The business community of tribal districts of Khyber Pakhtunkhwa (erstwhile Federally Administered Tribal Areas (FATA) were taken by awe when the federal government withdrew SRO No. 1212(1)/2018 dated 05/10/2018 in a proposed budget for 2019/2020 while introducing Federal Excise Duty on the manufacture of certain classes of products like steel and ghee units.
The move contradicts the promises and vision enunciated by the leaders of the sitting government for the region. The federal government needs to understand that it should not roll back the successes gained by Pakistan’s military. The job was done considerably well, and peace has returned.
Now, it’s up to the political forces to plug in economic incentive mechanisms to initiate development in the region. This would lead to employment generation and cut down the supply line of people–acting as a fuel for extremism and terrorism–compelled to be involved in negative activities.
The imposition of new taxes can also instigate the black economy to evade taxation and earn profits the hard way in a region badly damaged by war against terrorism.
It is pertinent to note there was a wide gulf of mistrust between the state and the tribal people. However, it reduced significantly after successful military operations, FATA’s merger with Khyber Pakhtunkhwa amid promises and commitment shown by the political leadership to contribute maximally towards the development of the region. Nevertheless, the latest move can put a reverse gear to the positive gains pocketed, so far. It also provides fodder to nurture certain narratives–like the one of Pashtun Tahafuz Movement (PTM).
On the contrary, the withdrawal of new taxes can serve as a confidence-building measure by the government of Pakistan, getting on board the local people to ensure sustainable development.
Once known as Pakistan’s ‘Wild West’–the geography that today makes up erstwhile (FATA) –was once a part of the battleground on which the great game of imperial domination was played throughout the 19th century.
This very region comprised a semi-autonomous tribal area in north-western Pakistan, which existed from 1947 until being merged with the neighbouring province Khyber Pakhtunkhwa in 2018. It consisted of seven tribal agencies (districts) and six frontier regions. The area was directly governed by Pakistan’s federal government through a special set of laws called the Frontier Crimes Regulations (FCR) – dubbed by the locals as a draconian legacy of the British colonisers.
It’s up to the political forces to plug in economic incentive mechanisms to initiate development
Meanwhile, tribal lawmakers demanded the removal of additional taxes. The legislators from former FATA also threatened to lock down Islamabad if demands are not met.
There are a few livelihood opportunities available to the people. The local economy is primarily rustic, with agriculture practised in a few fertile valleys. Majority of the households are engaged in primary-level activities, such as subsistence agriculture and livestock rearing, or small-scale business conducted locally.
With few industries and only limited unorganised mining in some areas, many seek employment as short-term unskilled labourers. If further taxes are imposed, these handful factories will also have no option but to shut-down.
Pakistan can learn a great deal from neighbouring China, which pulled up 850 million people out of poverty in the last three decades. In all these years, China has achieved phenomenal economic growth, an unprecedented development “miracle” in human history. How did it achieve this rapid growth? The numerous special economic zones and industrial clusters that emerged after the country’s reforms are without any doubt two important engines of China’s remarkable development.
According to the World Bank definition, a Special Economic Zone (SEZ) includes several specific characteristics: (a) it is a geographically delimited area, usually physically secured(fenced-in); (b) it has a single management or administration; (c) it offers benefits based on physical location within the zone, and (d) it has a separate customs area (duty-free benefits) and streamlined procedures.
In addition, an SEZ normally operates under more liberal economic laws (including tax holidays and minimum duty on imports of raw material, etc) than those typically prevailing in the country. SEZs confer two main types of benefit, which explain in part their popularity: “direct” economic benefits such as employment generation and foreign exchange earnings; and the more elusive “indirect” economic benefits – which includes innovation, transfer of technology and other positive spill-over effects.
Summing it up, what China did was, to uplift a region, it would establish an SEZ there, generating economic activity, employment opportunities increased income levels, which would then translate into better health and education indicators. Eventually, showing an impact at the aggregate level, contributing to the country’s GDP and earning higher foreign exchange.
This would also bring the backward region at par with the developed regions, reducing inequality in general and economic disparity among regions in particular.
In this backdrop, in CPEC’s second phase, which is highly important for development of the social sector in carrying forward the government’s poverty alleviation plan; it is high time that Pakistan’s government establish more SEZs in the tribal districts of Khyber Pakhtunkhwa and kick-start the wheel of economic growth and development in the region, moving towards a concrete resolution of the existing issues, once and for all.
The author is a research fellow/program officer at the Center for Research and Security Studies (CRSS), Islamabad