Services Sector Including Tourism Development - … 5.1...Services Sector Including Tourism Development 5.1.0 Introduction Pakistan has seen a signi˜cant increase in the share of

Services Sector Including Tourism Development

5.1.0 Introduction

Pakistan has seen a signi�cant increase in the share of services in its GDP and employment. With increased globalization and major technological improvements particularly in communications, the services sector is also becoming a signi�cant contributor to the country’s trade and foreign direct investments (FDI). In fact, over the past four decades the structural transformation of the economy has been skewed towards the services sector. �e share of agriculture in income or output has progressively decreased in the last three decades, while the share of industry has remained fairly stagnant (Figure 1).

1Bureau of Statistics, Punjab. Punjab Statistical Pocketbook, 2016.

P U N J A B ECONOMIC | REPORT

159

Source: Punjab Bureau of Sta�s�cs

Figure 1: Sectoral Composi�on of Pakistan GDP, 2005-16

Figure 2: Services share of Pakistan GDP, 2005-16

Figure 3: Contribu�on to Real Pakisatn GDP Growth, 2008-16

Source: Punjab Bureau of Sta�s�cs, For 2005-06, Punjab Development Sta�s�cs, all other years Punjab Sta�s�cal Pocketbook,various years.

It is the services sector which has been the main driver of growth and employment in the economy, with its share increas-ing to almost 60 per cent in the national income (Figure 2) and more than 30 percent in employment.1

Nationally, not only has the services sector share in national GDP risen over time, but it has continued to contribute more than two thirds (68 percent) to real GDP growth since 2009-10 (Figure 3).2 In comparison, industry has contribut-ed 21.4 percent and agriculture 10.8 per cent to real GDP growth rate over the same period. �is clearly indicates the rising dependence of the national economy on the services sector, as services contribution to growth has been greater than that of the commodity producing sectors since 2010-11.

Punjab constitutes the largest share of the national economy. Out of that share Punjab’s services sector share has been more than 50 percent since 2005-06. However, data for the share of transport, storage and communications sub-sector does not depict an accurate picture. �is is due to the fact that data on communications was not collected at the provin-cial level until 2014, therefore it is excluded from Punjab services sector �gures before 2013. However, if the data is appropriately adjusted for the transport, storage and communication sub-sector for the time period of 2005-06 to 2012-13, then the share of Punjab’s services sector in national GDP rises accordingly for the time period of 2005-06 to 2012-13. �is will also explain the stark increase in the share of services sector from 2014 onwards. (right panel, Figure 4).3

�e provincial government under its ‘Growth Strategy 2018 envisions Punjab as a secure, economically vibrant, industri-alized and knowledge- based province. �e private sector dominates the provincial economy, contributing around 90 per cent of Punjab’s output of goods and services. �e Punjab Growth Strategy 2018 acknowledged the importance of the private sector in attaining its targeted 8 per cent (real) growth rate by 2018, by identifying it as a growth driver, especially in terms of creating 1 million quality jobs each year. To incentivize the private sector, the strategy suggested increasing the productivity of scarce resources through improvements in the investment climate, institutional and governance reforms and tapping into new sources of growth such as better functioning cities and urban clusters. �us, if the province is to meet its goals, it must move aggressively to enhance the capabilities of the private sector. �e Punjab Growth Strate-gy correctly supported policies that make product and factor markets more �exible, lower costs of production and distri-bution, and move the structure of the major sectors and hence of the total provincial economy in the direction of higher value-added products.

2This may be es�mated by mul�plying the respec�ve sector share of GDP with the sector growth rate.3Punjab GVA figures for transport, storage and communica�on are used to supplement missing data in Punjab sub-sector services GDP for the right panel of Figure 1 4. GVA is different from GDP, as intermediate inputs are subtracted. This may lead to some calcula�onal discrepancies, so the GVA figures are only used once here for this figure to illustrate the difference. Unless otherwise men�oned, all other figures and es�ma�ons, based on usage of Punjab GDP data will not include transport, storage and communica�on from 2005-06 to 2013-14. As such, given the importance of this sub-sector, the es�mates may be considered lower bounds of actual Punjab services sector contribu�on.


160


Figure 4: Share of Punjab in Na�onal GDP by Sector, 2005-16(%)

It is in this respect that the services sector can play an important role in the economy of Punjab. Punjab, which consti-tutes the largest share of Pakistan’s economy at 53 percent of national GDP, has mirrored the national level structural transformation of the economy from agriculture to services. More importantly, the contribution of Punjab’s services to the national economy has increased with time. As a share of value added of the respective national sector during the last

decade (2005/06-2015/16), the services sector of Punjab has risen from 40 to 56 per cent, while agriculture has remained stagnant at about 40 per cent, and industrial share has risen from 50 to 59 per cent (left panel, Figure 4). �e contribu-tion of Punjab’s services sector has increased the most (by 16 percentage points) over the last decade. �erein lies the true potential of the Punjab services sector in becoming an important growth-driver for Pakistan.

Moreover, the services sector has become critical for the economic survival of Punjab, with the share of services in provin-cial GDP rising from 53 to 62.6 percent between 2005-16. Over the same time, the agricultural share contracted by 8.2 percentage points, indicating the structural transformation of Punjab (Figure 5). �e services sector of Punjab represents an excellent opportunity for Punjab to deliver private-sector led development and attain the targets set out in the Punjab Growth Strategy 2018.

4Federal Bureau of Sta�s�cs. PSIC, Revision 2010. In this report, sector conven�on is followed by not including “Health” and “Educa�on” sub-sectors as they are too big in their own right. Conversely, “Ac�vi�es of extraterritorial ins�tu�ons” is too small to ma�er.


161


Figure 5: Sectoral Composi�on of Punjab, % of GDP, 2005-16

It is in this respect that the services sector can play an important role in the economy of Punjab. Punjab, which consti-tutes the largest share of Pakistan’s economy at 53 percent of national GDP, has mirrored the national level structural transformation of the economy from agriculture to services. More importantly, the contribution of Punjab’s services to the national economy has increased with time. As a share of value added of the respective national sector during the last

decade (2005/06-2015/16), the services sector of Punjab has risen from 40 to 56 per cent, while agriculture has remained stagnant at about 40 per cent, and industrial share has risen from 50 to 59 per cent (left panel, Figure 4). �e contribu-tion of Punjab’s services sector has increased the most (by 16 percentage points) over the last decade. �erein lies the true potential of the Punjab services sector in becoming an important growth-driver for Pakistan.

Moreover, the services sector has become critical for the economic survival of Punjab, with the share of services in provin-cial GDP rising from 53 to 62.6 percent between 2005-16. Over the same time, the agricultural share contracted by 8.2 percentage points, indicating the structural transformation of Punjab (Figure 5). �e services sector of Punjab represents an excellent opportunity for Punjab to deliver private-sector led development and attain the targets set out in the Punjab Growth Strategy 2018.

Given the increasing importance of services in the provincial economy, this chapter would analyse the performance, problems and potential of the sector (including tourism) independently and in relation to the other two sectors— agriculture and manufacturing. �is would include mapping the sector and its performance, as well as exploring the potential of selected sub-sectors. �e analysis would also critically look at the policy and regulatory environment govern-ing the sector, highlighting the major weaknesses and strengths in terms of institutional support. Based on the analysis, policy recommendations and suggestions would be forwarded in the chapter. An interesting area to explore will be to identify reasons why even with strong growth and expansion of the sector the employment numbers have not grown at the same pace. �e chapter will also cover the tourism potential in the Punjab.

�e major sub-sectors of the services have been re-classi�ed since Punjab Economic Report (PER) 2007 under the 2010 Pakistan Standard Industrial Classi�cation of all Economic Activities (this is Revision 4 from the previous nine-chapter services sector divisions present in Punjab Small Industries Corporation (PSIC) 2007). �e major changes for the services sector include the splitting up of three sub-sectors, resulting in 13 chapters.4 In addition, Communications was removed from the transport and storage sector, and information and communication are separate chapters. Furthermore, follow-ing on from the devolution of 2010, communications has been provincialized for collection of revenues and taxes since 2013. Consequently, the accounting data re�ects provincial �gures from 2014 under this head (these �gures were not available at the provincial level before this year). Similarly, “other personal, social and community services” have been broken into “arts, entertainment and recreation”, and “other services”. A new category of “professional, scienti�c and technical activities” has been created as well, which were previously a part of real estate activities.

Source: Bureau of St

5.1.1 Structure and employment5

�e following analysis of the sectors will provide an overview of the composition of the sector, its inputs, spatial mapping and employment. Given the lack of data pertaining to the services sub-sectors, especially in terms of number of units, a complete spatial mapping cannot be done, but is attempted for the largest sub-sector of wholesale and retail trade. In general, the services sector is largely concentrated in the private sector, mostly in small and medium-size enterprises (SMEs), most of which have fewer than 10 employees.6

5.1.1.1 Composition of services sector

Eichengreen and Gupta (2011) classify the services sector as comprising traditional (non-tradable) and modern (trad-able) services. Hotels and restaurants, transport and storage, wholesale and retail trade, public administration and defence, social, community and personal services, as well as dwellings belong to the traditional sector. �e traditional sector in Punjab is dominated by wholesale and retail trade, as shown by its share in provincial services gross value-added (GVA). �e modern sector comprises �nance and insurance, IT, communications, and business services. Globally, growth in services is being driven by the three T’s: technology, transportability and tradability. Technology gives services a physical presence through digital storage, telephones and internet allow them to be transported, and the low barriers to service trade relative to goods (domestically and internationally) allows them to be traded at lower costs. However, data suggests that Punjab is still in the �rst stage of services, with traditional services dominating GVA shares (Figure 6). For instance, in 2015-16, wholesale and retail trade were the sector leader, accounting for almost one third of total services GVA. Together with transport, storage and communication, it is half the services GVA in 2015-16.

5All data used is in 2005-06 constant prices, unless otherwise men�oned.6World Bank, (2013). Pakistan: Finding the path to job-enhancing growth. The World Bank Country Report no. 75521-PK.


162


Source: PSIC 2010 (REV 4)

Table 1: PSIC 2010 Revision 4-Services Composi�on

Figure 6: Services GVA Punjab by sub-sector 2015-16

�ere is no data available at the provincial level on input-output linkages, without which it is very di�cult to estimate the total factor productivity of this sector. It is estimated that in general about 60 per cent of services sub-sectors derive their demand from the industrial and agricultural sectors. But this dependence is limited to traditional services sub-sec-tors such as transport, logistics, real estate and trade. Modern services such as IT, IT- enabled services, �nance and insur-ance, as well as telecommunications do not require a large manufacturing base, and are less reliant on manufacturing growth.7

�e outputs of this sector are diverse intangible goods, and intermediate inputs are often hard to pin down and quantify, leading to many data constraints in this sector as compared to industry. Gross-value added of each sub- sector is a way of representing this complex data. Output from each sub-sector in value added terms is shown from 2005-16 in Figure 7. An interesting fact arises. �ere has been remarkable stability in the sectoral composition of Punjab’s services sector, controlling for the size (in gross-value added) of the services sector over 2005-16.

It appears that the services sector has not seen much change in the top sub-sectors, with wholesale and retail trade and transport dominating over the last ten years. �e extent of dependence has decreased over time, with these two sub-sec-tors in 2005-06 contributing three-fourths to services, falling to roughly half of services GVA in 2015-16. Nevertheless, this is worrying because it shows that the transition to modern services has not yet begun. Although dated, the Economic Census 2000 revealed that two-thirds of all services sector economic establishments in Punjab belonged to wholesale and retail trade and the hospitality sector (Figure 8). �is is likely to still be true. It is therefore unsurprising that the Punjab government has conducted sector studies focused on commerce since 2009, that looked at the entire spectrum of commerce-related activities ranging from storage to transport to trade.

