ISLAMABAD, June 19: Pakistan is fast becoming an unattractive place for international investors in the manufacturing sector to non-existence of tax holiday schemes, like other neighbouring countries, officials and analysts told Dawn on Tuesday.

This has placed Pakistan even behind India, Bangladesh, Sri Lanka in South Asia in terms of attracting investment in the industrial sector.

Moreover, some unpopular measures taken in the budget 2007-08 would also harm the already low industrial growth in the years ahead if necessary remedial measures are not taken.

Officials told Dawn that the government seemed least interested to scale down the interest rates, which is currently highest in the region on the pretext of curtailing inflation, and has severally affected industrialisation in the country.

Analysts said when core inflation--non-food and non-energy--is under control, what is the logic of using tight monetary policy for curtailing food prices. The food prices can only be controlled through improved supply chain and increasing the yield of vegetables, pulses, fruits etc.

Similarly, export growth would be affected by the imposition of one per cent surcharge as cost of raw material of exportable products would increase.

They said increase in the withholding tax, from 0.75 per cent to one per cent, on high value-added products would also have a negative impact on manufacture of high value-added products.

While the rate of withholding tax on yarn has been reduced from 1.5 per cent to one per cent, no reduction of withholding tax has been made on export of bedwear, and it remains at the same level of one per cent.

During the budget 2007-08, the government announced same deduction on export of raw material and made-ups.

This decision, analysts said, would discourage value-addition. They said government’s intention is also only to generate revenue rather than to promote export-led industrialisation as measures taken in the budget would discourage exports and setting up of new industries.

Officials said in India 100 per cent export-oriented units and special economic zones are enjoying duty-free import of all types of goods, including raw material and capital goods.

These zones also avails exemptions form excise duty on goods procured locally. In Bangladesh, import of capital goods as well as raw material for manufacturing in a bond is exempt from duties and taxes. Companies exporting at least 80 per cent of their goods are termed as export-oriented companies. They are entitled to import capital goods and raw material without duty and taxes. Export processing zones also enjoy the same exemption on raw materials, capital goods, duty free import and export. There is zero value-added tax on electricity on electricity and gas.

Contrary to this, Pakistan only offers exemption on capital goods and raw material imported for setting up units and on production in export processing zones. There is scheme for temporary importation of goods for subsequent exportation, zero per cent sales tax on export, zero per cent sales tax on export of five major export sectors and exemption of duty and sales on selected items.