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Taxation and foreign investment

May 26, 2012

THE government has reiterated its commitment to initiate administrative steps to plug loopholes in the existing tax regime.

Together with this, it is reportedly raising the additional revenue of Rs386bn to post an ambitious revenue target of Rs2,338bn for the next financial year.

The saga of revenue target fixing and subsequent collections has always proved more than a mere speculation. The sword of inequitable taxation, mass evasions and concessions are clearly visible in records of both military and civilian regimes alike. And, keeping in view the contributing factors, the trend, unfortunately, does not seem to come to an end in the near future.

However, there are no two opinions regarding complete shift of our economic priorities. According to economic managers, the current GDP growth marks a figure up to 4 per cent, while remittances are recorded at $13.5bn that pose positive developments.

Notwithstanding this, we continue to lose local and foreign investments which are having drastic implications on the state of our governance, corporate sector, lifestyle and the country’s image abroad.

Taxation is deemed to serve as a catalyst for industrial expansion and financial strength. On the contrary, in Pakistan it has been employed as a tool of discrimination and harassment.

As a result, local industrialists are shifting their industries from Pakistan to across South Asia and Central Asia, over the Southeast Asia and the Middle East and landing in European and American markets.

Similarly, the country is facing budget constraints also because of flight and reluctance of foreign direct investment. Even though, the FBR has time and again introduced a tax incentive policy for investors in line with global trends, but has failed to comply with it.

Foreign investors are first attracted with zero-corporate tax policy but then are often trapped into negative tactics to extort taxes. It is because of tax officials’ focal point of meeting revenue targets by hook or by crook. Unwillingness to extract tax money from tax evaders, they subject regular taxpayers and foreign investors by abusing their vast discretionary powers.

Meanwhile, the loss of local and foreign investments also results from absence of appropriate infrastructure. The country is seriously mired in power shortages and law and order problem. Obviously, where there is no security of life or property or oil to run industries and where there is open proliferation of business of extortion, investors cannot be expected to come forward.

With this, the image of the country has so tarnished that when the news is received by family members of their relatives’ visit to Pakistan, it immediately leaves them in deep grief. In such circumstances, we cannot expect flow of fortunes to an ambitious figure.

Therefore, financial administrators, with the FBR, must overhaul the pathetic economic situation by doing away with inefficient administration and regressive tax policies. The government is trying to create a healthy environment by extending tax incentives, especially to foreign investors, but the FBR must not compromise with these international trends.

Similarly, these incentives will have no bearing if the government does not provide an attractive infrastructure as well. We have to move quickly and decisively and form strategy and infrastructure rapidly.

MUHAMMAD AZAM SHAIKH General Secretary, Tax Bar Association, Larkana