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Business Recorder

Published Date: Dec 4, 2012

SIZE OF UNDOCUMENTED ECONOMY IS EXPANDING

Securities and Exchange Commission of Pakistan (SECP) Chairman Muhammad Ali said here on Monday that size of un-documented economy is expanding, as people are not voluntarily paying their taxes. Addressing a research seminar on “Plural Business Partnership for Peace-Perspectives from Pakistan,” organised by Sustainable Development Policy Institute (SDPI) and International Alert, SECP Chairman said that undocumented sector has developed a parallel economy.

It is a reality that the informal economy is also operating alongside the documented sectors. People are not ready to pay taxes and huge profits are directly stuffing their pockets. To tackle the situation precisely, the government is seriously concentrating on expanding the tax base and is making all out efforts to raise Tax-to-Gross Domestic Product (GDP) ratio.

He said that the tax collection by the Federal Board of Revenue (FBR) is 10 percent of the GDP. If it is presumed that the size of the parallel economy is equal to the documented economy, tax collection comes to 5 percent of the GDP, he added. Highlighting the importance of Corporate Social Responsibility (CSR), Muhammad Ali said that the businesses can play a significant role in the CSR. Three areas where businesses can really make an impact on policy, bringing an end to local conflicts are: Corporate Social Responsibility; Good Governance Practices and Mediation.

Globally, there has been considerable interest in looking into the reasons and significance of conflict and substantial research has been going on to understand how economic methods can be used to improve our grasp on the subject ie “The Economics of Peace”. In Pakistan’s context, the impact of the high costs of the war on terror and the subsequent violence on our economy has been significant.

In Pakistan, so far we have not encouraged the Alternative Dispute Resolution Mechanism (ADRC). Once the investors would be able to get speedy justice and confident that their investment and capital will not be stuck up, it would automatically encourage investment.

“If an investor knows that disputes arising out of his/her investment will not result in their capital getting stuck in lengthy proceedings, and that an amicable settlement is possible, they will feel more comfortable investing their money,” he specifically mentioned.

In UK a 2012 independent report on mediation reflected that over ten years, the number of commercial mediation cases rose fourfold. During 2012, the total value of cases mediated was approximately $11billion, while the total value of cases mediated since 1990 was approximately US $75 billion. It was estimated that by achieving earlier resolution of cases, which would otherwise have proceeded through litigation, businesses would save an estimated US $3 billion in 2012 in wasted management time, damaged relationships, lost productivity and legal fees. Similarly since 1990, mediation was estimated to have contributed savings of $18.75billion.

In order to create a business-friendly corporate regime in Pakistan, which best protects the investors’ interests; the SECP has recently signed a memorandum of understanding with the Karachi Centre for Dispute Resolution for creating awareness about mediation as an alternate dispute resolution mechanism. The post-MoU phase will focus on developing awareness; advocacy; building capacities; and creation of an institutional framework. The purpose of this initiative is to provide for a mechanism which allows quick resolution of disputes. The SECP is committed to ensure that individuals and corporate entities in Pakistan are not deprived of their fundamental rights to trade and carry out business and that exploitation of investors, service providers and businesses is eliminated.

Muhammad Ali further stated that the SECP has encouraged CSR activities in broad areas like employees, environment, community (skill development, livelihood, health, education, social enterprise development, and environment conservation), risk management, anti-corruption, youth development, sports development, disaster management, infrastructure development, human rights and transparency. Moreover, for the purpose of ensuring independent external assurance, the SECP has required that companies should make arrangements for obtaining assurance by an independent external party, whose report shall form a part of the CSR report.

Supporting businesses in Pakistan, SECP Chairman said that the businesses are the drivers of economic activity and their pursuit of profits provides livelihood and opportunities – thus reducing poverty and economic inequalities, which leads to prosperity – in the communities where they operate. Poverty, unemployment and economic disparities are considered major reasons for crime, violence and conflict. Therefore, businesses at some level automatically address the core needs of the communities they serve. However, taking the role of businesses a step further, when businesses start investing in social infrastructure, their impact on the communities, within which they operate, can be transformational. This is where corporate social responsibility begins. In recent times, some thought leaders in the business world have moved beyond the discussion about profits and have started talking about doing good – providing returns to society through actively engaging in the social issues which matter most – caring about the environment, providing health and education services and improving the provision of social services to marginalized segments especially in conflict sensitive segments.

To ensure that corporate social responsibility initiatives are implemented in a strategic manner with clearly defined policies, the SECP has drafted guidelines, to be adopted on a voluntary basis, for public companies that have initiated or intend to initiate CSR activities. Through these guidelines, public companies would be encouraged to adopt working models with a focus on fair, transparent and responsible business practices in order to support community growth in the best public interest and to eliminate practices that harm the public. The guidelines mainly seek to institutionalize and codify CSR activities, Chairman SECP explained.

Muhammad Ali added that, “all three elements; CSR, good governance and a culture of mediation by coming together creates an environment where we can reduce and minimise conflict as much as possible. It is inherent human nature that we can’t eliminate conflict altogether but aiming for the least possible level of friction should be key goal for all of us.” Dr Vaqar Ahmed, Sustainable Development Policy Institute; Phillip Vernon, Programme Director International Alert along with Nabeel Goheer Director Commonwealth Secretariat threw light on the issues of economics and peace building.