7Ghani, E. and Kharas, H. (2009). The service revolu�on in South Asia. World Bank. Available at h�p://siteresources.worldbank.org/IN-TRANETTRADE/Resources/239054-1239120299171/5998577-1254498: 644362/6461208-1300395869284/SA_Service.pdf. Retrieved on 30th April, 2017


163


Figure 7: Share of Services sub-sectors in Total Sector value-added Punjab, 2005-16

5.1.1.2 Services sector inputs

In this section, the KLEMS database for Pakistan is used to explore the levels of labour, capital, and services used across three sub-sectors—namely, transport, storage and communication; wholesale and retail trade as well as �nance and insurance. �is data is available only at the national level, and the latest year available is 2010. �erefore, ten-year (raw) input usage trends are shown for 2000 to 2010 and should be considered as broadly indicating trends in input use across the services sector of Punjab. Ideally, it would be more useful to calculate factor productivities, but this data is not avail-able at the provincial level for services.

�e most labour-intensive sector in services is wholesale and retail trade, with labour employed increasing over the period under consideration. �e most capital-intensive sector is transport, storage and communication, followed by �nance and insurance (Figure 9).


164

Source: Economic Census, 2000-01

Figure 8: Establishments by sub-sectors Punjab, 2000-01

Intermediate services are used as inputs in all three sub-sectors, indicating the cross-linkages within the services sector, especially for transport, storage and communication and wholesale and retail trade. In fact, services inputs are rising in retail trade speci�cally on account of new trends, such as online retail. �ese are increasing the services inputs (especially IT and logistics) in modern retailing (Box 5-1).


165

Source: Pakistan KLEMS database, 2017

Figure 9: Input Usage Across sub-sectors, Pakistan: 2000-2010

8Punjab Employment Trends, 2013.9Ghani, E. and Kharas, H. (2009). The service revolu�on in South Asia. World Bank. Available at h�p://siteresources.worldbank.org/INTRA-NETTRADE/Resources/239054-1239120299171/5998577-1254498644362/6461208-1300395869284/SA_Service.pdf. Retrieved on 30th April, 2017

While provincial level data that could allow inter-sectoral comparisons is missing, intuition suggests that services should be less capital and energy intensive than industry, and also less prone to climactic shocks as in agriculture. While this sector is a�ected both by domestic and global inputs, given that the services output mix in Pakistan is skewed towards more traditional services such as retail trade, transport, restaurants, and storage relative to modern services (IT, commu-nication, �nance and insurance), global shocks are less relevant at this stage. Of course, global fuel prices do a�ect the transport sector, as do global �nancial contractions like the crisis of 2010. However, given the lack of global �nancial integration, such shocks are transmitted with muted intensity.

�e services sector is labour intensive, and the labour skill mix is skewed towards the very low end in traditional services, or the very high end in the modern sub-sectors. Most labour in the services sector is low-skilled, in informal employ-ment, and working longer hours than in 2000.8 �ose with high skills earn scarcity rents in the �nance and IT sectors by virtue of the poor human capital of Punjab. While Punjab is at the forefront of e-innovations—and seems like the best place to begin helping Pakistan transition to more modern services—this will depend critically on human capital. Coun-tries such as India which have succeeded in becoming hubs of modern services have relied on high skill workers, for example in the IT sector which spawned the growth of the IT-enabled services (ITeS) sector. In order to transition to modern services, it will be necessary to invest in human capital. It was Hyderabad’s high human capital that allowed Andhra Pradesh to increase its services employment 20-fold between 1998 and 2008. �e returns to investment in human capital are exponential at lower levels and mutually reinforcing, whereby high skill attracts both high skill labour and �rms, as evidenced by Bangalore, India.9

Box 5-1 E-commerce: The rise of the digital marketplace

Globally the digital marketplace has replaced the physical marketplace, and internet retailing (e-commerce) is emerging as a new trend. Although the market in Pakistan is s�ll in its early days compared to India and China (where online retail giants like Flip Kart and Alibaba have mul�-billion dollar sales), e-retail is on the rise in Pakistan, with an increase from $100 million in 2016 to an expected $600 million in sales by the end of 2017, and $1 billion by 2020.a However, problems such as payment methods (cash-on-delivery remains the most popular op�on), logis�cs (na�onal couri-er services charge differen�al delivery and insurance premiums based on loca�on) and customer support (returns, exchanges) remain key hurdles. Nevertheless, home- based local businesses and service providers have found an online pla�orm (o�en through social media) due to smartphones, broadband internet and rising online banking. As of 2016, the online retail market remains 1 per cent of the total market (with only 3 per cent of Pakistanis shopping online), but with the entry of Alibaba Group, China, and Rocket Internet (which has introduced Food Panda and Tripda) and local investors (Daraz, Kaymu, and OLX) e-commerce will surely rise. Punjab being at the technology forefront is benefi�ng tremendously, with 65 per cent of all online deliveries in 2015 being made to the ci�es of Lahore, Islamabad and Karachi.b the poten�al of the e-commerce market may be gauged from the proposed entry of Chinese giant online marketplace AliBaba.com in Pakistan by end 2017. It is expected that it will buy out the current local e-commerce player Daraz.com and also introduce PayPal services through the country’s first e-payment op�on. The AliBaba group has spoken of strengthening capacity of SMEs through projects. Moreover, the AliExpress commerce company has partnered with a local company in Punjab to provide services in the bigger ci�es, while training and infrastructure development is underway.c

NOTE:a Punjab IT Board, Government of Punjab (2016). Punjab IT Policy 2016 [Dra�].b Ahmed, J. (2015). The encouraging future of online retail in Pakistan. 19th October, 2015. Express Tribune. c Jack Ma of Alibaba Group Could Visit Pakistan Very Soon. Available at h�ps://pakorbit.com/2017/05/-jack-ma-of-alibaba-group-could-visit-Pakistan-very-soon/


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5.1.1.3 Geographical mapping

�e objective of this section was to geographically map this sector, describing the main clusters of services spread across the province in major cities, towns and rural areas, but data were not available. �e PSIC Census 2011-13 was only useful in helping to map the number of trading establishments in the service sector of Punjab at the district and tehsil levels. It provides a disaggregated picture of wholesale and retail trade activities in rural and urban areas of Punjab. �e sub-sectoral share of the wholesale and retail trade sub-sector is the largest of all the sub-sectors for both Punjab and Pakistan. It is measured as the trade margins of commercial activities and grew at 6.3 percent in 2015-16, the highest growth rate since the peak of 6.9 percent in 2011-12. In fact, this sector has been growing faster than the overall growth rate of Punjab since 2013. �e data reveal a distinct clustering of trading activities in the north and east, with a relatively cooler central belt (Figure 10).

10Call centres: The end of the line. Feb 6th, 2016. The Economist. Available at h�p://www.economist.com/news/interna�on-al/21690041-call-centres-have-created-mil- lions-good-jobs-emerging-world-technology-threatens. Retrieved on 22nd April, 201711OECD. (2005). Enhancing the performance of the services sector. OECD Publishing. Available at h�ps://books.google.com.pk/books?id=Z-cYXbfVL8rEC&dq=services+sector+taxes&source=gbs_navlinks_s. Retrieved on 28th April, 2017

At the same time, not all modern services require high skills. For instance, India was also able to bene�t from business process outsourcing (BPO), where �rms outsource either back o�ce (�nance, accounting, legal, and human resources) or front-o�ce activities (customer and sales related). Call centres are a lucrative example of the latter, and have been used e�ectively by countries with a large English-speaking working population, such as India (by 2014, it had 24 percent of all full-time call-centre jobs) and the Philippines (26 percent).10

Punjab’s knowledge-based economy would depend on its levels of entrepreneurship, ICT, innovation and human capital. �ese could enable it to raise productivity along the value chains of its critical sectors.11 �is would require signi�cant human resources that Punjab would have to deliver through its educational and technical training policies. Skills are broadly based on sector/trade (logistics) or need (IT) and earn the highest return when both services-sector �rms and consumers are well-quali�ed. In addition to its education policy, the Punjab government needs to co-�nance skills train-ing with private services sector �rms, and partners with public universities and institutes to provide equitable access to formal training. �e tax regime must also be consistent with providing �nancial relief for �rms that provide trainings. Unfortunately, the Pakistan Finance Bill 2016 has levied 16 percent withholding tax on trainings, whether they are provided by residents or non-residents. Given that smaller services �rms are not registered tax payers, this raises their cost of training.


167

Source: PSIC, 2013

Figure 10: Mapping services: Wholesale and retail trade in Punjab, 2010-11

5.1.1.4 Employment trends

It is a stylised fact of economic growth that the share of services in the national economy (as measured by income or output) increases as incomes per capita rise. �e same is true for Pakistan, as the share of services in GDP has historically risen (see Figure 1). Similarly, if we compare the services share of the Punjab economy to industry and agriculture over the last 25 years, we �nd that the share of agriculture has been declining continuously, while that of industry has remained stagnant and services has increased (see Figure 5). On the other hand, if we look at the employment share of services, we �nd that this share has not grown correspondingly. Agriculture still employs 43.4 percent of total labour, while services employs 31 percent. �is suggests that employment growth in the service sector has not grown at the same pace as services output. To compare, China’s gross value added from services rose to 50.5 percent in 2015 and employs the largest labour force share (38.8 percent).

Overall employment trends for the service sector and its sub-sectors are presented, using the Labour Force Surveys 2008-09 to 2014-15.12 �e analysis will showcase gender and spatial disparities in labour force participation rates across services.13 As mentioned, although services isare the largest contributor to provincial GDP, the share of labour employed has not kept pace. Unlike in India, labour has not shifted to services and it remains concentrated in agriculture. Learning from India, Pakistan should introduce long-needed agricultural reforms which could increase agricultural productivity, freeing up both labour and land for other non-farm activities. �is could help shift labour from agriculture to services, which is critical for increasing labour productivity. Structural reforms in Pakistan of the 1990s (trade and banking reforms) and 2000s (privatization of telecom and power) failed to reallocate labour inter-sectorally, and only moved labour within sectors from one low productivity sub-sector to another.14 Structural reforms in Pakistan have therefore been unable to catalyse growth-enhancing inter-sectoral labour shifts to services, with the result that most labour remains in low/unskilled jobs in the informal sector. Historically low human capital accumulation, and no rise in total factor productivity (TFP) have meant that Pakistan has the lowest labour productivity in South Asia for quite some time now.15

�e overall population of Punjab estimated at 101.4 million in 2015, is growing at an annual rate of around 2.1 percent. �e total labour force in Punjab in 2014-15 was 36.9 million, of which 32 percent are female population. In 2014-15, almost 57 percent of Punjab’s population fell within the economically active age range of 15-64 years. �e labour force participation rate (aged ten years and over, working or currently seeking work) however was only 48.5 percent in 2014-15.16 Currently, Punjab is going through the middle phase of the demographic transition, or the “youth bulge”, with more young people than old. �e fall in Punjab’s dependency ratio (share of working age population to non-work-ing age population) can only lead to a demographic dividend if women especially, and youth in general, are targeted through special interventions. If Punjab succeeds, it could enjoy the bene�ts of the dividend till 2050. If not, it could potentially see an increase of 87 million more people by 2050, if fertility rates remain at the current level.17 �e services sector employs 30.3 percent of total employed persons (aged ten years and over) in Punjab, falling from 34.1 percent in 2007-08. Wholesale and Retail trade alone absorbs 13.9 percent of the total employed labour force in the Punjab and employs over 2 million females in rural areas. Nationally, the services sector employs 35.1 percent of labour, up 1.1 percentage points from 2013-14.17

12Pakistan Employment Trends 2013, Pakistan Bureau of Sta�s�cs. Available at h�p://www.pbs.gov.pk/sites/default/files/Labour%20-Force/publica�ons/Pakistan_Employ- ment_2013.pdf13LFS Pakistan 2014-15. Available at h�p://www.pbs.gov.pk/sites/default/files//Labour%20Force/publica�ons/lfs2014_15/t20-pak.pdf14World Bank, (2013). Pakistan: Finding the path to job-enhancing growth. The World Bank Country Report no. 75521-PK. 15World Bank, (2013). Pakistan: Finding the path to job-enhancing growth. The World Bank Country Report no. 75521-PK. 16Labour Force Survey, 2014-1517LFS 2014-15, Annual Report. Available at h�p://www.pbs.gov.pk/sites/default/files//Annual%20Report%20of%20LFS%202014-15.pdf. Retrieved on 30th April, 2017

As expected, main urban centres such as Lahore, Multan, Rawalpindi, Faisalabad, and Gujranwala display high trading activities. Interestingly, there is no clear north-south divide in the case of trading activities as is the case in manufacturing, or broadly, within socio-economic indicators. In fact, there is a clear belt of relatively lower trading activities in the western districts.


