Successive governments have been pursuing privatisation as a vehicle for economic reforms. Pakistan started the privatisation of SOEs in 1991 to promote deregulation and liberalisation of the economy. This programme was designed to improve the GDP growth of the national economy, and the reversal of the nationalisation programme in 1970s—an inverse of the privatisation programme. It raised PKR 476 billion from 167 privatisation transactions between 1991 and 2008. These transactions comprise mainly the privatisation in the industrial, telecom, and financial sectors. The privatisation programme suffered a serious setback by the Supreme Court of Pakistan decision in 2006 in the Pakistan Steel Mills case on the grounds of corruption and illegality. In 2013, the PML-N government resumed the privatisation programme. Between 2013-18, the government privatised various public sectors entities such as banks and power sector entities fetching proceeds of PKR 173 billion.
In 2018, the government has formulated a new privatisation programme focusing on short, medium, and long-term plans. To realise this plan, however, a robust framework is needed. This framework should be aimed to remove obstructive legislation in Pakistan. In this regard, for example, the government has promulgated the Foreign Investment (Promotion and Protection) Act, 2022 (Act) "to attract, encourage, and protect, large scale foreign investment into Pakistan and to ensure sustainable economic activity and growth".
The Act provides investment incentives including an exemption from the operation of the application of any provision of any law, regulation, rule, ordinance or other similar instruments. Section 2 (n) of the Act defines 'Protected Benefit' as "the Investment Incentives provided to investors and/or Qualified Investments through legislative amendments contained in the Second Schedule of this Act as well as all Investments Incentives listed in the Third Schedule of this Act." According to section 2 (r), "Qualified Investment means the investments, sectors, industries or projects as may be chosen, approved and duly notified by the Federal Government as a Qualified Investment in the First Schedule of this Act.”
As per section 2 (k) of the Act, the Investment Incentive includes an exemption from any Federal or provincial or local charges, cesses, duties, fees, levies, taxes or tolls payable under any law; a license or lease or permit or permission granted or conferred by concerned government; grant or renewal of work permits; licenses, approvals, no objections, consents, permissions, or permits for the remittance to or repatriation of foreign exchange from or into Pakistan etc.
The Act authorises the Federal Government to choose, approve and notify any investments, sectors, industries or projects as qualified investments, encouraging investment by providing various investment incentives. To attract foreign investment in the Reko Diq project, for instance, the Act makes significant amendments to the local laws.
These amendments include changes in the Income Tax Ordinance, 2001, regarding the final tax regime (time-limited exemption and rate stabilisation); dividend income and withholding tax thereon for shareholders (time-limited exemption and rate stabilisation); capital gains tax (conditional exemption and rate stabilisation); withholding tax on shareholder loan investment and shareholder income (time limited exemption and rate stabilisation); withholding tax on third party interest and third party income (conditional exemption); thin capitalisation (stabilisation of existing requirements); withholding tax on goods and services (time limited exemption and rate stabilisation); certain transaction taxes (exemption); advance tax on imports (exemption); tax depreciation (stabilisation); and anti-avoidance (exemption). Further amendments are made to the Sales Tax Act, 1990, the Privatisation Commission Ordinance, 2000, the Workers Welfare Ordinance, 1971, the Customs Act, 1969, and Federal Excise Act, 2005, etc.
Likewise, certain incentives in terms of duties, taxes, fee etc. can be provided to attract local investors to augment the privatisation of the public sector. Specific facilities may also be granted through upgrading the legal framework aiming to provide, for example, a one-window solution for investment relates issues and a neutral and efficient forum for dispute resolution.
At the same time, while attracting foreign and local investment to push the privatisation of public assets, effective measures should be taken to safeguard the interests of the consumers by formulating a regulatory framework before divestiture avoiding the concentration of economic power in a few hands. Further, given rising unemployment in Pakistan, labour organisations and employees' unions should be taken on board to adopt a balanced approach to investment, privatisation, and employment. The public perception regarding corruption and favoritism in the privatisation of public assets must be addressed.
In a nutshell, the privatisation programme cannot succeed without the support of all stakeholders including government institutions, organisations, regulatory authorities, and above all, the people of Pakistan. Any investment and privatisation policy will be welcomed when there is merit and transparency and a fair distribution of opportunities and resources for the public. In any case, such policies must promote both the national economy and the independence and security of national institutions.