In his pre-budget consultative meeting with business leader, Prime Minister Imran Khan assured them that his government wants to improve the Ease of Doing Business Index by taking measures to create business friendly environment. These policies will be worked out by taking business community into confidence because the job of the government is not levying taxes alone but to provide facilities to taxpayers as well. Earlier, the meeting of the business community on the proposed withdrawal of zero-rates facility of sale tax from five export industries had ended in deadlock. These industries contribute to bulk of the exports of value added items.
Pakistan went down sever rungs of the ladder on the World Bank Ease of Doing Business to 147th position in 2017. The zero-rated facility and subsidy in the electricity and gas tariffs given to the exports industries brought a slight improvement in this index to 125th rank on the index. The deterioration in business environment is the cumulative result of regressive fiscal policy, abandoning the formulation of industrial policies and installing the most expensive electricity generating system of high cost fuel fired thermal power plants.
Bulk of the direct and indirect taxes are levied on industry and business houses whereas the income generated in agriculture, building constructions, stock brokerage, legal and medical practice enjoy exemption from direct taxation. The expensive electricity and gas plus technological stagnation have made the business environment unfriendly.
The industrial policy which was framed in the government of President Ayub Khan had given a big boost to industrialisation in the country. Highly favourable economic environment of easy credit, technology imports, government spending on the institutions of research and development resulted in the growth of 8.5 percent in the manufacturing sector. Institutions like Pakistan Industrial Development Corporation had given impetus to industrialisation. But on the contrary, the policy of nationalisation of all private sector industries including big, medium and small industrial units plus private banks was a first death blow which was given to the economy by the Z.A Bhutto government. Since then the Ease of Doing Business Index started fast downward movement. The hemorrhaging public sector entities which devour annually Rs.1200 billion are legacy from that government. In the same government power generation policy from renewable sources was put on the backburner. And in Benazir Bhutto first government foundation of regressive fiscal policy based on largely indirect taxes was introduced which continues till today. It was in the same government that energy policy of highly expensive electricity generation from diesel and furnace was rigorously implemented and shady power purchase agreements were made with private power producers at highly inflated tariff and legally binding clause of payment for idle plant capacity.
No comprehensive industrial policy aimed at importing and indigenizing modern technologies was formulated whereas other developing countries like Bangladesh, Thailand, South Korea, Malaysia and Vietnam invested liberally in technology improvement, education and skill development. The industries of these countries are now using the fifth generation technologies and exporting low price high quality finished goods by virtue of economy of scale in industries. The price of electricity in Bangladesh is Rs. 5 per unit. Its exports from textile products alone is $ 27 billion, $6 billion more than the total exports of Pakistan, although a single cotton plant is not grown there.
In the developing countries of South East Asia promotion of contemporary knowledge and skill development got the top priority and they are reaping the fruits it over past20 years. In Pakistan education as whole and these aspects in particular continuously got the worst deal with slashing of allocation for education and skill development every year. Moreover, organisations of Research and Development like Pakistan Council of Industrial and Scientific Research and others were made redundant. Funding for research and development activities have been stopped and the Minister for Science and Technology is now talking about downsizing which will result in lay off scientists and engineers. The Malaysian Prime Minister Dr. Mahatir Mohammad in his visit of Pakistan gave a valuable advice to the ruling leadership to give 20 years tax holiday if it wants massive foreign investment in the country. The regressive, coercive and complex taxation regime and the highest in the region energy input prices are the factors responsible for the flight of capital and nosedive in foreign direct investment to $760 million.
