Conducive environment for starting and operating a local firm is crucial for accelerating economic growth. One of the top priorities of the sates is, therefore, to create business-friendly environment; inevitable for achieving higher economic growth and reducing unemployment. Nevertheless, conflicts and violence frustrate such efforts’ gear toward establishing peace and security as a public good.
The above lines describe the situation in Pakistan wherein doing business has become much more difficult as compared to 137 countries as the country has been ranked at 138 — 8th position below neighbouring India — out of 189 countries put on the ‘Ease of Doing Business Index’ of the World Bank, released in October this year. Adding insult to injury is that the country has further slipped two places.
Then, what were the factors responsible for the deterioration of business environment in the country?
Increased violence at national level, particularly since 2011, is the primary source of damaging the business environment. Violence has been in various forms such as urban crime, terrorism, human trafficking, civil war, etc. Karachi, the largest city and the hub of economic activity, has seen massive increase in brutal and senseless barbarism in the past decade that has caused considerable damage to business environs. The perpetrators of violence, such as terrorists and gangsters, were at large amidst weak institutional capacity insofar as a portion of business community, discouraged by the poor law and order situation in this mega city, started transferring their businesses to other countries for better returns on investment. Such a reaction was imminent because the security situation tends to modify the decisions of the investors — both domestic and foreign.
Terrorism, undoubtedly, has inflicted huge damage to peace and security in the country. In fact, Pakistan is the only country that has suffered colossal losses in terms of human lives, finances as well as physical infrastructure more than any other country in the world in fighting against terrorism. There happened deadly terrorist attacks on public gatherings, educational institutions, airports and army installations that unquestionably contributed to the country’s dismal performance on the Index.
The convoluted tax system also has a great bearing on the business environment. If too many hours are spent on paying taxes, filing tax returns, maintaining records and obeying other administrative orders, then the business activity gets discouraged. It is empirically found that investors shy away from investment in a country where either tax burden is relatively high or the tax system is unfair and obscure. Despite the fact that the Federal Board of Revenue (FBR) has adopted a series of measures such as online registration, e-filing, e-payment and e-notices to facilitate firms for filing and paying taxes, still one wonders why the country is far below on the list of 189 countries in terms of time to comply tax procedures, even higher than world average. For example, taxpayers in the country require 594 hours including 40 hours for each corporate income tax and labour taxes and 514 hours for consumption tax for paying taxes. On the other, average number of hours required for paying taxes in the Asia-Pacific countries is 229. Sadly, time to comply tax laws has further increased by 17 hours this year. Furthermore, Pakistan’s overall tax paying ranking of 172 is also among the lowest.
Other factors that have direct impact on business environment include uninterrupted power supply, adequate infrastructure, smooth supply of inputs, better marketing system, etc. But, in Pakistan, an acute power shortage has been hampering the business activity since long.
Above all, widespread illiteracy is another impediment to promoting shared values and fostering societal cohesion. Low gross and primary enrollment ratios, sizeable gender gap at primary level, less than regional overall adult and female literacy rate and huge number of out-of-school children are the challenges the state is confronted within the education sector. Illiterate people are easily exploited by violent actors by offering petty gains. Improved literacy rate is also essential to enhance tolerance level in the society. It has been seen in the past that the country was deprived of the invaluable services of leading doctors, engineers, educationists, politicians, scholars and researchers in the wake of growing religious intolerance.
In a nutshell, the state has to improve law and order and provide enabling environment for business firms to operate over a longer time period. It needs concrete measures such as improving education to integrate the society that has been alienated in several sects on religious grounds and is posing serious challenges to ensure peace and to deliver security as public good. Additionally, it is the need of the hour that the country develops tax culture wherein the taxpayers are provided facilitation in following tax procedures. Simplification of tax laws is also urgently required. Of course, there are many other policy issues that must be addressed at government level in order to create conducive environment for firms so as to improve country’s position on ease of doing business index.