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Agriculture is the major employer in Punjab, with 44.7 percent share, increasing by three percent from 2007-08. As can be seen, the structural transformation of the economy from agriculture to services in terms of provincial GDP has not caused a corresponding shift in labour employment patterns. If anything, the total labour employed in services has decreased by 3.8 percentage points since 2007-08. Nevertheless, as a sector, services is the second largest employer in the province, with 30.3 percent employment share. �e average worker in the services sector is male (Figure 11).

�e services sector employs 55.8 percent of the urban employed, the largest share in terms of urban employment.18 �is is down from a 60 percent urban employment share in 2007-08. In rural employment, services sector share is 20.2 percent. Looking at the services sector over rural/urban in Punjab reveals that there has been a sharper decline over 2007-08 in services sector employment in rural areas as compared to urban areas (Figure 12). While this may re�ect the increased opportunities for employment associated with a higher pace of Punjab’s urbanization in 2014-15 relative to 2007-08, it is worrying because rural-to-urban migration could rise if rural services sector employment is declining. �e share of services in total urban employment for men has fallen from 54 to 50 percent over 2007-15. Gender-wise employment rates reveal an interesting di�erence in employment shares. �e data suggest that while male employment has fallen in both services and agriculture over time, the percentage point decline is more for services. As a result, there has been a shift in male employment from services to manufacturing between 2007-15, as male employment rates rose from 18.7 to 23.7 percent.

18LFS Pakistan 2014-15.

4Federal Bureau of Sta�s�cs. PSIC, Revision 2010. In this report, sector conven�on is followed by not including “Health” and “Educa�on” sub-sectors as they are too big in their own right. Conversely, “Ac�vi�es of extraterritorial ins�tu�ons” is too small to ma�er.

Source: LFS, various


169


Figure 11: Employment Share by Sector Across Gender, Punjab 2007-15

�e Punjab female labour force participation rate (aged ten years and over) in 2014-15 was 27.8 percent, better than the 22 percent female national labour force participation rate in 2015 (male participation rate is 67.8 percent).19 Of the total employed population, the female share of employment in services is a mere 2.83 and 2.37 percent for Punjab (Figure 12) and Pakistan, respectively. �is indicates that of total women employed, Punjab has a larger overall female services employment rate, even though it is very low in absolute terms. �e �gure shows that of the total employed female popu-lation in Punjab, one in every ten works in the services sector (including education and health).20 �is represents a fall from 2007-08, when the same ratio was 14 percent.21 �ere appears to be a very clear gender di�erential in sector employment within Punjab, with women who work being concentrated in agriculture, with men working in the services sector. Of males employed in Punjab, the services sector employed about 35 to 38 percent in 2014-15, down from rough-ly half in 2012-13. �e overall female unemployment rate for 2014-15 in Punjab is close to 9 percent, almost 4 percent-age points higher than the male unemployment rate.

Within the services sector, employment is concentrated in the labour-intensive wholesale and retail trade sub- sector (15.1 percent), followed by other social, community and personal services (6.78). �ere was a signi�cant di�erence between employment shares of the two top sectors in 2014-15. Between 2010-2015, employment in services fell overall, but the structure of employment did not change (Figure 13).

19ILOSTAT. Pakistan. Available at h�ps://www.ilo.org/ilostat. Retrieved on 30th April, 2017.20LFS, 2014-1521Punjab Employment Trends 2015.

5All data used is in 2005-06 constant prices, unless otherwise men�oned.6World Bank, (2013). Pakistan: Finding the path to job-enhancing growth. The World Bank Country Report no. 75521-PK.


2007-08 2014-15

2007-08 and 2014-15


170

Source: LFS, various issues

Figure 12: Employment Shares by Sector Across Space, Punjab 2007-08 and 2014-15

�e fastest growth in employment over time has been in traditional services such as retail, hospitality (hotels and restau-rants) public administration and defence (increasing to 22 percent in 2014-15). In 2014-15, employment in the high-end services (IT, telecommunication, �nance, and business services) represented only about 2 percent of total services employment (Figure 14). Calculations using employment data show that for modern services, Punjab’s share in total national employment is greater than 1, which indicates that Punjab is employing more people in modern services as compared to the national �gure. �e same is true for real estate, recreation and the arts. It must be noted that the analysis above pertains only to formal employment (see Box 5-2 for time trends in informal employment in Punjab).

Figure 13: Employment share in services sector, 2010-2015

15.13

4.59

1.99

1.8

6.78

Serv ices labour compo

Wholesale and reta il trade

Transport, storag e, communi

Financial and insur es

Public administr ence

Other social, commun ity, persona l

16.02

4.71

1.242.04

Serv ices labou r compo

Transport, storage, communi

Financial and insur es

Public administr ence

Other social, commun ity, persona l

(%) (%)

Sour S, various Years

2007-08 and 2014-15


171

Source: LFS, various issues

Source: Own calcula�on, LFS, various Years

Figure 13: Employment Shares in Services Sector, 2010-2015

Figure 14: Employment Shares in Services Sector, 2007 and 2014-15

�e discussion above compared employment shares and trends across the three sectors to reveal that there has been a rise in labour employed in both agriculture and services, while manufacturing exhibits a downward trend. �is puzzling fact may be reconciled by two factors. Given that the manufacturing sector is struggling with energy shortages, inconsis-tent government policies and increasing international competition, labour is moving out of manufacturing. Secondly, while it is a stylised fact that young labour tends to move out of rural areas (“demographic hollowing out”)22 to cities for jobs in industry and services. �e demographic transition has not yet been completed in Pakistan, and for the existing labour migrating for urban industrial and service sector jobs, there are as many new entrants in the labour force who are forced to �nd low productivity-low wage jobs in agriculture.

�e analysis also reveals that the services sector absorbs more female labour than its share. �is is promising considering declining fertility rates in Punjab which will allow more women to enter the labour force. Secondly, given that the demo-graphic transition has not been completed in Pakistan, more than one million young individuals join the labour market each year, and this trend is expected to continue at least until 2025. �e services sector has the potential to generate employment, but this well depend on the level of human capital that the workers have. Given that the education and skill de�cit are real challenges for Punjab, the success of the services sector in providing “quality” employment will depend on whether the Punjab Skills Sector Development Plan 2018 can actually raise the supply of skilled workers (targeted at 2 million workers by 2018). Furthermore, it is not economically feasible for the Punjab government to create jobs, but rather it should create enabling conditions in the services sector to facilitate private-sector led job creation. Secondly, incentives such as tax credits extended to �rms for new employment or apprenticeships could prove more cost e�ective than providing loans to start businesses.

22Available at h�ps://www.adb.org/sites/default/files/publica�on/30081/economics-wp324.pdf. Retrieved on 22nd April, 2017.

Box 5-2: Services and informal employment

In Pakistan, the informal sector is defined for sta�s�cal purposes as consis�ng of the following: all household enterprises owned and operated by own-account workers, irrespec�ve of the size of the enterprise (informal own-account enterprises) and house-hold enterprises owned and operated by employers with less than 10 persons engaged. In 2014-15, almost 33 percent of all workers in the retail and trade sector were informally employed in Punjab, rising by 1 percentage point in roughly a decade (2007-08). In fact, the sector is the highest informal employer both in Pakistan and in Punjab, followed by manufacturing. The high level of informality in transport and storage is worrying due to the high occupa�onal hazard a�ached to such jobs.


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23Pakistan Economic Survey, 2015-16

5.1.2 Services Sector performance23

In this section, we look at the performance of Punjab’s services sector for 2015-16. �e section then analyses overall growth rates for services in Punjab over the last ten years and considers the disaggregated growth by sub- sector to high-light variations in performance across sub-sectors.

Gross value added by the sector has grown by 60 percent over 2005-16 (Figure 15). �e increase in Punjab’s industrial sector growth rate had a positive impact on the wholesale and retail trade sector, which posted growth of 6.25 percent in 2015-16. �is was more than enough to compensate for the decline in trading activities due to the poor crop sector performance in 2015-16. At the same time, there has been increased activity in the modern retail format, especially of local players (Box 5-3).

�e �nance and insurance sector grew by its fastest rate, exceeding the 9.1 percent growth in 2005-06. Relatively low interest rates have helped scheduled banks (which account for the largest share of the �nancial sector) expand credit by targeting infrastructure and energy projects in the province, on account of increased focus on these sectors arising from CPEC. �e transport, storage and communication sectors showed zero growth. �ere was little value addition by the

�e services sector could become a job-driver in private sector development for Punjab due to relatively less strict labour market regulations in the services sector than manufacturing (see Table A 5-2, Annex A), a business environment that is improving, increased integration of information technology with traditional activities, a move towards a mass rapid transit system, and lower energy requirements in this sector. �e critical factor would be Punjab’s investment in educa-tion and skill development. Technical and vocational training is an important pillar of Punjab’s growth strategy, and the Punjab TVETA, Punjab Economic Opportunities Program for southern Punjab 2011, as well as the Punjab Skills Devel-opment Fund 2011 to provide institutional support are important steps in the right direction. Other interventions in the labour market are included in Annex A, Table A 5-1).

Box 5-3: Rising modern retail in Punjab

Increased urbaniza�on, a growing middle class, low infla�on and a younger popula�on with changing tastes have raised the demand for modern/organized retail in Punjab. As per the Board of Investment, Punjab’s investment policy is investor-friendly and in line with the na�onal policy—there is freedom to invest in all sectors, and repatria�on of profits/ dividends/ dis-investment proceeds to foreign investors is allowed. The only requirement is that FDI inflows be registered with the SBP. While the first global retailers belonged to the grocery market (Metro, Carrefour, and Makro). Recent investment has been in interna�onal food service brands, apparel, cosme�cs, and jewelry. It is projected that the next wave of interna�onal modern retail investment will be in non-grocery and food service.a The retail sector of Pakistan is one of the main reasons Pakistan belongs to the group of Next Eleven countries having tremendous growth poten�al. Although figures for Punjab’s retail market are hard to come by, it is widely recognized that Punjab has the highest share in this market, because in contrast with Sindh—the next largest market—the modern retail format in Punjab is gaining popularity in its second and third �er ci�es as well. With its large urban middle-class and entry by key business houses such as Nishat, Arif Habib, Packages, and Giga in the mega-mall arena (two new mega malls were built just between 2016 and 2017), it appears there is substan�al first mover advan-tage in the retail market:NOTE:aDeloi�e, (2017), The path to 2020: Taking the long view of retail market entry. Available at h�ps://www2.deloi�e.com/content/dam/Deloi�e/ global/Documents/Consum-er-Business/d�l_cb_Path-to-2020_WEB.pdf,


173

8Punjab Employment Trends, 2013.9Ghani, E. and Kharas, H. (2009). The service revolu�on in South Asia. World Bank. Available at h�p://siteresources.worldbank.org/INTRA-NETTRADE/Resources/239054-1239120299171/5998577-1254498644362/6461208-1300395869284/SA_Service.pdf. Retrieved on 30th April, 2017

24White Paper Budget 2016-17, Punjab.25State Bank of Pakistan. (2016). Annual Report 2016. Chapter 2: Economic growth. 26State Bank of Pakistan. (2016). Annual Report 2016. Chapter 2: Economic growth.

