Business growth versus regulations

The businesses in Pakistan are strongly influenced and controlled by Statutory Regulatory Orders (SROs). A favorable SRO can usher in a period of windfall profits. Not only does this volatility often breed the market of speculators, it also brings into play vested and political interests to influence SROs. The annual budget of Pakistan is all about SROs which, each year, are a prime subject of deliberations by the country's business chambers, speculators, media channels and the two houses of parliament. Social aspects of the budget like poverty alleviation, health and education, affecting the larger segment of society, are hardly a point of deliberation at any of the said forums. The SROs issued are often in conflict with each other and government policies. Amongst these, the ones pertaining to industry and real estate are two good examples to understand this phenomenon.

To spur economy and industrial growth, the government has rolled out a number of incentives to motivate businesspeople to invest in industry and trade. One of the incentives offered is to minimise the harassment of businesses by taxmen. This was strongly appreciated by the industry. As things started to move towards a bit of positivity, the government recently promulgated SRO 889, which allows the Federal Board of Revenue (FBR) to install digital equipment on plants and factories to monitor production in order to prevent tax evasion. The move is being vociferously resented by the industry. Business chambers have argued that "more regulations and stifling rules will further discourage fresh investment in the industry. Industries in Pakistan are still growing and are not yet ready to comply with such rules and deal with discrepancies in monitoring production. Such rules will result in harassment and corruption."

On a similar note, the real estate sector of Pakistan has claimed that it is in a state of panic due to two recent SROs issued by the Federal Board of Revenue - SRO 773(1)/2020 in August and SRO 924(1)/2020 at the end of September - that pertain to the realty sector. SRO 773(1)/2020 states that banks will be required to report customers to the FBR in case they make payment of Rs1 million or more or deposit Rs10 million or more during a month. Whereas, SRO 924(1)/2020 states that all real estate agents will be liable to provide information of sale and purchase transactions and their ultimate beneficial owners to the FBR besides having to perform strict due diligence of their customers and FBR can conduct on-site inspections as well.

Here, too, the government has rolled out a number of regulatory incentives to restore the vibrancy in the real estate market, inclusive of a liberal amnesty scheme, tax concessions and protection from undue surveillance by taxmen.

The SRO pertaining to surveillance of industrial operations through cameras to deal with tax evasion is not practically workable. The legal, technical, management and credibility issues and consequences are so complicated and cumbersome that the prevailing competence of FBR will not be able to deal with this challenge. It is likely to turn out to be a fiasco.

On the other hand, the two SROs pertaining to real estate market surveillance also do not appear to be workable. The real estate market all over the globe prospers in an environment which is free from fear and undue surveillance and checks. The policymakers, therefore, need to revisit their policies of injecting growth into industry and real estate sector in light of multiple SROs which are found to be in conflict with their stated objectives.

(The writer is former President, Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2020