Corporate culture, ground realities

Published Dec 17, 2012 12:25am

corporate-culture-tax-600

Illustration by Abro

The government intends to reduce corporate tax from 35 to 30 per cent in the next budget and withdraw concessions to businesses not incorporated, provided it succeeds in plugging loopholes to curb tax evasion, and widening the tax net.

The expected changes in the tax regime aims at creating a market environment where adhering to code of corporate governance becomes a smart option for the country’s businesses.

Some corporate leaders contacted told Dawn that they would have de-listed their companies had it not been for the reputation of their business groups since the cost of hassle they undergo in periodical reporting is not justified by gains from listing at the stock market.

“Yes, I am doing very well, multiplying my net worth to double every three years to become one of the largest tax payers in the country within 12 years of starting my business from scratch. No, I will not get my company listed. Why should I bother to make more disclosures when at the moment I do not feel the need to raise money from a capital market under control of a few brokers?

“I have money from profit to invest in BMR and expansion. Banks follow me around as they know I have capacity to pay back and command respect and credibility”, a CEO of a local drug company told.

Israr Rauf, senior member, Federal Board of Revenue, who shared next fiscal year’s tax proposal with Dawn over telephone from Islamabad, was reached for comments on the current fiscal policy that tends to penalise better corporate performance.

“The board is cognisant of the fact and is in the process of articulating its response to address the anomaly. However, it is easier said than done. Still I can tell that hopefully in the next budget the corporate tax will be revised downward and the category of the AOS (association of persons) that maneuvered to get some concessions will be taxed at earlier rate of 25 per cent”, Rauf said.

The regulator recognises omissions and commissions in companies and the lack of awareness about modern management practices.

The culture of abuse of power with little respect for rules and regulations that govern the working of enterprises in fractured market systems leads to underutilisation of assets, while the economy operates at sub-optimal level. It threatens sustainability of businesses and retards growth of private sector depriving people the opportunity of dignified productive life they deserve.

In a country where hardly 600 of 65,000 registered companies are listed in the capital market, much of the management practices is shrouded in mystery. People suffer because of unethical practices but there is little evidence available in black and white to question them.

No one denies that even a bigger number of enterprises might not even be registered keeping them out of regulatory supervision altogether. Moreover, in the case of India and Pakistan, business families and governments dominate the corporate sector.

In developed economies, concentration of shareholding is not a norm but an exception. Most shares in companies are held by dispersed shareholders and board of directors are required to be responsible to management and are accountable to shareholders. This drives them to be vigilant, transparent and high on compliance. The fact that corporate frauds still happen leading to the collapse of some huge enterprises only highlights the need for greater vigilance.

Chairman Securities and Exchange Commission of Pakistan  Muhammad Ali is disappointed with the current state of affairs in the corporate sector.

Talking to Dawn over telephone, he detailed efforts of the key corporate regulator to transform the corporate culture.

“After a series of roundtable conferences in collaboration with the Pakistan Institute of Corporate Governance involving big names from law and audit firms, star businessmen and management gurus, held in several cities, we finalised the 2012 Code of Corporate Governance, which is a world class document”.

“A baby step has to be taken to cover longest of distances. We have started moving in the right direction. The journey is unavoidable if the country is to progress. It will be the power of the example of the code compliant companies that will draw stronger response from others.

“We are currently working on public sector firms and offering a roadmap to help transform them into efficient companies instead of being a drain on precious public resources.

“We will implement a code for private limited companies next year”, Ali told Dawn.

The development partners such as the IFC, an arm of the World Bank, has also been actively complementing efforts of specialised institutions and regulators in this regard.

“Unless adherence to the code of corporate governance becomes an obvious choice for business expansion and sustainability, the archaic management practices will be hard to curb”, said an expert.

“The adoption of 2012 Code of corporate governance (a revised updated version of 2002 Code) may be commendable but, in Pakistan, the situation is too complex for it to yield results by transforming archaic business culture”, said a textile tycoon.

“Often, the business community tends to treat maintaining standards an alien and fashionable idea fit to be discussed in elite forums and explained in books but I wonder if a struggling entrepreneur could appreciate its relevance.

“A fellow businessman was shot dead yesterday, a friend’s son is missing, a relation is kidnapped, Hanif Khan, the guard who has been manning my factory gate for years has recently been arrested for his involvement in some hold up in the vicinity.

“The money dedicated to cover raw material import has become insufficient as rupee depreciated nine per cent in a year. My consignment from upcountry was lost to goods transporters strike. My overseas client was on the edge as the merchandise was supposed to be there a month before Christmas. Sorry, but I am not in a mood to be lectured on virtues of corporate governance”, said a Karachi top businessman.


Do you have information you wish to share with Dawn.com? You can email our News Desk to share news tips, reports and general feedback. You can also email the Blog Desk if you have an opinion or narrative to share, or reach out to the Special Projects Desk to send us your Photos, or Videos.

More From This Section

Reality check

Trade bodies and investor representatives have rejected the PTI’s call for civil disobedience

Comments (0) (Closed)