�e national air carrier, PIA was able to perform better in this sector due to lower fuel costs, but also su�ered from low operations and excess capacity. At the same time, a new private airline (Serene Air) entered the air carrier market in 2017, bringing the total number of carriers to four. �ere was also some improvement in Pakistan Railways. Historically, the decline of the Pakistan Railways began in 1978, when the National Logistics Company (NLC) was given permission for goods clearance at Karachi port. Subsequently inadequate budgetary allocations over the years worsened quality. For instance, between 2005-10, three times more was being spent on national highways than the railways, or Rs.155 billion versus a mere Rs. 45 billion.24 A combination of factors led to railways share in national freight to fall from 73 to 4 percent between the 1970s and the 2000s. It is therefore unsurprising that Pakistan Railways is ine�cient in comparison with neighbouring countries. Railways productivity is about one- third of India, one-eighth of China, and half that of �ailand. Nevertheless, since 2013, Pakistan Railways sought to improve its quality and contribution in national freight shares. It has reduced its fares due to falling fuel prices, improved its image, focused more exclusively on the more lucra-tive freight cargo as opposed to passenger cargo (previously only a third of the total rail length was used for freight) and provided new rail routes to Karachi. �is is part of government’s attempts to increase the rail transport share under CPEC to 20 percent by 2025, from a level of 4 percent in 2015.25 Undoubtedly, Punjab will be at the centre of any proposed rail links because of the special economic zones planned in CPEC and the associated logistics infrastructure (dry ports, warehouses, and cargo clearing houses).

�e telecommunications sector, which falls under the purview of the Pakistan Telecommunication, is recovering from the biometric veri�cation drive of 2015 (CNIC-based reveri�cation of SIMs) which cost it an estimated 26 million active SIMS, over and above the costs associated for training and procuring necessary equipment. Tele-density was on the rise in 2016, but at 71 percent it is still lower than the 80 percent peak of 2014. Pakistan had the lowest rate of cellular subscriptions in 2015 (67 per 100 inhabitants) in South Asia, well behind Sri Lanka (113), Nepal (97) and Bangladesh (83), and has seen its ICT Development Index rankings decline between 2010-2015.26

On the plus side, the biometric veri�cation drive has resulted in an unexpected positive externality for the �nancial sector. It has created a CNIC-linked database to facilitate information exchange between scheduled banks and telecom-

road transport sector, the major earner in this sub-sector, cancelling out the marginal value addition by the communica-tion and storage sectors in 2016. �ere should be improvement in the future due to the di�erent logistics and infrastruc-ture projects planned through the National Trade Corridor Highway Investment Program (2007-17) and CPEC in the country, which would ultimately link with Punjab.

Figure 15: Punjab gross-value added services: -16

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Figure 15: Punjab gross-value added Services: 2005-16

5.1.2.1 Growth trends: Services Sector

Growth of the services sector has been the stabilising feature of Punjab’s economy, averaging close to 5 percent over the last decade (Figure 16). Volatility was lowest for services and highest for agriculture, which also had the lowest growth rate. �e average growth has been more than 5.5 percent over 2010-16, and was 5.1 percent in 2015-16, rising from 4.4

10Call centres: The end of the line. Feb 6th, 2016. The Economist. Available at h�p://www.economist.com/news/interna�on-al/21690041-call-centres-have-created-mil- lions-good-jobs-emerging-world-technology-threatens. Retrieved on 22nd April, 201711OECD. (2005). Enhancing the performance of the services sector. OECD Publishing. Available at h�ps://books.google.com.pk/books?id=Z-cYXbfVL8rEC&dq=services+sector+taxes&source=gbs_navlinks_s. Retrieved on 28th April, 2017

27State Bank of Pakistan. (2016). Annual Report 2016. Chapter 2: Economic growth

Box 5-4: Mobile banking— Changing �mes

A recent ini�a�ve in 2017 by Bank of Punjab, and Telenor’s Easy Paisa (launched in 2010) which was the country’s first mobile money service, aims to expand m-banking faster. Other branchless banking services include JazzCash by Jazz (Mobilink+Warid) and U-Paisa by Ufone (which also tapped the growing Islamic banking market with Meezan Bank in 2015). Banks are also seeking to increase mobile wallets through specific applica�ons, such as Omni (UBL), Breeze (SCB) M-wallet (HBL) which partner with telecommunica�ons operators. Easy Paisa and Jazz Cash (previously Mobilink Cash) were sharing the market in 2009, but a third player Omni (UBL) now has a 12 percent stake in this growing market. Punjab’s share is quite high, at 58 and 57 percent of branchless bank accounts and trans-ac�ons respec�vely as of 2015-16. The strength of Punjab’s BB infrastructure can be seen from the fact that more than two-thirds of BB agents are Punjab-based.a

Currently, this sector is regulated by SBP’s Branchless Banking Regula�ons 2008 (amend-ed in 2011). If properly regulated and supported, the Punjab government can leverage the wide penetra�on of mobiles to grow the mobile banking sector through coordina�on between mobile operators and banks. Given that currently all mobile operators have partnered with banks to launch their m-banking products, and are aggressively inves�ng in new products and marke�ng, the Punjab government should pursue policies to expand this sector. Interna�onally, M-Paisa is an example of a successful mobile-based money transfer, microfinance, and finance service that worked well in the developing world through proper government regula�ons. In Kenya, one in every three households has an M-Pesa account, third par�es have started to use M-Pesa to link up with other online payment services like PayPal. b

Notes:aSBP, 2017. Branchless Banking Newsle�er. h�p://www.sbp.org.pk/publica�ons/ac-d/2016/BranchlessBanking-Oct-Dec-2016.pdfbPakistan Economic Survey. Chapter 13: Transport and communica�on. Available at h�p://finance.gov.pk/survey/chapters_14/13_ Transport_and_coms.pdf. Retrieved on 6th June, 2017

munication agents. Many banks have recently rolled out new �nancial products with a mobile phone component (m-wallets), and branchless banking or m-banking (which began in 2008) is also on the rise with a tripling of o�cial branchless banking agents from 77,000 agents in 2013 to 236,000 agents in 2016.27 �is represents a unique opportuni-ty for Punjab, since bank branches in rural Punjab are relatively lower than in urban areas—branchless banking (BB) could provide a way to increase �nancial intermediation in such areas. According to MICS 2014, one in three people in Punjab does not have an account in a bank, post o�ce or National Savings scheme, with rural areas faring much worse (78 percent) than urban areas. Currently, BB transactions are cash-to-cash, rather than account based, indicating the nascence of this sector. Although the transaction volume of BB has increased by more than 200 percent over the same period, �nancial products are shallow—targeting remittances, utility payments, and fund transfers. It is worth noting that even these simple operations are being adversely a�ected by federal government tax policies, such as withholding tax (WHT) on daily bank transactions above Rs.50000 (0.6 percent for non-�lers of tax). Many BB agents use personal accounts for daily transactions and would either have to pay the tax personally or pass it on to the consumer. Either way, the WHT has a negative impact in terms of increasing the branchless banked population. Although this tax is not within the purview of the Punjab government, the Punjab government could potentially provide other tax credits to branchless banking (BB) agents who o�er innovative and deeper �nancial products, such as savings or insurance products. Even without any policy support, the number of BB accounts increased to 19.9 million across Pakistan (Box 5-4).

percent in 2010-11. �e services sector average growth rate over the last ten years was one percentage point higher than the commodity producing sectors of Punjab, at 4.8 percent. Within the services sector, gross value added has grown by 60 percent over 2005-16. Moreover, a rising service sector share in Punjab GDP and positive real GDP growth rates between 2006 and 2016 suggest that higher real growth in services have not been o�set by a fall in prices.


175

Growth of the services sector has been the stabilising feature of Punjab’s economy, averaging close to 5 percent over the last decade (Figure 16). Volatility was lowest for services and highest for agriculture, which also had the lowest growth rate. �e average growth has been more than 5.5 percent over 2010-16, and was 5.1 percent in 2015-16, rising from 4.4 28Deloi�e and Planet Retail (2011). The next genera�on of hidden heroes.

29Punjab Board of Investment and Trade (2016). Retail sector study.30 Pakistan Economic Survey, 2015-16

Historically, the largest sub-sector in services has been wholesale and retail trade (see below). Pakistan was recognized as one of ten next generation retail markets in 201128, and with annual retail growth expected to average 8 percent over the next three years, the retail sector of Pakistan should add USD 30 billion to industry value.29 Punjab will undoubtedly be at the forefront as its business climate is more attractive than Sindh for global retailers.

Within the services sector, the fastest growing sub-sector over the last ten years has been General Government Services, comprised of public administration and defence. �is is largely on account of rising government wages.30 Other private services (health, education, activities of membership organisations like clubs, trade associations and unions, recreation, sports and entertainment) are next, followed by wholesale and retail trade which has a ten- year average growth rate of 4.7 percent. In 2015-16, the fastest growing sector was of general government services (11 percent), followed by �nance and insurance, which grew at 9.3 percent (Figure 17).

5.1.2.2 Growth trends: Sub-sectors

percent in 2010-11. �e services sector average growth rate over the last ten years was one percentage point higher than the commodity producing sectors of Punjab, at 4.8 percent. Within the services sector, gross value added has grown by 60 percent over 2005-16. Moreover, a rising service sector share in Punjab GDP and positive real GDP growth rates between 2006 and 2016 suggest that higher real growth in services have not been o�set by a fall in prices.


176

Source: Punjab Bureau of Sta�s�cs*At constant 2005-06 prices

Figure 16: Sectoral Growth Rates in The Punjab, 2006-16(%)

�e share of services in Punjab’s value added is already at 60 percent. By way of comparison, the services GDP share for India, a largely services-driven economy—is estimated to become 62 percent by 2020. But in contrast to India, Punjab’s growth in services has been due to traditional services. To show this, traditional services is divided into three groups: Group 1 comprises transport and storage, wholesale and retail trade, public administration and defence. Group 2 consists of both traditional and modern services consumed mainly by households—hotels and restaurants, real estate activities, and other community, social and personal services (in PSIC 2010 these have been decomposed into arts, entertainment and recreation; and other service activities). Group 3 represents modern services of information and communication; �nancial and insurance activities; professional, scienti�c and technical activities; and administrative and support activi-ties. Historically, the share of Group 1 services declines as income per capita increases, the GDP share of Group 2 increas-es linearly with per capita incomes through increased aggregate demand but does so slowly, while the GDP share of Group 3 increases rapidly once per capita incomes have increased su�ciently. �ese services transitions borrow heavily from OECD experience. Figure 18 shows that between 2006-2016, only the share of Group 1 services in GDP has risen (top left panel) and exceeds the overall Punjab services growth rate, while Group 2 (bottom left panel) has progressed mainly due to an increase in health and education. Group 3 (top right panel) has contracted, the recent growth episode of 2015-16 notwithstanding.

Figure 17: Sub-sectoral growth rates in the Punjab, 2006-2016 (%)


177


Figure 17: Sub-sectoral Growth Rates in The Punjab, 2006-16(%)

5.1.3 Contribution to GDP growth

31The actual formula takes account of discrepancies in data by calcula�ng quarterly growth rates, mul�plying by 4, and comparing with yearly sector growth rates to determine the discrepancies between different data sources. The discrepancy is weighted propor�onally and mul�plied by the previous year sector shares in a chain-weighted index. Given the data constraints, this is not possible and, in some cases, (especially for Punjab sector contribu�on to na�onal real GDP growth rates), the sectoral contribu�ons exceed Paki- Stan’s growth rate for that year. To our knowledge, the most consistent dataset available was used for these calcula�ons.

