Although the size of Pakistan’s economy and its population differs widely with that of Ireland, there is a lot Islamabad can learn from Dublin’s experience as to how the European nation emerged as the world’s fastest-growing economy after recession in 2007-08.
Ireland was on the verge of default in the wake of 2008 global financial crisis. However, in 2015, it reported an astonishing gross domestic product (GDP) growth of 26.3% with the help of aggressive tax incentives to investors and by widely opening its doors for foreign investors.
Initially, many commentators did not trust the growth numbers and asked about the calculation methodology.
Ireland introduced a single corporate tax of 12.5% and facilitated global investors by signing avoidance of double taxation treaties with a number of European nations as well as with the US and Canada.
“The strategy helped Ireland attract scores of top-ranked global companies including the likes of Apple, Facebook and Google, which set up their international offices and subsidiaries in Ireland,” Pakistan Software Export Board (PSEB) Managing Director Osman Nasir said while talking to The Express Tribune on the sidelines of an event in Karachi last week.
Other major software and IT companies have established their global and European headquarters in Ireland, which included Microsoft, Paypal, Amazon and Twitter. Most of the world’s leading aircraft leasing companies are also found in Ireland.
Meanwhile, foreign currency reserves of Ireland swelled to 6.35 billion euros by January 2021 from just 600 million euros in August 2008, according to tradingeconomics.com.
“Pakistan can do wonders in a similar manner,” Nasir remarked. “We can also achieve rapid economic growth by doing the same as Ireland did. We should understand that bringing foreign investors and foreign investment to the country should be our top priority and we should put (the ambitious) tax collection targets on the back burner for some time.”
Pakistan has already inked avoidance of double taxation treaties with more than 66 countries, under which taxes will be levied on foreign investors only in one country rather than in two countries – investors’ home country and host country.
It already allows 100% repatriation of profit and dividend by foreign companies to their headquarters abroad and welcomes the setting up of companies by foreign investors as standalone and in partnership with local investors.
“Pakistan can play a wonderful role with its strategic location in facilitating investors from both the East and West. A combination of strategic location and difference in time zones provides a great opportunity for Pakistan to serve foreign investors by cutting tax rates and ensuring ease of doing business,” Nasir said.
Foreign investors may set up offices and production units and export their products from Pakistan to all over the world.
Pakistan is fast emerging as a tech-savvy country with advancements in fields of information technology and artificial intelligence. It is estimated that the country’s IT exports will reach $2 billion in the current fiscal year because of growing local talent in relevant fields.
“The talented youth, most of whom are doing freelance jobs these days, can find suitable jobs if global companies set up their businesses here,” Nasir said. “For foreign investors, the cost of hiring local staff will be significantly lower.”
He pointed out that Pakistan’s central bank had relaxed rules for freelancers, who could now bring their export earnings under the title of worker remittances. However, there is a need to further ease the rules for freelancers as most of them are still reluctant to bring their export earnings back home.
It is proposed that freelancers should be permitted to keep more money in their accounts as they are required to make payments to foreign workers. According to Nasir, the freelancers park an estimated $4-5 billion every year in banks overseas rather than bringing these export earnings back to Pakistan.
At present, Pakistan’s economy is passing through a stabilisation phase. It is expected to enter the growth phase later.
Covid-19 has proved to be a blessing in disguise as it has helped Pakistan attract higher worker remittances, propel the growth in IT exports, come up with innovative ideas for building the foreign currency reserves like the Roshan Digital Account (RDA) initiative and keep the current account in surplus at around $900 million in first seven months (Jul-Jan) of current fiscal year despite an increase in imports and higher import prices for oil and food items.
The writer is a staff correspondent
Published in The Express Tribune, March 1st, 2021.
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