PBC urges crackdown on illicit funds in real estate sector

PBC urges crackdown on illicit funds in real estate sector

The Pakistan Business Council (PBC) has called on Prime Minister Shehbaz Sharif to take decisive action against black money in the real estate sector and establish a fairer competitive environment between the informal and formal sectors.

In a letter addressed to the prime minister, Ehsan Malik, the chief executive officer of PBC, highlighted key concerns raised during the “Dialogue on the Economy.” This dialogue, involving more than 100 influential members from local and multinational companies responsible for 40% of Pakistan’s exports and contributing a third of direct taxes, underscored critical economic issues.

Malik commended the prime minister’s efforts in stabilizing the economy but cautioned against triggering premature economic growth without implementing essential reforms. He referenced Pakistan’s historical trend of import-driven growth, which has led to external account imbalances and repeated IMF interventions. Malik stressed that members of the formal sector, including PBC, have shouldered a disproportionate tax burden to help meet revenue targets.

“We hope that premature attempts at stimulating growth will not undermine our collective efforts,” Malik stated, referring to the “Uraan Pakistan” initiative, which enjoys significant backing from PBC members. However, he pointed out that fragmented governance between federal ministries and between the federation and provinces has hampered its execution.

He emphasized that export growth is the most viable solution for maintaining external account stability. While the prime minister has set a $60 billion export target within three years, Malik warned that high energy costs, excessive taxation, and withholding tax burdens pose major challenges.

“We appreciate the government’s initiative to lower energy costs, but Pakistan remains at a disadvantage compared to neighboring South Asian economies,” he added. He also criticized the recent increase in gas prices for captive power plants, suggesting that Pakistan should benchmark its export incentives against regional competitors.

On trade policy, the PBC urged the government to reevaluate existing trade agreements, particularly with China. They noted that Pakistan’s trade representation in Africa lags behind India’s, and emphasized the need for better market access. The PBC has already shared its insights on past trade deals with the Ministry of Commerce.

Regarding fiscal policy, the PBC backed efforts to raise the tax-to-GDP ratio but argued that this should be achieved by fostering business expansion, promoting exports, formalizing the economy, and widening the tax net. Malik warned against further tax hikes on already taxed sectors, cautioning that such measures could stifle business growth.

To boost exports, the PBC proposed a phased strategy to support new exporters and encourage firms reliant on imports to localize production. They called for a more investment-friendly tax framework to facilitate private equity, venture capital, and increased public shareholding in listed companies. The PBC also advocated for incentives to encourage more firms to list on the Pakistan Stock Exchange (PSX) and promote long-term shareholding.

On import substitution, the PBC opposed indefinite tariff protections for industries lacking a comparative advantage, citing outdated production facilities that hinder competitiveness. However, they acknowledged that limited tariff protection could be justified for sectors utilizing indigenous resources, such as soda ash used in manufacturing glass and detergents.

The PBC raised concerns over the impact of the General Sales Tax (GST) on local supplies to exporters, noting that delays in tax refunds have incentivized firms to import materials instead of sourcing them domestically, putting local industries at risk.

Malik welcomed the government’s increased emphasis on export-driven foreign direct investment (FDI), a long-standing PBC demand. However, he pointed out that Pakistan’s investment policies do not sufficiently prioritize export-oriented FDI over market-seeking FDI.

Addressing real estate concerns, the PBC supported a differentiated regulatory approach favoring formal construction and development sectors, including Real Estate Investment Trusts (REITs). The chairman of the Federal Board of Revenue (FBR) recently acknowledged high transaction costs on undeveloped land, and the government is reviewing these costs.

“We urge the government to ensure that the formal sector is not unfairly burdened with high transaction costs, such as the 18% GST,” Malik concluded. He strongly advocated for uncovering black money entrenched in real estate and establishing a level playing field between formal and informal sectors.