19ILOSTAT. Pakistan. Available at h�ps://www.ilo.org/ilostat. Retrieved on 30th April, 2017.20LFS, 2014-1521Punjab Employment Trends 2015.

Additionally, growth in the services sector of Punjab is largely driven by traditional services (bottom right panel Figure 18). Finance and insurance is the only sector to have recorded negative growth over 2006-16, due to a credit crunch in the late 2000s and the GFC. Within Group 2, other private services (mostly health and education) are strong determi-nants of the service sector growth trajectory, while the housing sub-sector has remained stagnant at 4 percent since 2006-07.

To highlight the signi�cance of Punjab’s services sector, this section looks at the contribution of services growth over time (2006-16) to the GDP growth rates of Pakistan and Punjab. To estimate this, the services share of corresponding GDP for each sector is multiplied by its respective growth rate. �is is the production value approach—which although some-what crude— is frequently used to estimate sectoral growth contributions and reveals important growth-driving sectors.31


178


Figure 18: Group-wise sub-sectoral Groth Rates in Punjab, 2006-16

In 2015-16, growth in the services sector of Pakistan contributed a massive 71.1 percent to national GDP growth rate, up from 62.6 percent in 2014-15, or an increase of one percentage point year-on-year (Figure 19). �e contribution of industry also increased in 2015-16 over 2014-15 but remains half of the services growth contribution (1.4 versus 3.4 percentage points in 2015-16).

In terms of Punjab’s contribution to Pakistan’s real GDP growth rate, since 2013-14 it appears that the industrial sector in Punjab is contributing most towards real GDP growth rate of Pakistan. As mentioned in Chapter 1, this result could be re�ecting displaced industrial activity from other provinces in light the of relatively better conditions in Punjab. Nevertheless, the services sector growth accounted for more than half of growth to services in 2015-16. �e slowly rising contribution of Punjab services over 2008-13 could explain most of the growth recovery in Pakistan GDP at a time when Punjab’s industrial and agricultural growth contributions were particularly low.

5.1.3.1 Contribution to Pakistan

�is section estimates the contribution of the services sector of Punjab to its GDP growth over time. Relative to agricul-ture and industry, the services sector stands out as the main growth-driver of Punjab. Real growth in services accounted for 64.3 percent (or 3.2 percentage points) of Punjab’s real GDP growth rate in 2015-16, which was the highest growth contribution. Services sector has been consistently adding more to Punjab GDP growth rate than both industrial and agricultural sectors combined since 2010-11 (Figure 20). Given the highly volatile growth contribution of agriculture over 2006-16, and the uncertainty attached with the industrial environment, it is the services sector of Punjab which has provided the most stable impetus for growth over this time. �is analysis reveals that while Punjab (relative to other prov-inces) contributes more to Pakistan GDP growth through industry, Punjab is able to contribute most to the national real GDP growth rate because of how well services sector performs in Punjab, as it represents 53 percent of the national econ-omy in 2015-16.

5.1.3.2 Contribution to Punjab

Source: Punjab Bureau of St


179


Figure 19: Pakistan Sectoral Contribu�on to GDP Growth, 2006-16

32The compara�ve advantage is based on the magnitude of the loca�on quo�ent LQij=Sij/Sj, which measures how much more value each provincial sub-sector adds na�onally over and above the overall share of that province in Pakistan’s GVA. For compara�ve advantage, the ra�o exceeds 1.33Ins�tute of Public Policy, (2012). The state of the economy: The Punjab Story. Fi�h Annual Report, IPP BNU.34The trade-off was between not analysing the TSC sub-sector, which as the second largest sub-sector, has historically accounted for 25 percent of this sector’s GVA or using the data keeping in mind the discrepancy between GDP and GVA. The 2014-16 TSC GVAs for TSC were used to cross-check total services GDP, and both measures were iden�cal. Therefore, the TSC sector was included for this analysis.

�is evidence is borne out by comparing provincial comparative advantage in sub-sectors across provinces. A 2015 study found that Punjab had a comparative advantage in more services sub-sectors in 2012-13 than other provinces (See Table 2). Accordingly, the study suggests that Punjab invests within the sub-sectors of transport and communications, �nance and insurance, public administration and defence, as well as social and community services.32 As comparative advantage indices are necessarily static, considering Punjab’s potential in IT-related services, investment in IT is also necessary. At the same time, when transport and communication are disaggregated, Punjab has a comparative advantage in telecom-munication as well.33

At the same time, it is more useful to look at sub-sectoral contributions towards the real growth rate of services (in 2005-06 constant prices). For this section, the storage, transport and communication (TSC) data in GVA terms has been used to supplement the missing data for 2005-2013 (explained above).34 �e analysis would help determine three

5.1.3.3 Sub-sector’s contribution to Punjab



180


Source: Pasha, H. (2015). Growth of the Provincial Economies. IPR Brief

Figure 20: Punjab Sectoral Contribu�on to GDP Growth, 2006-16

Table 2: Compara�ve Advantages in Services sub-sectors: Provincal Comparison

5.1.4 Contribution of services sector in agriculture and manufacturing

�ere is growing evidence of a high level of complementarity of services with both agriculture and industry. �is section

35Mostly growth in the health and educa�on sub-sectors, but also to a very small extent growth in recrea�on and sports and membership of organiza�ons

important aspects of Punjab’s services sector: �rst, whether the over-time stability in GVA shares extends to over-time growth contributions, second to compare sector size with sub-sector’s growth rates to show how dynamic they are, and third to identify sub-sectors by how buoyant they have been over time. Each would lend itself to important and nuanced policy implications: the �rst to establish a reasonable policy time-frame to have an impact on this sector and secondly, identify sub-sectors to focus on by Punjab government for a targeted approach.

In any given year, to estimate the contribution of sub-sectoral growth to Punjab’s overall real growth rate of services, the individual sub-sectoral share of Punjab’s service sector (its GDP) is multiplied for each sub-sector by its respective sub-sector growth rate. �is is repeated for each year in the period under consideration (2006-16).

�e �ndings indicate that stability in terms of sub-sectoral GVA shares do not extend to their corresponding sub- sectoral growth contributions (Figure 21). Moreover, the size of sub-sector is not a good proxy of dynamism. For example, TSC is the second largest in terms of GVA share of Punjab, but it has contributed very little to Punjab’s service growth rate over the last decade. On the other hand, wholesale and retail trade is the largest sector and also contributes the largest amount. �erefore, determining sub-sector importance using generalizations based on size are impossible in the service sector.

Secondly, while wholesale and retail trade are the most vibrant sub-sector, the contribution from �nance and insurance to services real growth is on the rise, with 2015-16 marking the peak growth rate for this sector since 2005. Service sector growth is also very much a�ected by growth in general government services, including public administration and defence. Contribution from growth in housing and other private services35 has remained constant over time. �e value added by housing is measured by the share of Punjab in national rents. �e fact that it has remained almost stagnant over 2007-2016 indicates that the number of own dwellings has not increased at the requisite pace. However, it is important to note that other private services have contributed on average one percentage point to real services sector growth in the last ten years. As compared to the stagnant and smaller growth contribution of housing, this shows that growth in this sector (and health and education, in particular) has important growth-inducing implications when overall services growth is low.


would explore the linkages of the relevant service sectors with both industry, agriculture and trade. For example, the role of transport, storage and communications is critical to agriculture as much as it is to industry. IT and telecommunication services have an increasing role in manufacturing and trade. Similarly, �nancial services are essential to investments across the economy and play a major role in a country’s growth and employment generation. Unfortunately, due to lack of provincial data, quanti�cation of linkages is not possible.

In general, the demand-side linkages that a sector has with other sectors are known as backward linkages, while forward linkages apply to the supply-side of the sector. Accordingly, the service sub-sectors of hospitality (hotels and restaurants), as well as personal, social and community services acquire valuable inputs from the agricultural and industrial sectors, signifying strong backward linkages. At the same time, sectors such as wholesale and retail trade, �nance and insurance, construction, transport, storage and communication have forward linkages. Commerce, or wholesale and retail trade sector, is the crucial link in the farm/�rm to market chain that is made possible through e�ective and state-of-the-art transport and storage services. It has been estimated that and one percent increase in TFP growth in services would lead to an increase of 0.54 percent in GDP growth, of 0.25 percent in industry value added, and of 0.85 percent in services value added.36


181


Figure 21: Sub-sectoral Contribu�on to Punjab Services Sector Growth Rate, 2006-16

5.1.4.2 Services sector and agriculture

�ere is growing evidence of a high level of complementarity of services with both agriculture and industry. �is section

5.1.4.1 Services sector and industry

�ere is growing evidence of a high level of complementarity of services with both agriculture and industry. �is section would explore the linkages of the relevant service sectors with both industry, agriculture and trade. For example, the role of transport, storage and communications is critical to agriculture as much as it is to industry. IT and telecommunication services have an increasing role in manufacturing and trade. Similarly, �nancial services are essential to investments across the economy and play a major role in a country’s growth and employment generation. Unfortunately, due to lack of provincial data, quanti�cation of linkages is not possible.


Large-scale manufacturing and industrial imports have critical linkages with the services sub-sectors such as transport and storage, �nance and insurance, business services and trade. It is estimated that services add 26 percent value to manu-facturing sectors in developing countries.37 Moreover, the services and industrial sectors are complementary, with services become more important for manufacturing activities as business process complexity increases. In modern economies, competitive advantage in manufacturing is often determined by upstream service provision (research and development, design, and quality testing) as well as downstream (after- sale services, marketing, advertising, and �nancing options) linkages. �ese inter-linkages highlight that services sector and industry are not substitutable, but rather, complementary sectors in a healthy economy. In general, industry is being transformed by this concept of “servitization”, whereby �rms are increasingly adding services to their product o�ering to distinguish themselves and add value to their supply chain. �is is in direct response to customers’ needs, who want both after-sale and before-sale service, ranging from online purchases to tracking to delivery.38

36World Bank, (2013). Pakistan: Finding the path to job-enhancing growth. The World Bank Country Report no. 75521-PK.37Kelegama, S. (2016). Trade and investment in South Asia: Opportuni�es and challenges. SAFA Conference, Lahore.38h�ps://www.iso.org/files/live/sites/isoorg/files/news/magazine/ISOfocus%20(2013-NOW)/en/2016/ISOfocus116/isofocus_116.pdf

�e wholesale and retail trade sub-sectors and the transport and storage sub-sectors are strongly connected with agricul-ture, especially with textiles and crops. �e storage and transport of agricultural produce is instrumental for ensuring the food security of both Punjab and Pakistan, given that Punjab is the agrarian hub of the country. Food self-su�ciency and security in grains require adequate storage and management capacities to minimise post-harvest losses which a�ect

would explore the linkages of the relevant service sectors with both industry, agriculture and trade. For example, the role of transport, storage and communications is critical to agriculture as much as it is to industry. IT and telecommunication services have an increasing role in manufacturing and trade. Similarly, �nancial services are essential to investments across the economy and play a major role in a country’s growth and employment generation. Unfortunately, due to lack of provincial data, quanti�cation of linkages is not possible.



182

Figure 22: Trade in Services as Percent of GDP-Regional Comparison, 1990-2015

5.1.5 Trade in services41

Trade in services is fast becoming the largest component of world trade and is a major source of foreign exchange for many developing countries. As trade data is not available at the provincial level, this section makes use of national data to explore regional and domestic trends in services trade over the last decade. It is reasonable to assume that Punjab would be a major contributor to the services trade of Pakistan, as the province is a leader in some of the key exports of the sector, such as communications, �nancial business, IT and business services. Equally important, Punjab’s advantageous location increases the competitiveness of its exporters through a well- connected North-South road linking it to all other provinces, as well as to India. �erefore, this analysis should be taken to indicate the trade potential of Punjab over the last ten years, and in the future.

