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The rumor has it that the government is considering imposing GST on
computer software, either in the coming budget or sometimes later. In all
probability, the rumor is true because, governments in general and the
governments in this part of the world in particular, are renowned for
actions at cross purposes to each other. We have seen new business
entities being created in the same public sectors where privatization drive
was in full swing. When there was talk of promoting cellular telephony,
duties were being imposed on handsets. The measures to promote
investors’ confidence are neutralized by the reversal of policies and
procedures in the middle of projects. When steps are being taken to
promote broadband, GST is imposed on computer hardware. One can go
on and on but there is not enough space here to recount the acts and
counteracts of the government. And of course one wouldn’t want to try the
patience of the readers.
Against this background, the news sent shivers down the spines of
concerned people that government was considering promoting IT exports.
Indeed a Federal Task Force on Information & Communication
Technology was constituted under the chairmanship of an eminent and
thorough professional in the person of Salim Ghauri. It was tasked to
suggest ways and means to gear up Pakistan IT exports. The IT people
however, sat with fingers crossed, anticipating the inevitable counter move
to thwart the efforts of the Federal Task Force on ICT. It seems that the
counter move is coming with indecent haste. The Task Force has not yet
finalized its recommendations, and the tax authorities are already moving
in to ensure that the recommendations are stillborn.
The IT exports of Pakistan are hovering over half a billion dollars. To get
some bearing of the global market, the ICT exports of tiny Israel in 2008
totaled US$12 billion. In the same period, the IT-BPO exports of India to
US alone stood at US$ 28.4 billion. Of course it is totally out of context to
mention here that Chinese software exports in the first 4 months of 2009
reached US$4.93 billion.
The volume of internally used software in Pakistan is a meager fraction of
our paltry IT exports. The revenue department would not gain much by
imposing GST on the use of software. But the damage to the industry
would be colossal. It is incomprehensible what the government aims to
gain, other than choking the industry and countering its own efforts of
promoting the usage of genuine software.
It is pertinent to mention here the evaluation of Indian and Chinese
policies in a study conducted by International Finance Corporation (IFC),
the private lending arm of the World Bank. The report says that India’s
policies for the software sector and China’s promotion of special economic
zones (SEZs) for the manufacturing sector suggest that well-designed and
sector-specific government policies can overcome weaknesses in
investment climate and allow developing countries to compete globally in
new fields. The study found that India and China pursued policies to
alleviate key bottlenecks such as access to power for manufacturing and
broadband access for software companies, enabling new globally
competitive industries to develop in spite of deficiencies in the national
investment climate.
Those policies did not aim to pick winners by supporting specific
companies, said the study, which covered more than 300 software and
hardware companies in India and China. These governments did not
directly subsidize firms or offer protection against imports. Instead, they
offered tax concessions that lowered costs and reduced government
interference in their businesses. China’s high-tech manufacturing industry
has achieved global competitiveness, as did India’s software and
biotechnology industries. The study also finds that China’s software
industry, although less well known than India’s, is set to expand its share
of the world market. Similarly, China’s prowess in exports rests largely on
the successful use of special economic zones to provide a good business
climate, a strategy India is now emulating, and which promises to improve
India’s status as a manufacturing base, according to the study.
People in this country have stopped expecting vision, prudence and sadly,
even common sense from the leadership. For, what vision could be
expected of a regime which disbands the National Commission on
Biotechnology as being useless, and does not find the ICT sector as worth
having a minister for more than a year? Still, it should not be too much of
an effort for the government just to look around and see what is
happening in the immediate neighborhood and why.
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