SIFC unveils business-friendly roadmap
Special Investment Facilitation Council (SIFC) National Coordinator Lt General Sarfraz Ahmad on Thursday laid out a roadmap to make the economy competitive by substantially reducing the corporate tax burden, cutting down interest rate and having a pragmatic exchange rate.
In an address to Pakistan's leading businesspersons, the SIFC coordinator said that the country's "growth plan was missing". He urged all stakeholders to agree on an export-led economic growth model that can end reliance on protection and subsidies. He was speaking during the second day of the Dialogue on Economy, organised by the Pakistan Business Council (PBC) — the leading advocacy group of the nation's large business groups.
"We have made a mess of our fiscal situation. Only thing we can think of is taxation and you guys are the easiest prey because you are already in the net, which is further screwed," Ahmad said.
He said that the government was seriously looking at reducing taxes on the corporate sector and taxes like super tax, which was an ad hoc arrangement, should be removed. Ahmad said that there was also a need to reduce 29% corporate income tax to 25% and the inter-corporate income tax must be eliminated. After adding all taxes, the effective corporate income tax rate is over 50%, which is not sustainable, he added.
His statement came three weeks after The Express Tribune reported that the government was considering reducing the corporate income tax from 29% to 25%, the maximum individual rate from 45% to 25%, abolishing 10% super tax, ending 15% inter-corporate dividend tax and cutting sales tax from 18% to 15%.
The business-as-usual approach will not help Pakistan, said the coordinator, adding that authorities were not encouraging corporates to grow and they are splitting up because of these types of taxes.
"There is an absolute consensus in the government that this excessive taxation format cannot take Pakistan forward, so we have to correct it," said Ahmad.
The SIFC official also advocated lowering interest rate, saying that "interest rate must also be reduced", which cannot be permanently kept at 11% when inflation is going down. The "monetary policy must reflect ground reality", said the national coordinator. "Unfortunately, we have a shrinking fiscal space. We have a large energy sector circular debt. This combined with exchange rate challenges, interest rate problems and other factors has created the maximum pain cycle we are now experiencing," he added.
Ahmad said that artificial maintenance of exchange rate was also not a good idea and "we need a pragmatic, competitive, market-oriented framework — while keeping our vulnerabilities in mind".
Growth model missing
The SIFC coordinator said that Pakistan's economy had stabilised because of the efforts put in by all stakeholders but argued that "what is missing today is the growth plan". "A real growth plan is missing that we need to bring on our tables."
He said that Pakistan had a consumption-led and debt-prone growth model. "If we embark upon the same path, the same results will come out and we will again be rushing to the partners for financial support." He said that the choice was between export-led and import-substituted economic growth model and "we need to create a consensus and everybody understands that export road is the solution".
"Pakistan's industry is mostly consumption led, either foreign or local investors. Everybody is looking for consumption. But we need to change this course," he added.
He advised businesspersons to start working without thinking about protection and fiscal incentives. "If we want export-led growth, we must prioritise incentives that support exports, not protections that distort the economy."
He also said that businesses "took advantage" of the economic situation. "You took advantage of the broken playing field and you made profits." So now both sides have to play their roles. The national coordinator also spoke about the capital flight from Pakistan by businesspersons. "Pakistani capital earned from Pakistan finds its final destination in the UAE, London, Singapore and New York. Hardly anything earned here is reinvested here," said Ahmad.
Low investment
He said that foreign direct investment (FDI) was not increasing in Pakistan because of multiple reasons. The net FDI was low hovering around $1.2 billion and "until our own business community invests in Pakistan, foreign investors will not," he added.
He said that FDI should at least be doubled to $2.5 billion per annum but added that the country should only welcome foreign investment in export-oriented sectors.
During the past one decade, the investment mostly came in the power sector and dividends flew out of the country. Pakistan has to differentiate between good and bad FDI and "we need to discourage consumption-based FDI". Foreign investors are interested in consumption and airports, he added.
"We have realised that until local investors start investing in, foreign investment would not come. Pakistani investors are investing in Egypt and Saudi Arabia." Now, the FIFA World Cup footballs being made by Pakistani investors will be labelled "Made in Saudi Arabia", he said.
Ahmad said that the special forum had been created to facilitate FDI from Saudi Arabia. It came into being around two years ago. Under the government-to-government framework, Saudi Arabia wanted a single window.
After 2024 elections, the SIFC mandate was narrowed to identifying projects for foreign investment, correction of policies and facilitating businesses.