5.1.5.1 Services trade in the region

In South Asia, the share of services trade as a proportion of GDP has increased from around 3 percent in 1990 to 10.6 percent in 2015. However, Pakistan’s services trade share of GDP is the lowest in South Asia at 5.2 percent in 2015, wors-ening since 2012. It performs well below the average for its income group (lower middle income). India’s share is the highest in South Asia, at 14.5 percent in 2014 (Figure 22).42

39Punjab Board of Investment and Trade. Available at h�p://www.pbit.gop.pk/system/files/steel_silos.pdf. Retrieved on 8th April, 2017.40Available at: h�p://www.pndpunjab.gov.pk/node/177141Na�onal-level data from this sec�on comes from UNCTADSTAT.42Source: The World Bank (2016). World Development Indicators

almost 80 percent of farmers. �ese arise due to sub-standard storage facilities of a temporary nature, for example, within mud bins or in jute bags placed in short-rent warehouses or even in the open spaces. Currently, storage falls under the ambit of the public-sector company Pakistan Agricultural Storage and Services Corporation (PASSCO) and the Punjab Food department by arranging or renting storage facilities. �is creates an unnecessary �nancial burden on the federal budget. Provincial seed and fertilizer agencies are also under their purview. To ensure large-scale food storage capabilities, the private sector should play a larger role in procurement and storage of food grains, which could make procurement more competitive by inviting tenders, lowering Punjab government outlays and reducing market price distortions. �is may require the provincial government to set procurement margins, but would ultimately create room for private players, and restrict government to an emergency role. Incentives are also being provided for the food storage and management sub- sector, with the Punjab government inviting in 2016 private sector investment in a $3.5 million steel multi-grain silo agri-business plan. �is could enhance commercial storage capacities for seeds and fertilizers as well, which are currently of a more traditional nature, with tremendous pressure on the few commercial and modern storage solutions that exist. �e value-added agri-business sector has enormous �rst mover advantages for new entrants.39 In fact, 40 grain silos are going to be constructed in Punjab through a public -private partnership (PPP) initiated in 2017 under build-own-operate arrangements, in an attempt to reduce supply-chain annual losses in wheat storage these silos can also be used for the storage of any other crop as well which is deemed important.40


183

Source: The World Bank (2016). World Development Indicators

Moreover, trade in services sector is much lower in South Asia than expected for their stage of development, i.e. much lower than their share of services value-added to GDP would suggest, which for all countries is greater than 55 percent of GDP, and for Pakistan is about 60 percent of GDP. Two patterns emerge from Figure 24. �e �rst is the share of services in total trade is lower than suggested by the high services contribution towards GDP in these countries. �e second, pertains to Pakistan—the only country in the region with a services trade share that has fallen over the last decade (2005-15).

Apart from India, all South Asian economies are net importers of services, with Bangladesh and Pakistan faring worst in the region. While exports have declined over the last decade, the volume of imports has risen, worsening the services trade de�cit for Pakistan (Figure 23).

Source: (2016). Handbook of st cs.UNCTAD

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184

Source: UNCTAD (2016). Handbook of Sta�s�cs.

Source: UNCTAD (2016). Handbook of Sta�s�cs.

Figure 23: Regional Trade Balance, Services: 2005-15

Figure 24: Share of Services in Total Trade (% of Total Trade)- Regional Comparison, 2005-15

5.1.5.2 Services sector trade in Pakistan

In addition, export sophistication remains low in the region, except for India and Sri Lanka, which have shown consis-tent export sophistication since 2000. On the other hand, the export basket of Pakistan over 1990-2009 has re�ected the sophistication level of low income countries at early stages of development, i.e. where services value- added to GDP is less than 50 percent.43

Today, services represent the fastest-growing sector of the world economy, but the share of Pakistan’s services exports and imports as a percent of total world exports and imports remains consistently low (Figure 25). �is contrasts with India which accounted for 3.35 percent of total world exports in 2016, as compared to Pakistan’s service exports, which have remained at less than 0.1 percent of total world exports since 2000. As a share of world services imports, Pakistan’s imports have also fallen since 2006. Services exports comprised 20.5 percent of total Pakistan exports in 2015, increasing from 18.6 percent in 2005. Over the same time, Pakistan’s services imports comprised 15.2 percent of all Pakistan imports in 2015, down from 23 percent in 2005.

Pakistan’s services exports fall in the four modes of service supply under the General Agreement on Trade in Services (GATS). �ese include Mode 1: Cross-border trade; Mode 2: Consumption abroad; Mode 3: Commercial presence; and Mode 4: Movement of natural persons. �e most signi�cant modes for Pakistan are Modes 1 and 4. �e compound annual growth rate of services exports for Pakistan is 4 percent, based on UNCTAD statistics. Annual growth rates are extremely volatile however, with services exports growing at 18.8 percent between 2007-11, and stagnating by -13 percent between 2012-15. �e main export drivers are government services (remittances received by foreign missions, military units and agencies, international organizations; receipts through international bodies, and earnings by diplomat-ic missions abroad), telecommunications (postal service, courier, telecommunication services and call centres) and trans-port (charter of Pakistani ships and aircrafts with crew; remittances received by recruits and agents; earnings of road transport, and rite of passage; freight earnings; and local disbursement of foreign shipping and air companies). Since 2010 however, there has also been an increase in the export of business services and IT.44

Nevertheless, while the share of services in GDP has consistently risen since 2010 from roughly 56 to 59.2 percent in 2016, exports of services have remained stagnant at roughly $5.5 billion from 2010 to 2016, or 18 per cent of total trade of Pakistan. �is points to a signi�cant structural imbalance in Pakistan’s economy, which can be seen from Figure 26. �is shows that while the sector-wise share of industry in GDP has fallen over 2007-15, the ratio of industry exports to industry GDP has risen. Similarly, while the share of agriculture in overall GDP has fallen and the share of services has consistently risen, the ratio of services exports to services GDP has remained stagnant and lower than agriculture since 2007.

43Saez, S. (2012). Can services integra�on succeed in South Asia? World Bank Trade Series.44Saez, S. (2012). Can services integra�on succeed in South Asia? World Bank Trade Series.


185

Source: UNCTADSTAT (2016). Data Center.

Figure 25: Services Trade Shares of Pakistan: 2005-15

While the discussion above has focused on exports through modes 1 and 2, the largest component of trade in services through mode 4 is remittances earned by manpower exports. Remittances in South Asia have increased from $5.6 billion

45SBP (2016). SBP Annual Report 2016. Special sec�on 3: What has caused stagna�on in Pakistan’s exports?

,


186

Source: SBP (2016). Annual Report 2016 Special Sec�on 3: What has caused stagna�on in Pakistan’s exports?

Source: SBP (2016). Import and Export Receipts

Figure 27: Export Market Diversifica�on, by Country and Region: 2015

Figure 26: Structural Imbalance of Services Trade (ra�o of exports to GDP): 2007-15

Speci�cally, while transport and telecommunications make up the majority of exports (excluding government services), they represent only 6 percent of respective sectoral GDPs. On the other hand, exports from the �nancial sector perform better, with an exports-to-GDP ratio of 12 percent.45

Pakistan has been largely unsuccessful in penetrating new markets for its services exports. Exports are not diversi�ed by product or by region, as may be seen from Figure 27. Moreover, regional integration is extremely poor, with exports to SAARC countries the lowest at 0.5 percent of total services exports in 2015. Most exports by region were to the OIC and the Middle East in 2015. It is interesting to note that Pakistan’s top import partners are the same as its export partners, except that imports from China become the third largest source for Pakistan.

in 1990 to $118 billion in 2014.46 For Pakistan, remittances rose from $4.3 billion to $19.3 billion in 2015, as per UNCTAD statistics (Figure 28).

While the discussion above has focused on exports through modes 1 and 2, the largest component of trade in services through mode 4 is remittances earned by manpower exports. Remittances in South Asia have increased from $5.6 billion

46Kelegama, S. (2016). Trade and investment in South Asia: Opportuni�es and challenges. SAFA Conference, Lahore.


187

Source: UNCTADSTAT (2016). Handbook of Sta�s�cs 2016

Figure 28: Pakistan remi�ances-growth, as Share of GDP and Share of Exports: 2005-15

Remittances represent a signi�cant source of services export revenue for Pakistan, amounting to 6.7 percent of GDP, and equivalent to two-thirds of total Pakistan exports (Figure 28). As immigration from Punjab is among the highest in the country, Punjab is a strong driver of manpower exports, especially for white collar jobs in the US, UK, and continental Europe.

Looking at exports across sub-sectors is a useful exercise for identifying which sub-sectors have contributed most to services exports and have the greatest growth potential for Pakistan. Excluding government services (of which the largest sub-component is exogenously determined by global security policies), exports of other business services and telecom, computer and information services have grown fastest since 2005. Other business services include professional and man-agement consultancy, R&D as well as technical and other trade-related services. Within telecom, computer and informa-tion services, exports of computer services have shown a rising trend, from $59 million (or 1.6 percent of total services trade) in 2005 to $0.5 billion (or 11 percent of total services trade) in 2016. Industry representatives believe such �gures to be lower than actual trade owing to documentation discrepancies. On the other hand, telecom exports have been more volatile, and stood at $0.3 billion (or 6.6 per cent of total services trade) in 2016, down from a peak of $0.6 billion in 2013 (Figure 29).

in 1990 to $118 billion in 2014.46 For Pakistan, remittances rose from $4.3 billion to $19.3 billion in 2015, as per UNCTAD statistics (Figure 28).

29


188

Source: UNCTADSTAT (2016).

Figure 29: Exports by sub-sector: 2005-16

Figure 30: Exports of Modern Services-Regional Comparison: 2005-15

A 2016 study estimated that Pakistan has a revealed comparative advantage (RCA>1) in transport, communications, and �nancial and insurance services, based on average RCA indices calculated over 2000 to 2006.47 A regional comparison of modern services exports reveals that Pakistan is one of the top 25 leading exporters of telecom, computer and informa-tion services among developing countries (18th place). In fact, while exports of the same are much lower than for India and Sri Lanka, as a share in overall services exports of Pakistan, exports of the same are much higher than for China. Of course, this is because overall Chinese services exports are much higher as compared to Pakistan. In 2015, Chinese services exports were $286 billion and $5.7 billion for Pakistan (Figure 30).48 Nevertheless, it indicates that IT is one of the promising sectors for Pakistan in terms of its current overall exports.

Source: UNCTADSTAT (2016). Handbook of Sta�s�cs 2016

47Kelegama, S. (2016). Trade and investment in South Asia: Opportuni�es and challenges. SAFA Conference, Lahore.48UNCTAD (2016). UNCTAD Handbook of sta�s�cs 2016: Trade in services. Available at h�p://unctad.org/en/Publica�onsLibrary/td-stat41_en.pdf

35Mostly growth in the health and educa�on sub-sectors, but also to a very small extent growth in recrea�on and sports and membership of organiza�ons

Using the global practice of multi-modal freight transport with an optimal mix of trucking and rail will help Punjab capitalize on its existing strong transport sector. Rail can be used to transport heavy commodities over long distances, while trucks could be used for pickup and delivery. It is estimated that a minimum of 100,000 more trucks at the nation-al level would be required to move construction material,70 tradeable and simply a higher quantum of goods due to increased connectivity within the country. �ree big railway projects are also a part of CPEC, and Punjab will bene�t from the proposed modernization of the ML-1 Karachi-Peshawar rail link (which carries 70 percent of all commercial rail cargo). �e three CPEC projects would allow railways to handle 20 percent of all freight cargo, once CPEC rail projects are completed by 2025.71 At the same time, Punjab will also feature prominently in the operations of Pakistan’s �rst private rail operator, the Pakistan Intermodal Limited, which is being introduced by a local transportation company (PIL) in anticipation of heavy container freight tra�c due to CPEC.

