LAHORE: Pakistan’s economic debate is built on half-truths. The loudest voices in boardrooms and policy meetings talk about ‘ease of doing business’, yet carefully avoid confronting the deeper reality as the system itself punishes transparency and rewards evasion.
At the heart of the problem lies a structural imbalance. Transparent, tax-paying companies operate at a severe disadvantage. They comply with regulations and bear rising labour and tax costs. Meanwhile, a vast undocumented sector thrives, evading taxes, under-invoicing imports and greasing the wheels of a permissive bureaucracy. The result is not competition, but distortion.
Business leaders, when engaging policymakers, often rely on recycled research from institutions like the World Bank or the World Economic Forum. They highlight global rankings and propose adopting best practices from top-performing economies. But this is an evasion of the real issue. Weak institutions cannot implement advanced reforms. A system built on rent-seeking will resist transparency at every step.
What Pakistan needs is not cosmetic benchmarking but third-generation institutional reforms, deep, structural changes that strengthen regulatory bodies, enforce the rule of law, and dismantle the culture of discretionary privileges embedded in Statutory Regulatory Orders (SROs). These SROs have become instruments of favouritism, shielding select sectors and individuals while undermining fair competition.
Industrialists demand adherence to global norms but resist enforcement when it affects them. Environmental compliance is championed in principle, but when the Environmental Protection Agency conducts inspections, it is met with protests. Calls to plug revenue leakages ring hollow when the Federal Board of Revenue attempts audits or enforcement actions. Transparency is demanded — selectively.
The public sector, for its part, is no less complicit. Procurement processes are mired in inefficiency and rent extraction. Winning a government contract is only the beginning of a long struggle involving delayed payments and bureaucratic hurdles. This discourages credible firms from participating, leaving space for substandard suppliers. The long-term cost is visible in declining quality of public projects.
Contrast this with the Mangla Dam, a rare example of merit-based decision-making. Awarded to a bidder offering the highest quality standards rather than the lowest price, the dam has delivered consistent performance for over six decades. Its durability stands as a reminder that quality, when prioritised, pays for itself many times over. Yet such examples remain exceptions in a system increasingly driven by short-term cost-cutting and vested interests.
Policy inconsistency has further eroded investor confidence. Successive industrial policies, particularly in textiles and automobiles, have been announced with fanfare but implemented half-heartedly. Frequent reversals and ad hoc adjustments have created an environment of uncertainty. Investors no longer trust the state to honour long-term commitments.
This uncertainty has triggered a quiet but significant shift in capital allocation. Industrialists are moving away from manufacturing toward real estate, where returns are higher and regulatory burdens lower. One prominent businessman candidly admitted that despite shutting down his factories, his profits have increased. “Jobs have gone, but wealth has grown,” he observed. This is not an isolated case; it reflects a broader trend where speculative investments crowd out productive enterprise.
The consequences for employment and economic growth are severe. Manufacturing, which generates jobs and exports, is being hollowed out. In its place, capital is flowing into non-productive assets that add little to long-term economic capacity.
The tax system amplifies this imbalance. With a sales tax rate of 18 per cent, a documented manufacturer selling a product worth Rs10,000 must price it at Rs11,800. An undocumented competitor, however, avoids this burden entirely. Even after paying small bribes, the informal producer retains a substantial price advantage. This is not a marginal distortion, it is a systemic bias against compliance.
Reforming the tax authority remains critical, but scepticism is widespread. Entrenched corruption and resistance to change within the system make meaningful reform difficult. Without addressing these internal weaknesses, efforts to expand the tax base will continue to falter.
Until then, the country will continue to reward those who evade the system, and penalise those who try to uphold it.
