KARACHI, April 15: Federal Commerce Minister Shahid Khaqan Abbasi said here on Tuesday that the government would initiate free trade agreements (FTAs) with various countries.

Foreign investors would also be invited to set up industries for boosting economic activities so that the country could be put to the road of progress, the minister said while speaking at the South-Asian Tax Summit 2008.

The minister said that the country was facing many problems, including power shortage and fiscal and trade deficits.

He said that numerous serious economic and social problems, inherited by the new government, would be handled on short- and long-term basis.

The summit was jointly organised by the Income Tax Bar Association, Karachi (ITBAK) and some other professional and trade bodies.

Federal Board of Revenue (FBR) Chairman Abdullah Yusuf said that trade liberalisation and regional cooperation under Saarc framework holds a promise for growth and development in member nations. However, it poses a serious challenge to the taxation structure in the economies of the region.

As trade barriers come down and capital mobility increases, challenges for South Asian countries would become acute because of their dependence on foreign trade taxes, he said.

He, however, cautioned that even on reducing trade tariffs, regional countries would have to concentrate on three major tax policy areas which would include revenue consequences of trade reforms with reduction in foreign trade taxes, increasing tax competition for direct foreign investment and unified set of transaction-related tax rules.

The FBR chief suggested that adverse revenue impact of tariff reductions could be addressed in the short run by reducing the existing exemptions, by removing highly restrictive non-tariff barriers and by relying on the expected import volume growth. But in the long run, it would require implementation of compensatory revenue measures, he maintained.Abdullah Yusuf informed that Pakistan had reduced substantially reliance on trade taxes.

He further said that the domestic sales tax has not yet completely substituted for the loss on trade taxes. However, with the recent tax policy and tax administration measures, tax is expected to be more efficient.

In the area of tax competition, he said as investment decisions and location of investment become more tax sensitive due to reduction in non-tariff barriers, there was always a temptation for such countries to broaden the scope of tax incentives to attract and compete for foreign direct investment (FDI).

The FBR chairman said almost all South Asian countries had made and were still making extensive use of tax (also non-tax) incentives to compete for promoting domestic investment and especially to attract FDI.

However, this requires a coordinated multilateral approach, at least on a regional basis.

Countries for instance could agree on a limited set of tax incentives, conditioned to certain criteria, he added.

In his address of welcome, ITBAK president Abdul Qadir Memon hoped that the experts and intellectuals gathered here would be able to formulate and suggest directions through which by 2020 “we will be able to harmonise taxation laws and regulatory standards, evolve uniform, efficient, fair and transparent dispute resolution mechanisms amongst Saarc member countries”.