Investor-friendly Punjab

The province of Punjab enjoys the reputation of being a very investor-friendly province of Pakistan. The Chief Minister of Punjab personally takes the lead to handhold the induction of an investor in Punjab and seldom misses an opportunity to meet foreign investors who seek an audience with him.
The Punjab Board of Investment and Trade (PBIT), responsible for mobilizing and facilitating investment in the province, is also quite a vibrant organization.
The investors comparatively have a higher level of comfort in operating in Punjab. This is more notable in Lahore, on account of city's pleasant ambience, better governance, better security conditions, functional infrastructure, well-groomed human resource with attractive possibilities from all over the province and other soft conditions favourable to investment.
The decision making process of an investor invariably starts with the question of "returns on investment" followed by sustainability of investment, the security of investment, government policies, enforcement of contracts and similar. But if returns on investment or in other words profitability is not attractive enough, the investor does not proceed further.
It has surfaced that the cost of doing business in Punjab works out to be comparatively higher and a deterrent to investment.
It is reported that the Overseas Investors Chamber of Commerce and Industry (OICCI) has expressed its disappointment with the Punjab government's recent budget announcement, saying that its members have concerns over the tax provisions in Finance Bill 2017, which may not allow investors and the business community a level playing field, compared with other provinces.
In a letter sent to Finance Minister Dr Ayesha Ghaus Pasha, the OICCI - the largest chamber in the country with 195 companies onboard, which pays around Rs900 billion in tax revenues annually - praised many of the budget measures, especially the significant allocation for developing the industrial sector, including small and medium enterprises, social-welfare programmes, increase in minimum wages and others.
However, OICCI members were disappointed with the repeated failure of the provincial government to reduce the 16 percent sales tax, which was considerably higher than the 13 percent tax in Sindh for the past two years.
"Punjab has again decided not to align its taxation structure with other provinces and facilitate the level playing field for taxpayers across the country," the OICCI said.
The investors body pointed out that its members, after a review of the Punjab Finance Bill 2017, had noted a few areas of concern, which had the potential to spoil the provincial government's efforts to attract investment from both existing and new foreign investors.
The sales tax on construction-related services was reduced to 5 percent from the current rate of 16 percent, but without adjustment of input tax. "This will substantially increase the cost of doing business for a number of our members who have already initiated large investment projects and plans to invest in more projects."
In the finance bill, the timeframe for the initiation of proceedings against taxpayers was enhanced to eight years from the current five years.
"This will increase the burden on the taxpayers in terms of retention of record, besides creating a sense of uncertainty among the legitimate taxpayers," the OICCI commented.
Pointing to the clause (Section 16c) that would extend the input tax on machinery and fixed assets to be claimed in 12 months starting from the month of purchase, the OICCI said the change would have a significant negative impact on the cash flow and book-keeping.
It described as incomprehensible the withdrawal of tax exemption from data and internet services, except for students using up to Rs 1,500 worth of services.
In view of the already high sales tax rate of 19.5 percent, it said, the change had the potential to seriously impact the expansion of digital services, education and various e-projects launched by the Punjab government.
The OICCI urged revenue authorities to improve the taxation structure, making it fair, equitable, simple, efficient and effective, so that the country was able to substantially reduce the quantum of its huge undocumented economy.
The concerns of the OICCI, whose members excel in fair business practices and in faithfully meeting all their tax obligations by contributing their shares into the national and provincial exchequer, must be seriously addressed by the authorities concerned so as not to lose out on qualify investment potential in Punjab.
Punjab hosts many of the multinational companies with their headquarters in Pakistan based in Lahore.
Nestle of Switzerland is the world's largest food and beverages company with presence in 189 countries and 328,000 employees. Its operations in Pakistan, managed by its base in Lahore, is reported to be one of the biggest overseas operation of Nestle Global. Nestle is reported to have plans to expand its operations in Pakistan. Sika Chemicals of Switzerland, is expanding its production facilities in Lahore by five times its existing facilities. The same holds true for other multinationals based in Lahore like ABB of Switzerland, the global leader in energy and industry, Tetra Pak of Sweden, KSB Pumps of Germany, Buhler of Switzerland and other multinationals operating in Lahore.
Pakistan's global ranking in ease of doing business is on a constant decline over the last many years and its ranking for 2016 dropped to 138 out of 184 countries, as per the World Bank report published early this year. The parameters considered in the rankings are ease of starting business, construction permits, getting electricity, registration of property, protecting minority investor, trading across borders, enforcing contracts, paying taxes, resolving insolvency and getting credit.
Pakistan can do no better in cost of doing business because cost of electricity and the taxation regime is the foremost deterrent to foreign investors.
For any economy, foreign direct investment (FDI) is essential ingredient for spurring the host economy, country's technology transfer, provision of jobs and to improve the perception of the country by looping in global stake holders in the economy of the nation. Pakistan is no exception to these cardinal principles for economic growth.
Country's perception and ease and cost of doing business determines the level of interest of investors. Pakistan needs to identify gaps in these segments and work diligently to improve upon it. Punjab, needs to look at a larger picture and rationalize its tax regime as an incentive to investors for greater gains rather then as a deterrent to investors with comparative minor gains.
(The writer is former President, Overseas Investors Chamber of Commerce & Industry)