THE exodus of a large number of multinational companies (MNCs) over the past two years should have raised red flags among policymakers and the IMF. Instead, it has been met with a business-as-usual approach. Despite the glib explanation of how ‘global capital allocation decisions’ were the main factor behind the high-profile exits, three associated facts point clearly to deeper issues closer to home. The first is the sheer number of companies choosing to exit, in conjunction with the wide range of sectors the MNCs were involved in, ranging from telecoms to mobility to oil and gas, among others.

The second fact is that many of the MNCs exiting the country had been operating profitably for decades. They had weathered many crises in Pakistan, including conflicts and disturbed internal security conditions for prolonged periods. Clearly, an inflection point of sorts was reached over the past four years compelling them to pull the plug.

Finally, while attention has focused on MNC exits, domestic businesses face the same difficult operating environment and their closures are getting less visibility. Pakistan is experiencing a silent economic scarring or ‘hysteresis’ under IMF programme design and government apathy.

Most commentary on the business environment mentions policy inconsistency as the main culprit behind this state of affairs. While this is largely true, in at least one critical area, however, the unfortunate fact is that all governments past and present have been consistent — in continuing with bad tax policy, poor tax administration and weak enforcement.

Predatory taxation of the formal sector is a fundamental factor in rising........

© Dawn