Current Affairs with Sir Usman (PAS) 9/24/2024

Agenda of
reforms

How to overcome the dilemma

of Current Account deficit
Or
How to lessen the issue of
external vulnerabilities

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Current Affairs with Sir Usman (PAS) 9/24/2024

1. Promoting skilled workers outflow

• The country received $150 billion in remittances
during the five years from 2017 to 2022 and was
ranked fifth among the top remittances-receiving
countries in 2022. (Saleh Kamel Islamic Economy
Database)

• Changing global landscape:

 Russia Ukraine war dampens trade, Middle East
Quagmire,

• Learning from India’s experience: Sending trained

workforce abroad

2. Attracting FDIs
• A streamlined, one-window operation for company setup

• Sustainable and consistent industrial policies

• Active marketing and promotion of Pakistan as an investment destination

• Suggestions:
 Provide import tax concessions for SEZs
 One window operation
 Administrative autonomy with regulatory framework: As per section 27 (i) of the SEZ Act, it is the
responsibility of the provincial and federal government to ensure the provision of utilities to each SEZ.
 Fast tracking of SEZs already established under CPEC through SIFC

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Current Affairs with Sir Usman (PAS) 9/24/2024

• Case study: Learning from China

 FDI inflows surged from almost negligible in 1970s to $186 billion in 2022.
 After economic reforms in 1978, China established a number of Special Economic
Zones (SEZs). These zones were given autonomy in their investment decisions with
tax and tariff concessions, preferential income tax treatment and exemptions from
import licenses.
 Besides, China Council for International Investment Promotion (CCIIP) was
established
 Presently, it takes 256 days for a foreign company to establish a set up in Pakistan
and complete all processes involving several institutions i.e. Board of Investment
(BOI), Securities and Exchange Commission of Pakistan (SECP), Federal Board of
Revenue (FBR), State Bank of Pakistan (SBP) and relevant regulatory bodies.

3. Curbing food import bill

• Pakistan imports 75% of its Palm oil from Indonesia and 25% from Malaysia
under the Preferential Trade Agreement and Free Trade Agreement,
respectively

 Over 88 percent of the total edible oil is imported in Pakistan, leading to

substantial foreign exchange expenditure.

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Current Affairs with Sir Usman (PAS) 9/24/2024

4. Reviving exports
Low • Furniture, footwear, synthetic textiles
hanging and garments, food processing, surgical,
(short term) electronics assembly
Balanced
• Steel, Non-ferrous metals, Mining,
(medium
Petrochemicals, Electronics
term)
• Platform changing value chains (EV,
decentralized power storage, batteries),
Strategic
Clean Tech, Electronics (cell phones etc.),
(long term)
Electrical Machinery, IoT, Autonomous
vehicle

Diversification

Exports Output Quality

diversification Diversification upgradation

Across Existing
Across sectors
products products

Across
partners

Across services

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Current Affairs with Sir Usman (PAS) 9/24/2024

The IT
potential?

Case study of India:

• IT exports surpassing $250 billion today.

• For example, Apple assembled $14 billion worth of iPhones in India in fiscal
2024, Bloomberg News reported earlier this year.

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Current Affairs with Sir Usman (PAS) 9/24/2024

Gearing up Industrialization
1. South Korea's 4. Singapore's
2. China's Industrial 3. Germany's Dual 5. Turkey's Mixed
Export-Oriented Knowledge-Based
Cluster Model: Education Model: Economy Model:
Model: Economy Model:
•Pakistan's textile and •The Rashakai SEZ and •Implementing a dual •Lahore Knowledge •Pakistan’s existing
agriculture sectors can Faisalabad SEZ reflect education system is Park represents a step SEZs already
benefit from this model, efforts to create essential to address toward a knowledge- incorporate public-
especially in SEZs like specialized clusters. Pakistan's skills gap, based economy. But, private collaboration.
the Quaid-e-Azam However, unlike China, especially in Pakistan's innovation However, Pakistan
Apparel Park and Pakistan faces manufacturing and ecosystem is still must ensure more
Karachi Export challenges such as IT/ITES sectors within nascent, with limited effective management
Processing Zone. inconsistent policies, SEZs. However, this R&D funding and weak and accountability in
However, achieving the inadequate requires cooperation links between academia state-owned enterprises
same level of infrastructure, and between industries and and industry. The and create a more
technological energy shortages. educational government needs to business-friendly
advancement as South Overcoming these institutions, which may gradually build this regulatory
Korea requires issues will require be a long-term goal model by incentivizing environment, balancing
significant investment focused policy given current R&D, developing government
in infrastructure, continuity, better institutional stronger intellectual involvement with
energy, and power supply, and limitations and the property laws, and private sector
technological targeted investment need for significant fostering university- incentives.
upgradation, which rather than expecting curriculum overhaul. industry partnerships.
may be gradual due to rapid transformation.
financial constraints.

