Consistant policies can tap Pakistan's economic potential

Former FBR Chairman Abdullah Yousaf stated this while talking to business community at Lahore Chamber of Commerce and Industry on Saturday.

The LCCI President Farooq Iftikhar, SVP Irfan Iqbal Sheikh, VP Mian Abuzar Shad, former Presidents and Executive Committee members spoke on various economic issues. Abdullah Yousaf said that Foreign Direct Investment (FDI) which was $ 8.5 billion in 2006 had now come down to $500 million that was an indication of poor health of our economy.

Though there were a number of factors that could be blamed for this unlikely situation, frequent changes at policy level, regional instability and bureaucratic hurdles were the major reasons of this decline. "We will have to look into these issues to attract much needed foreign investment," he observed.

He called for increase in tax to GDP ratio to overcome the issue of fiscal deficit, adding that phenomenal increase in country's overall debts from Rs 6 trillion in 2008 to Rs 14 trillion in 2013 has also affected the economic activities to much extent.

He said that heavy government borrowing and currency devaluation could be blamed for huge debt that increases by more than Rs 63 billion when the dollar gains Rs 1. Out of total Rs. 2 trillion government revenues, he said, 58 percent went to provinces under NFC award, while out of remaining 42 percent, Rs 1 trillion was utilized for debt servicing, Rs 600 billion for defence and Rs 500 billion were spent on public sector enterprises including Railways, PIA, Pakistan Steel Mills and WAPDA etc.

Abdullah Yousaf suggested the resource mobilization and privatization of public sector enterprises to ensure economic recovery, and right taxation policies coupled with good tax administration would help ensure resource mobilization. The documentation of cash economy would help resolve low tax to GDP ration phenomena and for documentation, the creation of data warehouse of potential sectors and third party information were of prime importance.

He said that Tax-to-GDP ratio of Pakistan was low in the world, which stands at 9 percent of the GDP, however, low-income countries normally have tax-to-GDP ratio between 15 to 18 percent of the GDP. Middle-income countries have tax-to-GDP ratio ranging between 22 to 25 percent of the GDP, while this ratio in high income countries was recorded at 40 percent.

While, the LCCI President said the business community understood that the government should not introduce any ecomic policy without due consultation with the stakeholders for true implementation. Repeated issuance of SROs by the FBR was creating multiple problem for the business community therefore, in the larger interest of the economy, culture of SROs should be done away.

He said, all sectors of the economy should be taxed, citing that agriculture having 20.1 percent share in GDP was contributing only 1.2 percent to national taxes, while, manufacturing sector had 25.5 percent share and was contributing 62.2 percent and Services sector share was 54.4 percent and was paying only one third of its share in taxes.

Under invoicing and smuggling were hitting the businesses hard and stringent measures were needed to weed out these evils, he added.

The LCCI Vice President viewed that tax net could be widened by ensuring all transactions through banking channel.