The Planning Commission has proposed that the three regulators-State Bank, Competition Commission, and Securities and Exchange Commission of Pakistan-should map out all protections and subsidies being given on goods and services and implement the plan to eliminate the distortions.
These policy proposals have been suggested in a report titled ''Creating a place for the future and supporting the framework for Economic Growth'', launched by the Planning Commission vice chairman Dr Nadeem Ul Haq on Saturday. The report said that CCP, SECP, and SBP should map out, with respect to goods and services, the subsidies and protection currently operative, and implement a plan to eliminate these distortions.
The government should provide all necessary resources to ensure that the above objectives are met, which involves funding the CCP and ensuring that it has the authority to make decisions independently. The Competition Commission should be the body responsible for the attainment of level playing field in Pakistan''s markets. As such, the government should consult the CCP when framing or drawing up industrial and trade policies. This is particularly important when tackling privatisation and granting concessions.
As a general policy, the government should refrain from entering into agreements with vertical industries on product pricing, costs, distribution, and the level of production. The enforcement of contract needs to be strengthened through efforts currently under way to improve the functioning of courts. The regulatory institutions should be strengthened while the quality and reach of financial service delivery must be improved, the Planning Commission said. The existing regulatory framework for non-bank financial institutions should be rationalised for ease of entry and exit, and their prudent functioning.
The CCP has identified four mechanisms by which government actions impede the attainment of level playing field. First, the overall duty structure on imports varies enormously between raw materials, intermediate inputs, and no clear rationale is discernable in terms of the objectives that are being pursued. The endless list of exceptions, exemptions and variations defy the central principle of efficient taxation in which similar activities should be similarly taxed. The actual impact of high tariffs is the widespread abuse in the form of smuggling or informal imports.
The government, in the meantime, has become dependent on import duties as a vital source of revenue and is reluctant to rationalise them. Secondly, to attract foreign direct investment (FDI), tax holidays and tax-free zones have been the modus operandi in Pakistan, as elsewhere. But tax concessions for FDI, aside from leading to significant revenue losses, also lead to unevenness in the domestic playing field.
Third is the forced subsidisation of the production and sale of staples in household budgets--wheat flour and sugar in particular. However, the actual impact of subsidies on production and prices is often unpredictable and the situation is rendered even more complicated in an inflationary environment.
Finally, public procurement procedures have a major impact on competition in the country. Prime examples are the Frontier Works Organisation (FWO) and the National Logistics Cell (NLC), two entities dominant in road building and road haulage and indirectly controlled by the state. Over time, their dominance has tended to increase, rather than diminish, crowding out the rest of the competition. Competition, therefore, is not only vital on the national level, but also to the functioning of cities. Pakistan''s cities, like its markets, have not yet had the opportunity to develop in an organic manner, the Planning Commission observed.