Pakistan's capacity to mobilise taxes is greatly under-explored. With a tax-to-

GDP ratio of 8.5% along with an undeclared economy almost the size of the
official economy, the potential for tax collection is astronomical. With an
estimated total economy twice the size of Rs1,000 trillion official economy at
a modest tax collection of 16% puts a revenue of Rs 32,000 billion in sight,
compared with the paltry Rs 9,400 billion being collected. Why, then, is
Pakistan unable to collect the fair share of taxes its economic activity can
generate?

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Current Affairs with Sir Usman (PAS) 9/24/2024

Efforts should include:

 Reducing distortive exemptions

 Tapping new tax bases in agriculture and land

 Simplifying compliance for the taxpayer.

 Special Investment Facilitation Council (SIFC) has finalized a digitization and

restructuring plan of the Federal Board of Revenue (FBR) …removing obstacles to tax
collection and improving the efficiency of the tax machinery. Tax revenue collection will be
increased to 18 percent of GDP by 2029 from the current level of 8.5 percent

Recommendations to broaden tax

net(WORLD BANK)
1. Improving federal-provincial coordination is critical.
 coordination of tax bases
 creating a single tax market
 reducing the number of required interactions between taxpayers and revenue authorities
 Ongoing digitization efforts should be accelerated to reduce compliance costs and minimize the need for
interactions between taxpayers and collectors. This should include faster progress with:
 (i) data sharing between tax agencies
 (ii) making mandatory use of Computerized National Identity Cards (CNIC) for transactions, particularly of assets
 (iii) development of a single portal for the sales tax
 ) digitization of land records and digital imagery of urban and rural lands.

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Current Affairs with Sir Usman (PAS) 9/24/2024

Federal level
• 2. closing exemptions, simplifying the tax structure, and raising new
revenues through excises.
 Close corporate tax exemptions.
 this could include exemptions for power generation projects, which amounted to PKR 37
billion in FY21 and exemptions for real estate investments, which amounted to PKR 26
billion. Savings would be sufficient to fund 35,000 teachers on the average public sector
salary, over two-thirds of Balochistan’s teacher population
 Increase excise duties on socially harmful goods.
 Reduce tax expenditures in the energy sector and for COVID-19 response.
 3. Close exemptions for basic household items.
 Removing exemptions for food items including oil, pulses, animal, fruit, and dairy, could save
PKR100 billion in revenues. Current concessionary rates on fertilizer impose fiscal costs of
PKR 90 billion..!!!!!

At the provincial level

3. improving own source revenue and accountability, including taxation of land and
agriculture income.

• Provincial governments can significantly increase revenues through improved, increased and
progressive agricultural income taxation
• Reforms to:
• ensure appropriate categorization of land—taking account of size, location irrigation status, and area-based productivity
aspects into tax rates. Simulations of an acreage-based tax indicated potential to generate additional provincial
revenues of around one percent of GDP.

• Provincial governments can significantly increase taxation of land.

• generating up to two percent of GDP in revenues:
i) continue or complete the establishment of reliable records of land ownership linked to NCICs and TINs;
iii) increase property tax rates to match those applied in peer economies
iv) improve the policy and legal framework to ensure that sizable and growing peri-urban settlements outside current
notified municipal boundaries are also subject to appropriate land taxation.

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Current Affairs with Sir Usman (PAS) 9/24/2024

Conti…
4. Reforms to current fiscal institutional arrangements should be pursued over the
medium-term.
 Over the medium-term, GST administration responsibilities should be consolidated with a
single agency.
 Federal and Provincial governments could agree to the establishment of a single administration,
 Revenues collected by the consolidated tax authority would continue to be distributed according to the 18th
Amendment.

5. Reforms to grow the economy and encourage formalization will also support
sustainably higher revenues.
 Pakistan’s revenue potential is limited by the current structure of its economy.
 broader measures to encourage investment, economic growth, and formalization, including through reforms to
improve the business enabling environment, remove the anti-export bias in trade policies, and reduce the
presence of the state within the economy

FBR related measures

discourage parking
of black money in • FBR values should reflect the market values
real estate
• FBR should be empowered to coordinate with utility
companies, banks, registrar of properties etc., to identify
identify potential tax evaders.
tax payers and • NADRA and other databases/sources of information
make it expensive should be mined and AI deployed to expand the tax net.
for them to remain • The rates of advance tax for those industrial and
outside the tax base commercial customers who are not registered for sales tax
should be increased to 20%. The same differential should
apply to Gas bills.
To make it • Tax returns and processes should be simplified and
attractive to join digitized. Personal interface between tax payers and tax
the tax base and officers should be minimized
easier to file tax
returns

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Current Affairs with Sir Usman (PAS) 9/24/2024

Transfer management to private investors

The chaotic pursuit of privatisation of cash-bleeding
SEOs

The massive annual losses of Rs500 billion incurred by the SOEs, which form a part of
growing public expenditure, have become a major drag on the national budget, with
their accumulated losses topping Rs2.5 trillion or nearly $9bn. Moreover, the financial
burden of these resource-guzzlers, apart from haemorrhaging government budgets,
has also become a source of systemic risk for the financial sector.
The current privatisation list focuses on loss-making public enterprises and prioritises entities like PIA
and power distribution companies to reduce the government’s involvement and haemorrhage of taxpayers’
money.

