ISLAMABAD, Jan 13: The new strategy for rapid industrial growth has identified political and security risks, macroeconomic and banking risks and higher costs of doing business as the major factors affecting investor perception about Pakistan.
The strategy has suggested import of natural gas through pipelines, promotion of hydel power as a priority, reduction in income and corporate taxes by 30 per cent and improvement of transport and shipping facilities for faster industrial growth.
The strategy being prepared by a team of professionals engaged by the industries ministry and led by Dr Ijaz Nabi of the World Bank has suggested that Pakistan required nine per cent increase in investment in 20 years, 11.5 per cent in 10 years or 16 per cent in five years to catch up with the other regional countries.
Dr Nabi said the strategy did not touch upon the political and security risks and concentrated its deliberations mostly on the aspect of higher costs of doing business.
He and his team explained to a select gathering of industrialists, policy makers and media representatives here on Wednesday that Pakistan's exports as percentage of GDP at 17 per cent was well below in East Asia as its share in total world exports declined between 1990-2002.
He said that Pakistan's share of global manufacturing exports was also stagnant at 0.18 per cent. He said Pakistan's private investment grew at par with India in the 1980s but fell below its trend level over the 1990s.
He said that as a result of range of weaknesses like narrow concentration in textiles, low technology intensity, slow productivity growth, insufficient export orientation and small and low productivity firms, Pakistan's industrial sector has not become a growth engine, was not generating well-paying job and not fostering optimism among the young people.
The strategy that envisages a number of incentives and measures for reducing the cost of business has mainly covered taxation, regulation and procedures, infrastructure, energy and labour costs, land titles, importance of small and medium enterprises (SMEs) and improvement in implementation procedures.
On the land titling, the strategy has identified problems like high tax rates, cumbersome procedures and the role of power of attorney and fraudulent transactions and says that no agency was maintaining records of rights in land in urban areas and no agency was guaranteeing titles of land.
To this end, the strategy has proposed to institute measures to ensure a timely, reliable, simple, secure and accessible system of recording transactions in land. Over the medium term, it suggests to install a system of registering deeds to provide platform on which system of registration of titles can eventually be built.
On the tax reforms side, the strategy has proposed to reduce income tax and corporate tax rates by 30 per cent by 2007 besides naming and shamming the tax evaders through greater publicity of tax evasion cases.
The strategy also proposed to introduce an imputation system, through provision of a tax credit to shareholders in order to mitigate any discriminatory taxation of dividends attained from corporate profits and exempt income derived from savings from being taxed.
On the labour levies and regulation, the strategy calls for simplification of labour regulations by recognizing current market realities, such as the existence of contract labour and the need for flexible labour markets.
It also suggested consolidation of existing 26 labour laws into six laws and doing away with the workers welfare fund, workers profit participatory fund and employees old age benefit saying these were sort of taxes and were not being utilized for the workers' welfare. It was pointed out that the federal government owed Rs42 billion to the workers welfare board which it had collected but did not use for the purpose.
To lower the cost of international trade, the strategy has proposed to implement the exception based refund procedures for general sales tax on export activity with automated risk profiling, through which exporters will get access to fast-medium-slow track procedures, based on the compliance level of the claim.
The strategy called for introducing a Bank Guarantee Scheme for refunds where the manufacturers-cum-exporters are allowed access to immediate refunds for a proportion of the claims.
In order to build capacity for exporters and strengthen national standards institutions, the team has proposed to expand the current network of labs and testing facilities.
It also suggested that Pakistan Council for Scientific and Industrial Research (PCSIR) should be taken away from its commercial research activities and made to focus on providing state-of-the-art testing and accreditation.
The strategy has also proposed to establish a Trade Development Authority of Pakistan (TDAP) and phasing out of Export Promotion Bureau (EPB). The TDAP should take over the job of export promotion from EPB while the Ministry of Commerce should absorb EPB's regulatory functions.
It has also suggested exploring the potential for commission-based export contracts with companies based in potential export markets. The strategy calls for upgrading the firm specific worker skills by institutionalizing a skills development mechanism in line with industry needs and to creating a pool of trainable workers and creating high-level skills and technology entrepreneurs.
The strategy also suggests any energy policy for improving industrial competitiveness through reduction in cost, quality of service and forecasting and planning for demand and supply gaps.
The policy also called for using hydel, coal and gas based power generation as an alternative to imported oil based power but the team was informed by the participants that government policies were themselves discouraging hydel power generation by offering unreasonably lower tariffs compared with much higher thermal tariffs.
