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IT sector for ease of doing business

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KARACHI:

Pakistan Software Houses Association ([email protected]) has called on the government to enhance the ease of doing business in the country to increase the much-touted information technology (IT) exports.

“While the Federal Ministry of Information Technology and Telecommunications (MoITT) and Pakistan Software Export Board (PSEB) have been supportive to the industry, other relevant stakeholders have failed to provide a similar level of support,” said [email protected] in a statement.

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“Improving the ease of doing business involves a lot of measures. Tax relief of five years for IT businesses including compliance related paperwork is a must,” ICT Sector Expert, Parvez Iftikhar expounded.

“The government needs to make basic IT skills and soft skills part of the normal school curriculum. Authorities should improve broadband connectivity, especially in smaller cities and prefer local IT companies while awarding contracts. In addition, the government should strive hard to bring PayPal into Pakistan,” Iftikhar said.

Recently, in an unprecedented move, the Federal Minister for ITT Syed Aminul Haque condemned the public office for the lack of cooperation and support.

According to Zohaib Khan, Chairman [email protected], “the industry acknowledges the stance of the federal minister for IT regarding the challenges of the IT industry. It is high time that the relevant stakeholders such as the finance ministry, FBR, SBP and SECP play their role to facilitate the IT industry. In terms of policy interventions, the industry demands a tax holiday for five years (announced until 2025), hassle-free forex retention, 5% cash reward for IT exporters and capacity building through imparting market-driven IT skills for the youth in the broader national interest.”

“While Pakistan grapples with economic crisis, IT & IT-enabled services are the only industry which can potentially stabilise Pakistan’s economy. To bridge the current account deficit, the industry offers an increase in IT exports and the inflow of revenue in the form of investments–both of which are critical to Pakistan’s economy,” he added.

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SI Global Solutions CEO, Noman Ahmed Said stated that, “Technological innovation is moving at a rapid pace and the key to its management is consistency.”

“The tech sector will need to step up and exercise more responsibility while governing bodies should catch up by modernising tech policies. We have examples of neighbouring countries and the roadmaps that they have adopted. [email protected] has done research by comparing neighbouring countries’ policies, which have yielded rich dividends,” he added.

“Technology is at a crossroads and is constantly revolutionising how we work, live and learn. Like the invention of the personal computer itself, cloud computing was as important economically as it was technically. The cloud allows organisations of any size to tap into massive computing and storage capacity on demand, paying for the computing they need without the outlay of capital expenses,” Ahmed explained.

“It is pertinent to note that in FY 2021-22, the IT & ITeS industry export proceeds were approximately $2.6 billion and, as far as the services sector is concerned, the IT industry achieved the highest exports. It is the only industry with 77% trade surplus,” he further added.

“While Prime Minister Shehbaz Sharif has given the industry an export target of $15 billion, the industry is deprived of the support and cooperation from government ministries,” noted chairman [email protected]

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“To achieve the export target, policy incentives have to be introduced and bottlenecks in the ease of doing business have to be removed,” he underscored.

“The IT industry of Pakistan employs more than 600,000 people in the organised sector and as freelancers,” Khan noted.

“However, to boost exports from the IT & ITeS sector, policy implementation and continuity must be ensured. Pakistan must manifest itself as a favourable tech destination. Consistent lack of support by the relevant ministries is counterproductive to achieve the export growth objective of the prime minister,” Khan lamented.

“We strongly urge the prime minister to assert his rightful leadership and ensure cooperation and synergy across the ministries and relevant departments to ensure economic growth of Pakistan through enablement of the IT & ITeS industry,” chairman [email protected] emphasised.

Published in The Express Tribune, November 11th, 2022.

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Privatisation fails to meet objectives

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ISLAMABAD:

The success of Pakistan’s privatisation programme has remained limited to only generating $11 billion in sale proceeds, as the country could not achieve the post-privatisation objectives of improving efficiency and competition, says a new independent study.

The findings come amid the International Monetary Fund’s (IMF) push for approval of the State-Owned Enterprises (SOEs) Bill to improve efficiency and management of public sector firms. The finance ministry has requested the holding of a joint session of parliament to approve the law, after the bill was rejected by the Senate.

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In a study titled “Public Sector Enterprises (PSEs) in Post-Privatisation: Evidence from Pakistan”, authors Naseem Faraz and Dr Ghulam Samad concluded that the key objectives of the privatisation programme had remained unfulfilled. The study has been published in the Journal of Applied Economics.

“Our main finding is that the performance of firms has improved in the post-privatisation period but (it is) statistically insignificant,” said the authors. Privatisation has been carried out with the motive of reducing the fiscal burden and increasing the efficiency of the inefficient PSEs. Since 1991, the sale of PSEs has raised revenues of Rs649 billion, or $11 billion.

The $11 billion has been worked out by applying the exchange rate of the year when a privatisation transaction took place.

Pakistan is one of the developing countries where privatisation of a large number of PSEs has taken place, but the post-privatisation effect is yet to be analysed. Second, rather than focusing on one or a few sectors, the study considers all the privatised PSEs.

The study showed that the performance of a few firms improved in the post-privatisation period but it largely remained negative.

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“In particular, the privatised PSEs in energy, cement and chemical sectors do not show positive gains in the post-privatisation period. However, the telecom and textile sectors have experienced a positive change in the performance of the privatised PSEs.” “Similarly, the results also showed that the efficiency of firms did not increase significantly.”