“the profitability of Pakistan’s federal SOEs is the lowest in the South Asian Region” as their aggregate
profit at 0.8 per cent of GDP in 2014 turned into losses worth 0.4pc of GDP in 2020 and, growing, thus
becoming a major driver of fiscal deficit and source of substantial fiscal risk. (WORLD BANK)

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Current Affairs with Sir Usman (PAS) 9/24/2024

STEPS TAKEN:
The current privatisation initiative, undertaken under the army-backed Special
Investment Facilitation Council (SIFC), aims to sell shares of certain public assets to
investors from friendly Gulf countries.
 The authorities expect a massive investment of more than $50bn from the United Arab Emirates
(UAE) and Saudi Arabia alone over the next five years. So far, however, only a fraction of the
investment has been made by investors from these two countries in Karachi Port and a private
oil marketing company.

Privatisation of loss-making public entities and improvements in the governance of

others are also major goals of the ongoing International Monetary Fund (IMF) rescue
loan as part of structural reforms.
 IMF wants early privatisation of PIA, Pakistan Steel Mills, RLNG power plants, and electricity
distribution companies.

BENEFITS of privatisation of SEOs

• Pakistan started privatisation of the state-owned enterprises in the late 1980s under the IMF’s
Structural Adjustment Programme (SAP) when the first Benazir Bhutto government offloaded
15pc shares of PIA through the stock exchange. The privatisation transactions have
returned a gross value of Rs650bn (approximately $2.36bn) to the government during
the last three decades.

• The privatisation of banks, the telecom industry, and electronic media is often
underlined as huge success stories that must encourage policymakers to disinvest the
remaining SOEs to save taxpayers’ money, improve efficiency, create more market
competition, and encourage greater private sector investment and participation in
the economy.

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Current Affairs with Sir Usman (PAS) 9/24/2024

The hurdles in the privatization

process:
• The authorities must consult widely and involve professionals AND regulators should be
made independent

• economic volatility, judicial activism and resistance from trade unions, litigation,
fears of monopoly creations, weak political commitment, and perceptions of
corruption cost post-2007 as key factors leading to unsuccessful privatisation
efforts. WORLD BANK
 “Judicial decisions in the Pakistan Steel Mills privatisation and Reko Diq mining contract cases
badly hurt Pakistan’s image as an untrustworthy country where international contracts are not
honoured, and businesses always run the risk of falling victim,” -WORLD BANK

Some other major

reforms

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Current Affairs with Sir Usman (PAS) 9/24/2024

Refocusing on strategic Investing on human

Back to agriculture:
development projects: capital:
• augmentation of water • Overall, almost 46 • According to the latest
resources through early percent of the economy UNDP Global Human
completion of dams and of Pakistan is directly or Development Report.
on investment in indirectly dependent on The HDI of Pakistan is
upgrading and agriculture 0.544 and it is ranked
modernizing the • The ‘back to agriculture’ 161st out of 191
electricity distribution slogan: countries
system • Increasing import • India  132nd,
duty: currently it is Bangladesh  129th
13pc. In India it is
34pc.
• Dropping price
support mechanism for
sugar and continuing
it for cotton

Management of the Power Sector

• The following options may be explored.
 i) Privatization of DISCOs. The experience with K-Electric needs to be reviewed.
 ii) Provincialization of DISCOs.
 iii) Handing back power distribution to WAPDA as was the case up the mid-90’s,
which will also facilitate power sector vertical integration.

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Current Affairs with Sir Usman (PAS) 9/24/2024

Exploring Blue Economy Potential

• In the wake of the pandemic's devastating impact on livelihoods,
employment, and supply chains, the Blue Economy has emerged as a critical
focus for sustainable economic activity. The Blue Economy encompasses a
wide range of areas, such as marine affairs, offshore hydrocarbons,
renewable energy, food security, energy security, climate change, ocean
conservation, refugees at sea, oil spills and the environment, gender
equality, tourism, maritime law, shipping regulations, sustainable
development goals, international maritime organizations, shipyards,
desalination, coastal wastewater treatment, inland waterways, port and
shipping digitization, geopolitics, economic zones, water sports, healthcare,
and fishing.
• Pakistan's extensive coastline of 1,046 kilometers and its 240,000-
square-kilometer Exclusive Economic Zone (EEZ) in the Arabian
Sea provide abundant marine biodiversity, offering significant
opportunities for sustainable development and economic prosperity
through the blue economy

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Current Affairs with Sir Usman (PAS) 9/24/2024

Papt papers question

• CSS 2023

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