Given the strength of Punjab’s transport sector, it may be expected that Punjab will lead the way in the transport sector, not just through provincial investment, but also investment in other provinces. In addition to national freight, Pakistan will now be host to a large volume of international freight tra�c (mainly Chinese). While the road network is being strengthened under various projects and is also the core of a �ve-year multi-sector plan of the Punjab government.72

Investment in the logistics sub-sector of Punjab must be made on an emergency basis. For instance, China invested $464 million in 2016 on a logistics complex in an area close to the Pak-China border.73

To prevent the Chinese from dominating transport and logistics under CPEC, Punjab must reach out to the key private sector players and develop an incentive-compatible investment strategy. �ere is an opportunity for transport and logis-tics businesses in Punjab to become part of a national industry that could be worth as much as $6 billion even if CPEC manages to divert only �ve percent of Chinese international cargo.74 Without investment to build capacity, cut costs and maintain competitiveness, the CPEC would be no more than a means of earning transit revenues on Chinese goods passing through Pakistan. Most importantly, private sector and public-private participation (PPP) in infrastructure and �nance must be encouraged. A regulatory framework for doing so already exists under the Infrastructure Development Authority of the Punjab Act 2016 (IDAP). Instead of creating a CPEC- speci�c body, the capacity of IDAP must be strengthened.75

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�is suggests that Pakistan should actively develop its computer and related services sub-sector, as its export potential is very promising. To that end, the government must view this sector as an “industry” and provide the requisite support in terms of �lling the gaps highlighted by the Networked Readiness Index (NRI) 2016. �is index assesses the level of ICT readiness and usage of ICT across 139 countries, out of which Pakistan ranks 110, declining sharply from 88th place (out of 138 countries) in 2010.49

49WEF. (2016). Global Informa�on Technology Report, 2016. Available at h�p://reports.weforum.org/global-informa�on-technology-re-port-2016/. Retrieved 9th June, 2017

Source: Global Informa�on Technology Report, 2016

Figure 31: ICT Readiness, 2015

�e NRI comprises three sub-indices looking at ICT environment (policies, regulations, and business climate); readiness for and interest in ICT (human capital, infrastructure, and a�ordability); and actual usage (by government, businesses and individuals). Pakistan performs worst in infrastructure, usage and skills (Figure 31).

However, this is where Punjab can take the lead as infrastructure and usage are relatively better than that of other provinc-es. Given the high a�ordability of ICT in Pakistan (index is 6.9/7), it is high time that the government focuses on this as a leading export sector. Apart from many �scal incentives given (equity ownership, tax holidays, pro�t repatriation, fund-ing for international standards certi�cation and ratings etc.), deeper assistance is required. �e �rst step would be to join the WTO International Technology Agreement through which Pakistan would have to rationalise tari�s on imports of IT goods. �is would make imported IT intermediate goods and inputs cheaper, increasing the competitiveness of Pakistan’s IT exports. �is is crucial if Pakistan wants to enter the global value chain in IT and IT-enabled services, as demonstrated by India, �ailand and Malaysia. Pakistan is overlooked in regional and global value chains due to its high import tari�s, which make it more expensive to source components and intermediate goods from there as opposed to member countries in the region. Unless Pakistan unilaterally lowers tari�s on IT goods (as done over 2002 to 2006, but then subsequently reversed to maximise import tari� revenues), Pakistan cannot hope to be successful even in niche markets. Secondly, it must ensure complete compliance with GATS principles, as often domestic (such as Board of Investment and SBP) regulations undermine commitments Pakistan has already made, creating uncertainty for global investors. �irdly, it needs to address issues of intellectual property rights as no foreign investment will be forthcoming unless global partners feel secure. Fourth, Pakistan must join international ICT associations and start by adopting region-

al benchmarks. All four steps are prerequisites to developing an international Pakistan brand in IT. At the Punjab level, with the help of the PITB, a culture of entrepreneurship and innovation is being created through venture capital, incuba-tors, and sponsorship of industry-academia linkages for skills training. �e PITB needs to work with IT �rms to lower training costs and times of fresh IT graduates by identifying the critical skillset needed to qualify for each job, and then to partner with Punjab government technical and vocational institutes to facilitate this training.

Pakistan’s largest services imports are of transport (of fuel and heavy vehicles), at 40 percent of total services trade. Although fuel costs have declined, they nevertheless contribute signi�cantly to Pakistan’s services trade de�cit. Traveling abroad is also a signi�cant share of total services trade (18 percent) along with other business services, which represent foreign nationals providing technical and professional assistance to Pakistan (Figure 32).





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Source: SBP (2016). Import and Export receipts.

Other services* includes: insurance and pension services, financial services, and charges for intellectual property n.i.e Source: UNCTADSTAT 2016

Figure 32: Service Import by Sub-Sector: 2005-16

�e NRI comprises three sub-indices looking at ICT environment (policies, regulations, and business climate); readiness for and interest in ICT (human capital, infrastructure, and a�ordability); and actual usage (by government, businesses and individuals). Pakistan performs worst in infrastructure, usage and skills (Figure 31).

However, this is where Punjab can take the lead as infrastructure and usage are relatively better than that of other provinc-es. Given the high a�ordability of ICT in Pakistan (index is 6.9/7), it is high time that the government focuses on this as a leading export sector. Apart from many �scal incentives given (equity ownership, tax holidays, pro�t repatriation, fund-ing for international standards certi�cation and ratings etc.), deeper assistance is required. �e �rst step would be to join the WTO International Technology Agreement through which Pakistan would have to rationalise tari�s on imports of IT goods. �is would make imported IT intermediate goods and inputs cheaper, increasing the competitiveness of Pakistan’s IT exports. �is is crucial if Pakistan wants to enter the global value chain in IT and IT-enabled services, as demonstrated by India, �ailand and Malaysia. Pakistan is overlooked in regional and global value chains due to its high import tari�s, which make it more expensive to source components and intermediate goods from there as opposed to member countries in the region. Unless Pakistan unilaterally lowers tari�s on IT goods (as done over 2002 to 2006, but then subsequently reversed to maximise import tari� revenues), Pakistan cannot hope to be successful even in niche markets. Secondly, it must ensure complete compliance with GATS principles, as often domestic (such as Board of Investment and SBP) regulations undermine commitments Pakistan has already made, creating uncertainty for global investors. �irdly, it needs to address issues of intellectual property rights as no foreign investment will be forthcoming unless global partners feel secure. Fourth, Pakistan must join international ICT associations and start by adopting region-

�e trade de�cit in services has historically persisted over the last ten years and has been the largest component in Pakistan’s overall trade de�cit. �e services account de�cit was $2.9 billion in FY16, 3.8 percent lower than the de�cit in 2015 (Figure 33). �is marginal improvement was mostly due to the decrease in the freight de�cit because of lower global oil prices, which reduced the transport de�cit by 28.3 percent to $2 billion. Incidentally, the freight de�cit represents the biggest share in national services de�cit. Even though export of government services fell, the lower freight de�cit succeeding in lowering the overall services de�cit. Export of government services is mainly comprised of Coalition Support Fund (CSF) receipts, which have been decreased during the year, and are expected to continue to fall following the US exit from Afghanistan. �ere are two sub-sectors that have been o�setting Pakistan’s services de�cit over the past few years: export of government services and telecom services. Unfortunately, exports of telecom services have also been on a declining path over the last three years, while government services are driven by non-economic factors. �is is one reason why Pakistan’s services exports have stagnated in the range of $5 to 6 billion over 2013-2016. On the contrary, the share of services in exports for the South Asian region has been rising rapidly over the same period.

al benchmarks. All four steps are prerequisites to developing an international Pakistan brand in IT. At the Punjab level, with the help of the PITB, a culture of entrepreneurship and innovation is being created through venture capital, incuba-tors, and sponsorship of industry-academia linkages for skills training. �e PITB needs to work with IT �rms to lower training costs and times of fresh IT graduates by identifying the critical skillset needed to qualify for each job, and then to partner with Punjab government technical and vocational institutes to facilitate this training.

Pakistan’s largest services imports are of transport (of fuel and heavy vehicles), at 40 percent of total services trade. Although fuel costs have declined, they nevertheless contribute signi�cantly to Pakistan’s services trade de�cit. Traveling abroad is also a signi�cant share of total services trade (18 percent) along with other business services, which represent foreign nationals providing technical and professional assistance to Pakistan (Figure 32).

Figure 33: Service Trade Balance: 2008-14

5.1.5.3 Government role

To stimulate services exports, the government must undertake market-friendly interventions that include improving services trade data collection and recording to build capacity for evidence-based export strategies. �is is especially signif-icant because studies have suggested that both exporters and statistical agencies are often confused about what constitutes services exports versus national sales. Secondly, the government must negotiate better market access in international markets for services as actively as it does for primary commodities. �irdly, it needs to provide a conducive legislative and institutional environment that exporters can bene�t from.

�e government must negotiate better access for Pakistani services exports across all four modes of service supply under the General Agreement on Trade in Services (GATS). Barriers to trades in services are of two types: “behind” the border and “across” the border. As services are intangible goods, many domestic regulations “behind” the border are levied to protect national security interests and domestic consumers, as well as to curb pro�t repatriation. While these regulations are necessary, they should not be excessive. Market (“across” border) access can be denied or limited through barriers that limit foreign operators; quotas; visa and work permit restrictions; patents; non-recognition of quali�cations; as well as cumbersome registration, certi�cation and accreditation procedures. Pakistan must use the GATS framework to disman-tle access barriers through multilateral and bilateral trade negotiations. �ese include mostly regulatory barriers (pertain-ing to the labour market), recognition requirements as well as the absence of uniform training and standards across coun-tries.

To become a leading exporter of services would �rst require a change in government’s mindset regarding the potential of services exports through a medium-term strategy. A visible focus on services is needed in the Trade Policy of Pakistan. While services were included for the �rst time in the Trade Policy of 2009-10, its proposals have failed to materialize. �e Services Export Development Fund proposed in this document needs to be created. Similarly, the Services Trade Devel-opment Council established under the Strategic Trade Policy Framework 2012-15 is a non-autonomous body, with limit-ed capacity, resources and industry linkages. E�ectively, the Ministry of Commerce has failed to take ownership of the STDC.50 A dedicated agency is needed to intermediate between the government and private sector, and generally to try to raise the pro�le of this over-looked sector. �ere has also been no assessment of the progress in implementing the recommendations proposed by the TRTA National Services Export Roadmap 2007. �e Export-Import Bank which was to speci�cally cater to the �nancial constraints faced by �rms in arranging pre-export funding is yet to become functional, despite being established in 2015.51

Secondly, to provide domestic �rms with global exposure, the government must make the services sector an attractive destination for FDI—partnerships, joint ventures, licensing arrangements, and franchising. �is requires an explicit focus on services, which is absent in the FDI Strategy 2013-17 proposed by the Pakistan Board of Investment.52 �is is especially surprising because the services sector has historically been the second largest recipient of FDI in Pakistan, with high FDI in communications, trade, banking and insurance over the last ten years. �e FDI share of the services sector rose sharply in 2005-06 to 78 percent (from 36 percent in 2000-01) but fell to 46 and 41 percent in 2010 and 2015, respectively. �e largest recipient of FDI in the services sector in 2015 was �nancial business (27.8 percent) as compared to communications (25.6 percent) in 2014 (Box 5-5).53





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50Ministry of Commerce, Pakistan. (2014), Services trade development council. Available at www.commerce.gov.pk/wp-content/up-loads/2014/12/STDC_Presenta�on.ppt 51Paracha, S. (2017). Exim bank needs another year to func�on properly. The Daily Times. 1st February, 2017. Available at h�p://daily-�mes.com.pk/islamabad/01-Feb-17/exim- bank-needs-another-year-to-func�on-properly52Board of Investment, Pakistan. FDI Strategy 2013-17. Available at h�p://boi.gov.pk/UploadedDocs/Downloads/InvestmentStrategy.pdf53SBP (2016). Handbook of Sta�s�cs on Pakistan economy. Sec�on 7. Available at h�p://www.sbp.org.pk/departments/stats/PakEcono-my_HandBook/Chap-7.11.pdf

�irdly, the government needs to work closely with services trade associations to identify international services networks or professional/technical bodies the private sector can work with. Fourth, a services lead must be created in the Trade Ministry. Fifth, Pakistan needs to establish brands in selected sectors that would allow it to create a reputation of excel-lence in niche sectors identi�ed by private stakeholders. It can do so with the help of diaspora in established international services sectors similar to the Armenian model (Armenian diaspora in Silicon Valley, California directly bought services from cheaper Armenian service providers) or the Indian model—using diaspora to establish contacts within international services networks through sub-contracting. Indian service exporters then directly targeted the end-users once they had gained su�cient exposure.54 Punjab already has made some progress in achieving a critical mass of skilled labour and modern infrastructure, has considerable links to national diaspora in US Silicon Valley, and has some successful exporters who could compete globally on price, quality, innovation, technology along with marketing and distribution. However, this will require better data collection and documentation, so that key services sector players can make correct assess-ments of opportunities and costs associated with exporting.

