ADB recommends a four-pronged policy for Pakistan to capitalise on CPEC

Asian Development Bank (ADB) has strongly recommended Pakistan to undertake structural reforms, broaden its tax base, utilise transport infrastructure, and expedite the development of nine Special Economic Zones (SEZs) to make the most of the China-Pakistan Economic Corridor (CPEC), as noted by News International.

The ADB reported "Economic Corridor Development (EDC) in Pakistan" released on Wednesday, highlighted that despite signing Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs), Pakistan could not boost its exports.

On taxation issues, the ADB suggested that a high-level constitutional body, similar to India's Goods and Service Tax Council, may be established through the Council of Common Interest (CCI), with clear accountability to resolve tax-related issues across the country.

The ADB report states that the CPEC investments improved Pakistan's connectivity. To fully explore the potential benefits, it proposed some policy actions which could raise income from exports and enhance the fiscal capacity of the government.

The report suggested that possible reforms could include the following, but would not be limited to rationalising business regulations and taxation, improving trade facilitation and logistics, augmenting human capital development, and labour market efficiency, and strengthening financial inclusion along with deepening the capital market.

"Second, broaden the tax base to unleash the country's tax revenue potential while improving the perceived fairness of the tax system," the ADB advised Pakistan.

Meanwhile, the International Monterrey Fund (IMF) estimates suggest that Pakistan's tax capacity is about 22.3 per cent of Gross Domestic Project (GDP), implying a tax revenue shortfall of more than 10 per cent in Financial Year 2019.

The ADB, in its report, praised the government's recent measures to broaden the tax net as steps in the right direction.

However, added that more could be done by implementing a rigorous reform agenda to broaden the tax net, such as cutting tax concessions and exemptions, addressing structural weaknesses in fragmented tax administrations, and improving economy-wide tax compliance.

The ADB also advised Pakistan to realise the expected gains from the concessions granted by partner countries under the FTA) and preferential trade agreement (PTA). Despite market access obtained by the government, Pakistan exporters have not taken full advantage of the concessionary tariffs to increase their share in partner countries' imports, the report says.

ADB analysis indicates that Pakistan is facing an acute infrastructure financing gap of about 5 per cent of GDP. "Pakistan needs to put in place appropriate policies and initiatives to involve its diaspora in the mainstream capital market and mobilise their income and wealth into productive investment vehicles in the form of innovative financing for good projects in Pakistan," the report said. (ANI)