Prime Minister Yousuf Raza Gilani, while addressing the leaders and chief executive officers of the Afghan corporate sector and business community, at a breakfast meeting in Kabul, urged them to develop win-win scenarios.
Skeptics would no doubt challenge the veracity of this report released by the accompanying official media by pointing out correctly that the Afghan corporate sector/business community is very small, apart from that involved in opium, and hence the Prime Minister's exhortation is unlikely to change the existing ground realities by much. However, there is always room for improvement over time and, in this instance a favourable outcome in the future is credible, as it would be premised on the fact that the economies of the two countries are closely interlinked.
Pakistan's trade with Afghanistan is layered in several contexts: bilateral as well as regional trade, legal as well as illegal (smuggling). It is to the advantage of the two countries to expand their existing trade relations within the legal context. From the Afghan perspective, the recently approved Afghan Pakistan Transit Trade Agreement (APTTA) was a landmark achievement as it envisages allowing Afghan exports to India through the Wahgah border; from India's perspective, a country that was not a signatory, the Agreement is also positive as it includes an understanding that imports from India through the Lahore border customs points will be negotiated at some time in the future.
However, Pakistan would be able to use the land route through Afghanistan to trade directly with the Central Asian Republics. Critics do point out two inhibiting factors. First, the obvious one, is that the continued law and order problems in Afghanistan make the passage of our trucks unsafe and the level of bribes required to allow safe passage are so high that trade may not flourish as envisaged on paper.
Second Pakistan has been unable to take advantage of meeting the consumer product requirements of US and Nato forces stationed in Afghanistan, including bottled water, rice (in spite of the fact that Pakistan produces the best quality basmati in the world), etc. So far, the bulk of our revenue has been earned through the transport of goods that dock at our ports to the Afghan border. Thus, there is a need to focus on this particular aspect of production.
There is massive illegal trade that is ongoing between the two countries and this is a source of serious concern to the business community that is operating within the legal sphere. The APTTA does include some safeguards against smuggling, including biometric chips on trucks that are yet to be purchased by either country, and require vigilant border guards and customs officers, whose corruption on both sides of the border is legendary.
Be that as it may, it cannot be denied that if the two countries strengthen their trade ties they would benefit massively in theory at least. To translate theoretical gains into real gains would take time and one can only hope that the two governments deal with issues of corruption with an iron hand.
The commonality between the two economies is that the two are operating within an ongoing war context. Defence thus accounts for a major portion of annual expenditure leaving little for social and physical infrastructure development. In addition floods in Pakistan have left devastation on a scale that has affected not only the people, but also the crops and livestock. But such external and internal factors that are impacting negatively on our economy are compounded by the flawed economic policies of the government. It is by now, routinely acknowledged by the incumbent Finance Minister that the rich and influential in the country's national and provincial assemblies do not want a tax imposed on the rich landlords. What is not highlighted as much, is the fact that there is collusion in several sectors that allows the producers not only to use muscle to extract preferential treatment from the government with respect to taxation (for example the cotton sector) but also charge a price that is no less than profiteering (an example being the price of sugar).
There is ample evidence that the taxation policies of the present government are just as anomalous and inequitable as those followed by the Musharraf as well as all previous regimes. The federal government is seeking to impose reformed general sales tax RGST on raw cotton, with the refund payable expected to be delayed by over half a year to a year, an assessment based on past performance. This, as in the past, will compromise the cash flow problems of the value-added industry as well as its ability to compete internationally.
To conclude, it is critical for the government to ensure that the APTTA is followed in letter and spirit, but also encourages domestic output by formulating a tax system that is equitable and non-anomalous and designed to encourage productivity.
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