Analysts say govt is failing to attract private sector due to poor taxation polices, political uncertainty
ISLAMABAD: Unlike Foreign Direct Investment (FDI), which has shown growth in recent past, private investment has dropped despite the escalating business activities under the China-Pakistan Economic Corridor (CPEC). Analysts mainly believe that the unfavourable taxation system and political uncertainty in the country has led to a decline in these investments.
The private investment in GDP terms was declined to 9.9 per cent in FY 2016-17 as compared to 10.2 per cent recorded in the financial year 2015-16. The downfall in private or domestic investment continues despite investment from few prominent international firms and Chinese investments, analysts claimed.
“The most unfortunate thing is that our own influential investors in various sectors are not investing in the country. They would rather invest in Dubai and other countries,” they said, adding that in developing countries, private investment plays a greater role than public investment in determining economic growth.
“The reason of distrust and lack of investment on the part of domestic investors is the taxation system which is not only complex but largely unfair as every province has different tax policy.
The existing taxation system discourages investment from the domestic investors. The foreign firms, which have plans to make investment in Pakistan, have actually been pursued by their business friends or partners in Pakistan,” an analyst said.
“We have not seen any considerable investment by our businessmen in textile, chemical or other sectors. The private investment to GDP ratio is over 18 per cent in the developing countries, like India, Bangladesh, and Sri Lanka. Even Afghanistan has a greater private investment to GDP in comparison with Pakistan,” he added.
Contrary to the expectations that CPEC will spur private investments, the ratio of investment in GDP terms was showing a declining trend. The World Bank had earlier claimed that successful completion of an IMF-supported programme has helped achieve macroeconomic stability in the country. According to its Global Economic Prospects of June 2017, the CPEC and a stable macroeconomic environment will give a spur to private investment in Pakistan. It said favourable weather and increased cotton prices are supporting agriculture produce.
However, unlike the projections and despite work on CPEC being in full swing, private investment to GDP remains in doldrums.
According to analysts, the private sector is not showing confidence in the Pakistan Muslim League-Nawaz (PML-N) economic policies, which could be clearly seen in its [private sector] holding back on new investments as well as its indication of low business sentiment.
According to last quarter’s business confidence survey of OICCI, there is a significant drop in terms of intention to make new capital investments, probably because of concerns over the availability of energy, security and government policies.
At a stage where the CPEC project cycle should be visibly drawing in substantial investment from the country’s private sector, the negative outlook regarding future investment decisions by businesses poses a cause for concern.
According to the analysts, a large part of the problem is that the PML-N government does not have a coherent framework for economic growth nor is it relying on the right instrument in this case (higher public spending). Businesses have been over-burdened by Finance Minister Ishaq Dar’s ill-thought out and downright damaging tax policy; until these flaws are understood and rectified, there is a very little chance of returning to durable long-run growth based on significant turnaround in private investment.
Former SBP Governor Ashraf Wathra, in his last press conference, had admitted that the loans obtained by the textile exporters from the banks under the textile package were invested in the real estate sector– a relatively safe sector in the country to make investments.
