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Taxation and foreign investment

Published May 26, 2012 08:08pm


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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


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Comments (8) Closed

Shahid May 27, 2012 05:20am
Living with such abysmal conditions forces masses to ask is ours a financially viable state? If yes then why couldn’t we overcome all these financial difficulties even after 65 years of independence?
Albari May 27, 2012 06:54am
You are right,when saying that a large part of investment is chosing other developing countries.As for instance our textile industry,the largest industry of Pakistan,is going downwards because 40%of the indusrty has been shifted in Bangladesh because of its tax incentive policies and a better law n order situation as well.Foreign direct investment will be only facilitated through subsidies in tax, through providing an ideal peaceful atmosphere and FDI will flourished in a politicle stabled country.Rampant corruption on politicle and management level only discourages foreign as well as local investment.
Muhammad Bilal May 27, 2012 07:17am
As much as we love to critisize the Government for not taking enough or appropriate actions to curb the flight of capital, which should look at the trends in the media too. There is no posititvity emanating out of today's 'so called' vibrant media. All you hear is deaths, destruction and deprivation. Is there nothing good happening in Pakistan? What about the Agricultural revolution? Pakistan's Agricultural economy has been constantly booming, bumper cotton crop, Wheat crop, no shoratges of sugar and other comodoties. One has never seen this before. The actions talken against Hundi and Hawal system and PRI incentives that Govt. has provided, has allowed the Remittances to go up to 12Billion USD. BISP, has proved the most effective way of direct subsidy to the poor masses. The problem is, most of the people who come in the media and talk tall are from the urban populace whose generally well off as compared with the rural. There has been record number of motor cycle purchases in the rural areas in the last 4 years which means the buying power of that region has increased..
Abraiz May 27, 2012 04:26pm
remarkably appreciated
Cyrus Howell May 28, 2012 01:26pm
Pakistan had better begin finding more tax revenue.
Cyrus Howell May 28, 2012 01:32pm
A better law and order situation in Bangladesh! The Army in Bangladesh runs the country, but they do not allow kidnappers, murders and criminals to run wild or roam at will the cities at will.
Cyrus Howell May 28, 2012 01:35pm
Mohammad May 29, 2012 01:22pm
I have been served notice after notice to pay tax since 2010 of the residential plot I bought in gulistan jauhar in 2005, despite providing the office all documents they want , the money I paid was transferred legally through bank as I am a non residential Pakistani, now I don't know what to do more to satisfy them,and also they should not disturb unnecessary oversease Pakistani if there is no proove otherwise I am afraid people will think to invest in Pakistan, There are lot of ways to collect revenue in Pakistan ,it needs sincerity honesty and duty towards the nation,