RECORDER REPORT

KARACHI: The government should keep commercial arrangements outside political and judicial activism in order to attract foreign investments in Pakistan.

The recommendations, which are sent to the Board of Investment (BoI) by Corporate Pakistan Group (CPG), are focused on improving country's competiveness in all key areas-innovation, market efficiency and technological readiness leading to a sound investment environment in Pakistan.

It says that contracts/commitments should be honoured with timely and aptly respond to commercial disputes between different parties as one of the biggest reasons for low investment in Pakistan as its rank and reputation in handling contractual matters.

It says that the government should ensure stable policies for long-term investments because investment including industrialization takes place based on the prevalent policy framework and incentives offered therein and any change in the initially laid down policy can have a negative impact on the established projects; adding that an independent time bound dispute resolution mechanism should also be evolved.

For businesses to grow and expand in a bigger way, globally, Hold Co structure is a big incentive. However, the government of Pakistan has incentivized holding company structure for conglomerates to expand by exempting inter corporate dividends from tax. After a few groups created holding companies including Engro, the inter-corporate dividends was GOP re-imposed creating double taxation leading to an effective tax rate of 55 per cent for shareholders of holding companies and now corporations are contesting the cases in the court. Therefore, CPG suggests for a Hold Co structure and incentives to attract investment in the country.

It strongly urges to exempt the companies from turnover tax in initial years of business as the same could be a huge burden and can lead to project failure; adding that harassment being done by the federal and provincial revenue authorities must be stopped, which discourages people to bring investments to Pakistan.

The local ecosystem and supply chain is improving quickly and will further transform with CPEC, however a major logistics issue is export-related shipping for SME's hence Pakistan must invest in enabling infrastructure for small manufacturers for export markets. The amendments in SECP rules should be made to encourage Venture Capital Structures and Fintech Start-ups as it is a huge growth category which needs to be facilitated by creating awareness within various government authorities, including SECP, FBR, etc.

Textiles, Home appliances (beyond assembly) and footwear are some industries that can be relocated from China to Pakistan under CPEC, hence concessions to SEZ's must be conditional on jobs and exports which are incremental to and not at the cost of existing industry, it recommended. For attracting global investment, we need to brand CPEC as a Pakistani brand as we are providing huge global access to China hence the same must be capitalized. The CPG suggests that Pakistan places right kind of teams, possessing skilled acumen, business development capabilities and investor facilitation attitude in its foreign missions to attract investment and project the country's right image; adding that local investors should be given the same incentives as foreigners as it is more likely that local investors will keep their earnings in Pakistan rather than remit, which results in capital outflow in the case of the foreign investor as they would eventually take their capital back.

Therefore, Joint Ventures should be encouraged rather than 100 per cent ownership by foreign investors in addition to local investors should also be allowed to buyout companies abroad.

The long term "Make in Pakistan" strategy should align manufacturing with trade and must be overseen by the prime minister to put Pakistan on par with value-addition and export powerhouses like Vietnam. Taxes need to be equitable, regionally competitive, promote investment and consolidation. The 4th industrial revolution is all about innovation which includes digital, biological and physical technologies hence there must be strong coordination between government ministries to cover various industry verticals.

Oil & gas sector has attracted 24.5 per cent FDI over last decade in addition to creating talent and technical capability. Petroleum exploration and production investment environment in Pakistan is fraught with risks, which emerge due to bureaucratic hurdles, cumbersome regulatory framework, slow implementation, inconsistent policies, law and order issues and foreign exchange availability.

Incentives based framework for shale gas must be put in place to encourage indigenous resource development.

DGPC and OGRA being the main regulatory bodies responsible for formulation and implementation of the policy but both organizations lack necessary expertise and competence. Therefore, the mechanism of promotion and appointment at the decision making and authoritative position should be competitive while restructuring in these organizations with due consideration for integrity and responsive attitudes, the CPG recommended.