A message for SIFC: Open Pakistan for Business
21 March 2024
Published in: Pakistan Observer
Pakistan must reduce regulatory burden and streamline processes. Cut down on paperwork and bureaucratic hurdles for starting a business. Utilize online platforms and one-stop shops to expedite the process. Obtaining licenses and permits can take several weeks depending on the industry and required approvals.
In Singapore, company registration takes a day through an online system (ACRA BizFile). Obtaining licenses and permits are integrated into the online registration process. Tax registration is automatically done during company registration.
SIFC must analyze existing regulations and eliminate unnecessary red tape that stifles business activities of foreign companies. There is a need to ensure clear regulations with consistent interpretation and enforcement. This will foster trust and allow foreign businesses to plan for the future.
SIFC must enhance ease of doing business with foreign investors by offering competitive tax regimes. Currently, Pakistan’s corporate tax rate stands at 24%, which is higher than that of several countries also trying to attract foreign investors. For instance, Vietnam offers a corporate tax rate of 20%, India at 18%, and Singapore at 17%.
SIFC must look into simplifying import and export procedures. There are four crucial factors: import tariffs, non-tariff barriers, customs procedures and documentation requirements. Pakistan has the highest average tariff rate among India, Bangladesh and Malaysia. Pakistan faces the most complex non-tariff barriers. Clearing customs in Pakistan is extremely complex. And, Pakistan requires the most extensive documentation.
SIFC must focus on four measures to cut down on paperwork and streamline processes: digitize government services by developing online portals for submitting applications and renewing licenses and permits. Implement secure e-signature solutions, utilize cloud storage solutions and offer multiple language options. Paper-based systems must gradually be phased out.
Here is how Pakistan will benefit: Streamlined company registration, licensing, and tax processes will allow foreign investors to focus on setting up operations and begin generating profits sooner. Cutting down on paperwork and bureaucratic hurdles will translate to lower administrative costs for foreign businesses operating in Pakistan. Additionally, competitive tax rates compared to regional competitors will further improve profitability.
A study conducted by the IFC revealed that a mere 10-point surge in the Doing Business ranking could result in a 2% upswing in Foreign Direct Investment (FDI) inflows. During the 1980s, both Pakistan and Singapore witnessed FDI inflows of approximately $60 million a year. Fast forward to last year, Singapore recorded an impressive $150 billion while Pakistan saw a modest $1.3 billion in FDI. These figures strongly imply that reducing regulatory burden and streamlining processes in Pakistan have the potential to lure in billions of dollars in fresh foreign investment.
The adage “countries do not prosper, regions do” holds particular weight in South Asia. Geographical proximity often plays a significant role in fostering strong trade partnerships. Look no further than the US and Canada, whose total trade in goods and services surpasses $600 billion. This economic interdependence highlights the benefits of regional cooperation. Interestingly, even countries with political tensions can find common ground in trade. While India and China have had border conflicts, their bilateral trade now exceeds $135 billion. Similarly, despite the ongoing political dispute between China and Taiwan, China remains Taiwan’s largest trading partner.
These examples demonstrate the power of economic ties, even amidst political complexities. In South Asia, Pakistan and India, as close neighbors with vast potential, stand to gain significantly from increased trade and regional economic integration. Pakistani companies would gain access to a vast Indian market of over 1.4 billion consumers, leading to potential sales growth and economic expansion. Open trade with India would allow Pakistani businesses to access advanced technologies and expertise readily available in India. With increased economic activity and business growth, trade with India has the potential to create new jobs in Pakistan. This could lead to higher incomes, poverty reduction, and improved overall standards of living for Pakistani citizens.
Pakistan cannot afford to wait. The potential for Pakistan is undeniable, with a young workforce and a strategic location. Streamlining business registration, simplifying regulations, and offering competitive tax structures are not just options – they’re essential steps for unlocking billions in foreign investment. By taking decisive action now, SIFC can transform Pakistan into a magnet for global businesses. SIFC has an opportunity to rewrite Pakistan’s economic story.
