Of these, PTCL has 12 per cent of the mobile subscribers’ market and the three foreign firms share the rest 88 per cent.

During a professional career spanning just over 13 years, Iain Williams has worked in seven countries of Asia, Europe and Latin America and supervised operations in another seven. As vice-president operations, Sanbao Telecom, Singapore, he