Corridor creates investor interest

Expatriate Pakistanis are said to be queuing up for investment in Pakistan because they believe that the Pakistan Army will ensure implementation of China-Pakistan Economic Corridor (CPEC) and they feel Pakistan's economy would do well because of infrastructure development envisaged in CPEC. However, their investment is restricted to real estate and bourses - where they feel the Federal Board of Revenue's tax hounds are still playing 'blind'. Further, they feel that the Western powers are increasingly making outward flow of funds from Pakistan increasingly difficult.
The guesstimates could be way off the mark or within the ball park. However, if at all true, they do reflect that the size of undocumented economy is sufficiently large enough not only to absorb these funds but also provide a lucrative return on investment - higher than the returns obtained from investing in industry. State Bank of Pakistan researchers also feel that construction activity in the country is on the rise. And, sizeable increased sales of rolled steel (sarya) and cement reflect that. Further, it is also felt by SBP that other ancillary industry such as cables, paints and varnishes may also benefit from enhanced construction activity. This would also be good for the economy too since millions of unskilled labour would also be accommodated with enhancement in construction activity. However, the social effect of such a development needs to be studied and it should not result in a fall in agricultural output, or increase in inflation and also the adverse effect of mass migration to cities would need to be handled in a planned manner.
Thus, the government should formulate a plan wherein every sector pays taxes with horizontal and vertical equity so that the internal rate of return in industry as well as agriculture is commensurate with economic activity. Tax collection from every segment of society needs to be reflective of each sector's contribution to the economy which at present is woefully lopsided. The contribution from industry shows that it is over-taxed - while services are under-taxed - if banking and insurance contribution is excluded from services it would show that retail, wholesale and transportation sectors contribute virtually a pittance. The ongoing tussle between the government and retailers is indeed a sad reflection of this. The PML-N-led government must remain firm. Exclusion from audit for three years should allay any fears of retailers due to a sudden jump in their turnover. Thus, the rate differential between a filer and non-filer should be retained. Taxing all banking transactions clearly proves FBR's failure to properly collect taxes and also reflect the loopholes that have turned the present tax system into a sieve. Every country has its strength and weaknesses. Philanthropy in this country is its strength and collecting taxes its failure. This failure must be turned into a success story if the country is to become a sovereign state in letter and in spirit.
The criticality of timely implementation of projects envisaged in CPEC is essential for Pakistan's sake. We fear, however, that keeping the present way of governance, in mind, we do not see these projects' completion on the agreed schedule. Further, the government claims that financial assistance for CPEC projects is an investment from China. However, these are in fact syndicated loans extended by the Chinese government to Chinese companies for offshore contracts and for the debt position Pakistan has committed a handsome return to these Chinese companies - after recovery of construction and operational costs at a very high rate of interest. According to National Highway Authority's documents, the loan amount will come from China's Export-Import Bank. And, Pakistan has to come up with the rupee component for these land routes construction. If our past is any guide, the axe falls on the public sector programmes when it is crunch time. The total cost of projects under CPEC is Rs 1.122 trillion and the federal government has allocated Rs 942 billion in the current budget of FY16. But allocation and disbursement are two different things. There is always a slip between the cup and the lip. We hope our fears are misplaced - CPEC is a ray of light in a dark tunnel of despondency and despair.