Social enterprises sector: 'Regressive taxation needs to be curtailed for better growth'

Rana Muhammad Afzal Khan, Parliamentary Secretary, Ministry of Finance said on Wednesday that regressive taxation needs to be curtailed for a better growth of the social enterprises sector.
"The government is working on introducing regulations and policy framework for Social Enterprises," said Khan while addressing the launching of research study on "Social Enterprise Landscape in Pakistan," jointly organized by the Sustainable Development Policy Institute (SDPI) and the British Council.
Being social in nature; the regressive taxation should be curtailed for a better growth of the sector. There are thousands of charity institutions and foundations, which come under the umbrella of Social Enterprises, working without regulatory framework. He said the Social Enterprises need to serve the underprivileged section of the society. Executive Director, SDPI, Dr Abid Q Suleri said there are gaps in the outreach where the government does not have access and, the Social Enterprises can fill the void. There is no agreed definition of Social Enterprises; however, Social Enterprise is about welfare of the people.
Since the social sector is neglected in Pakistan, there is room for these enterprises to grow, involving local people and using local knowledge. Now, the government needs to recognize the potential of Social Enterprises for service delivery and as contributors to overall economic growth. Channelising them through an enabling framework is the first step in the right direction, he added.
Jim Booth, Director Programmes, British Council said there is need to do much more to unleash the potential of Social Enterprise in Pakistan. These research aims to create discussion on the subject of Social Enterprises. The British Council in Pakistan promises to collaborate with various institutions to build a stronger and inclusive society.
The study recommended that the Centre for Social Entrepreneurship (CSE) established by the Planning Commission needs to formulate, through consensus, a broad definition of SE that is easy to interpret within the Pakistan context. This definition may be communicated to SECP so that SE-specific company rules can be framed. It further recommended that CSE should collaborate with the FBR to devise an effective and fair tax regime for SEs. It recommends a joint Planning Commission - FBR working group in which representatives of SEs may be co-opted. As part of this proposed working group, provincial revenue authorities may be invited in order to resolve any double taxation issues faced by SEs.
SECP's legal framework should include SEs in procurement competitions by the public sector. PPRA should be approached by CSE to amend the rules and introduce a minimum quota for SEs, at least for projects with social impact, the study recommended. In line with Vision 2025, establish a competitive R&D fund for innovative products and services, particularly in start-up and early-stage SEs. Convene a working group between government, financial institutions and the private sector that seek blended social and financial returns on investments.
The group's recommendations should feed into the SBP prudential regulations proposed for SEs suggested above. Convene an inter-provincial co-ordination group for subsidised infrastructure support (eg land, building and ICT services). The inclusion of SEs in public sector procurement competitions and customised training programmes through organisations such as SMEDA and PPAF, it added.
Work with the Planning Commission's CSE to introduce SE-specific tax laws and incentives to help build and grow SEs. SEs contributing to capacity building or export receipts should be allowed sales tax rebates similar to the terms awarded to other mainstream export-oriented sectors.
CSE should form a tax working group comprising representatives from the FBR and provincial authorities to reduce the tax related transaction and compliance costs and remove any double taxation. The provincial revenue authorities should consider a reduction in general sales tax on services provided by SEs. CCP should conduct a detailed regulatory impact assessment focusing on key barriers that hinder the expansion of SEs, prevent them from exporting and stifle product sophistication and diversification. It further made regulation to remove unhealthy and anticompetitive behaviour that harms producer and consumer welfare.
The study recommended that Trade Development Authority of Pakistan should conduct a detailed study on how the export competitiveness of SEs can be enhanced and on how SEs in other countries were enabled to grow and become part of regional and global value chains.
TDAP should develop and enhance market access for SEs, including their inclusion in various trade-related facilitation measures and support services, such as through the Strategic Trade Policy Framework, formulated by the Ministry of Commerce, the study recommended.