Working on a new industrial strategy

Speakers at a workshop in Islamabad on industrial policy organised by the Federal Ministry of Industries and Production towards the end of last month, pinpointed a number of factors which have so far impeded investment in the industrial sector in the country.
The workshop was chaired by Industries Minister Jahangir Tareen, while speakers included Dr Ishrat Husain, Governor of the State Bank of Pakistan, Dr Salman Shah, Advisor to the Finance Ministry, Dr Kamal Ahmed, PIDE Chief, former Commerce Minister Abdul Razak Dawood, Shahid Kardar, Dr Ijaz Nabi and a number of other belonging to prominent corporate companies in the country. The workshop was aimed to seek guidelines for the Industries Ministry in the formulation of a new industrial strategy which, according to the Industries Minister, would be launched by January 10, 2005.
Major hurdles identified by various speakers included unsatisfactory law and order situation and lack of political stability in the country, besides the relatively high rate of taxation, multiplicity of labour laws which were as many as 27, uncertainty about the availability of energy, absence of adequate and efficient port and transport facilities, duplication of public sector agencies overseeing investment activity, etc.
It is true that the law and order situation has remained the major cause of discouragement for investors, specially foreign investors who would definitely not like to sink their capital in the midst of dangers to their life and property.
The situation, although intermittently showing brief periods of improvement, has continued to be extremely disturbing over the last two decades. Grave threats on the law and order front have been visible in different forms such as terror acts, bomb blasts, attempts on the lives of important personalities including the President, and ethnic killings at places of worship, etc. Additionally, equally alarming sabotage activities aimed at destruction of gas pipelines in Balochistan have impeded exploration activity in that region.
As for the economic policy, the participants at the workshop pointedly referred to the existing high level of taxation in Pakistan as compared to other developing countries. The present rate of income tax at 35 percent on corporate income has been described as too high while the rate of sales tax at 15 percent combined with the existing rates of import duties was also identified as discouraging factors for investors in Pakistan, and, therefore, they emphasised, restructuring of the tax regime was necessary. At the same time it was pointed out that the requirement of 7 percent contribution by industrial companies to workers profit participation fund was a burdensome levy which in effect increased the total income tax to 42 percent. Efficient utilisation of this fund by the government was also emphasised. Dr Salman Shah reportedly indicated that the taxation structure in Pakistan would be streamlined on the pattern of the one adopted in Ireland.
The speakers also criticised the dual role of the Central Board of Revenue as a collector of taxes and at the same time enjoying power to make taxation laws. The issuance of SROs by the CBR has been time and again criticised by the business community as it has been found to be frequently discriminatory which did not permit creation of a level playing field for the industries in general.
The Industries Ministry reportedly assured the workshop that this role of the CBR would be given due attention in the preparation of new industrial strategy. It is expected that the reforms already under way in the taxation system, including the restructuring of the CBR as spelt out in a World Bank report on Pakistan, would lead to the desired change in the functions of the tax collectors.
Another irritant spotlighted by the speakers was the long list of labour laws in Pakistan. Former Commerce Minister Abdul Razak Dawood had recommended a reduction in the existing number of laws from 27 to only 6 but the proposal yet to be implemented.
There can be no two opinions that these labour laws have been causing immense problems for the industrial sector, eroding its profitability and discouraging further investment in expansion. It was pointed out by a speaker that suitable amendments in labour laws would enable the textile industry to earn additional export proceeds of $3 billion.
The efforts on the part of the Ministry of Industries to frame a new industrial strategy would be seen as a welcome move because a step-up in industrial investment alone would make it possible for the country to open up new avenues of economic development in the country besides creating new employment opportunities for the workers at large.