The authors said that according to their assessment through the Key Informant Interviews, the malfunctioning of regulatory environment led to the market failure that eventually resulted in market exploitation.

Regulations and regulators are captured by the market, bureaucrats, judiciary and politicians. An effective regulatory environment does not exist to force the privatised entities to have higher efficiency and develop a competitive environment.

Government intervention in the regulatory sphere is dominant. Every regulatory authority has a board member from the government. This practice is clearly not aligned with the privatisation regulations.

The government intervention (secretary sitting as a board member) creates conflict of interest by having ownership and management together.

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The privatised banking and energy companies have failed to bring in the benefits of sell-off, according to the study. The process of privatisation and rewards distribution favoured mainly the buyers, while the government faced risk and cost.

According to the authors, the privatised companies earned a higher average rate of return on assets compared to their fully government-owned counterparts, as measured by the total net profits-to-sales ratio.

The higher returns on assets suggest a favourable effect of privatisation. On the contrary, the profitability or productivity measure (net profits-to-sales ratio) was relatively higher for the privatised firms but it was statistically insignificant compared to the period when the firms were fully government owned.

“The privatised firms experience a mild increase in productivity compared to their pre-privatisation period. This difference in performance is not statistically significant.”

Privatisation also did not enhance the efficiency of the privatised firms in terms of increase in sales. It suggested that the efficiency improvement was merely coming through the reduction in cost of production.

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The study identified weak regulators as a reason for the failure to achieve the privatisation objectives.

“Unfortunately, the regulator Pakistan Telecommunication Authority (PTA) did not influence PTCL and other related entities to work in a regulated market environment.”

The role of the PTA is limited to overseeing the determination of market prices. PTCL’s privatisation was not a fair deal. It lost $800 million and also did not improve the market in terms of competition.

“The government sold 26% shares to Etisalat and also transferred the management, which is against the rule, which requires 51% shares,” emphasised the authors.

The government had agreed that Etisalat would pay $2.6 billion by making upfront payment of $1.4 billion and the remaining $1.2 billion in nine installments of $33 million each. For the deal, the government received only $1.8 billion and the remaining $800 million was never paid.

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“The monopoly of the telecom sector persisted despite the privatisation and drove away billions of dollars.”

The privatisation of KESC, now KE, also did not achieve the objectives. Though the main reason of the privatisation was to get rid of the loss-making enterprise, unfortunately the government is paying more after privatisation, according to the study.

Published in The Express Tribune, November 24th, 2022.

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Tractor maker faces legal action over fraud

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KARACHI:

The Federal Tax Ombudsman (FTO) has ordered legal action against a tractor manufacturing company as the Federal Board of Revenue (FBR) reported a fraud of more than Rs10 billion.

According to FBR sources, the tractor company has allegedly committed a fraud of over Rs10 billion under the previous government’s initiative to provide tractors at a lower cost to the farmers.

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As part of the subsidy scheme, the government gave billions of rupees to the deserving and underprivileged farmers for the purchase of tractors.

Sources said that the tractor manufacturer had claimed sales tax refunds on fake documents and flying invoices. The FBR then referred the case to the FTO.

They added that the FBR recommended the application of the Benami Transactions Act while taking legal action against the tractor manufacturer.

“The respondent company misused pay orders of the complainant by issuing bogus and fake sales tax invoices to other persons for obtaining fraudulent adjustment and refund,” a notification of the FTO office read.

The FBR has initiated legal proceedings against the owners and dealers of the tractor manufacturing company for the recovery of money obtained through fraudulent means.

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The Directorate General of Intelligence and Investigation, Inland Revenue has been tasked with investigating the fraud and tax evasion case.

Published in The Express Tribune, November 24th, 2022.

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G7 looking at Russian oil price cap of $65-70

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BRUSSELS:

The Group of Seven nations (G7) are looking at a price cap on Russian sea-borne oil in the range of $65-70 per barrel, a European Union (EU) diplomat said on Wednesday.

Views in the EU are split, with some pushing for a much lower price cap and other arguing for a higher one. The G7, including the United States, as well as the whole of the EU and Australia, are slated to implement the price cap on sea-borne exports of Russian oil on December 5.

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“The G7 apparently is looking at a $65-70 per barrel bandwidth,” the EU diplomat said.

“Poland, Lithuania and Estonia consider this too high because they want the price set at the cost of production, while Cyprus, Greece and Malta find it too low, because of the risk of more deflagging of their vessels, which might mean the G7 has found a good middle-ground,” the diplomat said.

Some 70%-85% of Russia’s crude exports are carried by tankers rather than pipelines.

The idea of the price cap is to prohibit shipping, insurance and re-insurance companies from handling cargos of Russian crude around the globe, unless it is sold for no more than the maximum price set by the G7 and its allies.

Because the world’s key shipping and insurance firms are based in G7 countries, the price cap would make it very difficult for Moscow to sell its oil – its biggest export item accounting for some 10% of world supply – for a higher price.

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At the same time, because production costs are estimated at around $20 per barrel, the cap would still make it profitable for Russia to sell its oil and in this way prevent a supply shortage on the global market.

Brent crude front-month future oil prices initially fell to $86.54 from $87.30 on the news.

Published in The Express Tribune, November 24th, 2022.

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