Punjab needs to invest in human capital and steadily gain global exposure through joint ventures with international leaders in IT. At the same time, the corporate tax structure needs to be made investor-friendly. Punjab needs to simulta-neously invest in tier 2 cities to ensure costs remain low, giving international �rms additional competitive options for o�-shoring. With interest rates at historically low rates, Punjab can capitalize on low capital and wage costs to attract FDI. For example, India is facing high interest rates, and it is only the devaluing Indian rupee that is making India 60-75 percent cheaper than IT processes in the US.55 Pakistan could follow the Philippines model by using Punjab as an IT hub

Box 5-5: Introduc�on of next genera�on mobile services

The telecommunica�ons sector in Pakistan has flourished due to the liberal licensing policy adopted since 2003 and the sector received a record FDI in 2013. With the intro-duc�on of emerging technologies such as 3G, 4G/LTE and increasing compe��on for subscribers along narrow margins in data bundles, investment will undoubtedly increase in the future. To the extent that all major mobile operators have a strong presence in urban Punjab, this bodes well for the telecommunica�ons sub-sector as all major compa-nies have maintained stable revenues since 2009-10. The new Telecommunica�on Policy 2015 provides an enhanced regulatory framework following the introduc�on in 2014 of Next Genera�on Mobile Services such as third and fourth genera�on mobile wireless technologies (3G/4G LTE). Spectrum licensing fees generated substan�al revenue for the federal government, amoun�ng to $1.2 billion (including advance taxes). However, intro-duc�on of new spectrums also entailed a cost for telecommunica�on companies due to upgrading hardware, such as broadcast towers. It is es�mated that 3G/4G technologies will, in the next three years, create 0.9 million jobs, add 1.5 to 1.8 percent to GDP growth and increase mobile broadband penetra�on to 10 percent from 2 percent in 2014.a But federal import du�es on 3G/4G equipment must be reduced to balance the trade-off between increasing tariff revenues and increasing mobile usage. For its part, the Punjab government has revoked the 19.5 percent GST on mobile internet, although in the recent 2017 Punjab budget presented, the tax is under considera�on to be reinstated, although at a lower rate of 15 percent.b

Notes:aPakistan Economic Survey. Chapter 13: Transport and communica�on. Available at h�p://finance.gov.pk/survey/chapters_14/13_Transport_and_coms.pdf. Retrieved on 6th June, 2017bRizvi, J. (2017). Punjab decides to impose GST on internet usage. The News, 31st May, 2017. Available at h�ps://www.thenews.com.pk/print/207765-Punjab-decides-to- impose-GST-on-internet-usage

with a small but high-quality pool of IT labour and service capacities to target niche markets such as website design and software development. �is could provide Punjab with more immediate results than trying to create a high quality broad-based IT sector which will hinge upon Punjab’s success in increasing investment in education. Simplifying its tax and regulatory framework and strengthening intellectual property rights would help Punjab realise its current and future potential in IT exports. Pakistan is currently ranked 28 out of 55 selected countries in the AT Kearney Global Services Location Index 2016, losing three places since last year, well below India (ranked 1st) and Sri Lanka (14th). �is is a composite index that considers the o�shoring attractiveness of di�erent countries for Business Process Outsourcing (BPO), IT and voice services on the basis of �nancial attractiveness, business environment as well as people skills and availability. Interestingly, Pakistan fares much better than India in terms of �nancial attractiveness, but its low ranking is due to poor human capital and an unstable business environment stemming from poor infrastructure, intellectual prop-erty rights and high-country risks. Undoubtedly this is what has prevented Pakistan from improving its ranking as studies have shown that business environment and institutional quality are more important than low factor costs or investment incentives. �is could be one explanation for why Sri Lanka was able to climb seven places from 21st to 14th between 2011 and 2016, while Pakistan remains at the same level as seven years ago.56 Much will depend on appropriate sequenc-ing of the export reforms and Punjab’s ability to create international engagements for capitalizing on opportunities.





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54Hellyer, M. (2012). The role of government in development of services trade. Global Services Forum, Doha.55A.T. Kearney. (2014). The rising starts of IT outsourcing. Available at h�ps://www.atkearney.com/documents/10192/5185127/The+Ris-ing+Stars+in+IT+Outsourcing.pdf/cd- 3ba9d1-3d84-4a12-a5be-e0162b3fa73c

5.1.6 CPEC and services sector

�is section explores the potential impact of China-Pakistan Economic Corridor (CPEC) on the services sector by taking an overview of major planned infrastructural projects and initiatives. Punjab-speci�c data is di�cult to attain, but in many cases considering the large share of Punjab in the national economy, national �gures are taken to be indicative of trends and overall directions for Punjab. It is expected that CPEC will help increase productivity in Punjab by realizing the gains from agglomeration economies through improved road and information connectivity. Simultaneously, improved connectivity would relieve urbanization and migration pressures for the already populous tier 1 cities in Punjab. At the same time, reduction in transport costs will make it cheaper to move people and services across larger distances, making services in Punjab more competitive.

�e $51.5 billion, 3000 km CPEC is the �agship project of the One Belt One Road Chinese vision. By connecting the western province of China with Gwadar, China aims to renew the Old Silk Route in linking China to more than 60 countries in Asia and Europe by land and by sea and opening access to the Middle East. On account of Pakistan’s strategic location, it is receiving the largest Chinese investment under this initiative for the development of trade and energy infra-structure (roads, railways and pipelines) for a 15-year project. Of the total investment of $51.5 billion, $5.9 billion is for roads, $3.69 billion is for railway networks, $1.6 billion is for the Lahore Mass Transit project, while a �bre optic project is aimed at improving Pak-China ICT connectivity is worth $44 million.57 Planned investment of about $11 billion in transportation will mainly be funded by concessionary loans ($10 billion at an interest rate of 1.6 percent and $1 billion grant for Gwadar)58 by Chinese state-owned banks, while the remaining investment ($4-5 billion) will be made by Pakistani companies (public like NLC, or private like ZKB). Projects worth $28 billion (or roughly 15 percent of Pakistan’s GDP in 2015) are expected to be completed under Early Harvest by the end of 2018. Roughly a quarter of this amount ($7 billion)59 is for immediate transport projects. It is expected that transport and logistics costs will become half because of CPEC. �e bene�ts of upgrading the transport infrastructure of Pakistan is tremendous, as transport losses have risen from 3.5 percent of GDP in 2012 to an estimated 4-6 percent of GDP by 2017. Most costs arise from the fact that 96 percent of passengers and freight are being carried by road as opposed to much cheaper rail, and the high prices and frequent strikes of the unorganized trucking sector.60 As may be seen from Figure 34, Punjab stands to bene�t from CPEC as most of it lies in the core region of the corridor.

�irdly, the government needs to work closely with services trade associations to identify international services networks or professional/technical bodies the private sector can work with. Fourth, a services lead must be created in the Trade Ministry. Fifth, Pakistan needs to establish brands in selected sectors that would allow it to create a reputation of excel-lence in niche sectors identi�ed by private stakeholders. It can do so with the help of diaspora in established international services sectors similar to the Armenian model (Armenian diaspora in Silicon Valley, California directly bought services from cheaper Armenian service providers) or the Indian model—using diaspora to establish contacts within international services networks through sub-contracting. Indian service exporters then directly targeted the end-users once they had gained su�cient exposure.54 Punjab already has made some progress in achieving a critical mass of skilled labour and modern infrastructure, has considerable links to national diaspora in US Silicon Valley, and has some successful exporters who could compete globally on price, quality, innovation, technology along with marketing and distribution. However, this will require better data collection and documentation, so that key services sector players can make correct assess-ments of opportunities and costs associated with exporting.

Punjab needs to invest in human capital and steadily gain global exposure through joint ventures with international leaders in IT. At the same time, the corporate tax structure needs to be made investor-friendly. Punjab needs to simulta-neously invest in tier 2 cities to ensure costs remain low, giving international �rms additional competitive options for o�-shoring. With interest rates at historically low rates, Punjab can capitalize on low capital and wage costs to attract FDI. For example, India is facing high interest rates, and it is only the devaluing Indian rupee that is making India 60-75 percent cheaper than IT processes in the US.55 Pakistan could follow the Philippines model by using Punjab as an IT hub

with a small but high-quality pool of IT labour and service capacities to target niche markets such as website design and software development. �is could provide Punjab with more immediate results than trying to create a high quality broad-based IT sector which will hinge upon Punjab’s success in increasing investment in education. Simplifying its tax and regulatory framework and strengthening intellectual property rights would help Punjab realise its current and future potential in IT exports. Pakistan is currently ranked 28 out of 55 selected countries in the AT Kearney Global Services Location Index 2016, losing three places since last year, well below India (ranked 1st) and Sri Lanka (14th). �is is a composite index that considers the o�shoring attractiveness of di�erent countries for Business Process Outsourcing (BPO), IT and voice services on the basis of �nancial attractiveness, business environment as well as people skills and availability. Interestingly, Pakistan fares much better than India in terms of �nancial attractiveness, but its low ranking is due to poor human capital and an unstable business environment stemming from poor infrastructure, intellectual prop-erty rights and high-country risks. Undoubtedly this is what has prevented Pakistan from improving its ranking as studies have shown that business environment and institutional quality are more important than low factor costs or investment incentives. �is could be one explanation for why Sri Lanka was able to climb seven places from 21st to 14th between 2011 and 2016, while Pakistan remains at the same level as seven years ago.56 Much will depend on appropriate sequenc-ing of the export reforms and Punjab’s ability to create international engagements for capitalizing on opportunities.





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56A.T. Kearney. (2016). Global Services Loca�on Index 2016: On the eve of disrup�on. Available at h�ps://www.atkearney.com/docu-ments/10192/7094247/On+the+Eve+of+Dis- rup�on.pdf/49fa89fa-7677-4ab8-8854-5003af40fc8e57Siddiqui, H. (2015). CPEC projects: Status, cost and benefits. Dawn. 13th July, 2015. Available at h�ps://ww-w.dawn.com/news/1194014/cpec-projects-status-cost-and-benefits58Niaz, M. (2016). Tale of two CPECs. 1st March, 2016. Dawn. h�ps://www.dawn.com/news/1242804/tale-of-two-cpecs 59Niaz, M. (2016). Tale of two CPECs. 1st March, 2016. Dawn. h�ps://www.dawn.com/news/1242804/tale-of-two-cpecs 60Kiani, K. (2017). Transport policy: Need of the day. Dawn. 13th February, 2017. h�ps://www.dawn.com/news/1314522

5.1.6.1 Connectivity and logistics

Logistics, urban infrastructure, banking, and tourism will all bene�t in the services sector. In fact, the bene�ts to the services sectors will be substantially greater than economic estimates due to the positive multiplier e�ects and spill overs that the services sector generate. Policy support extended to the services sector would enable another round of economic activities that would bene�t all producers, traders, and consumers. CPEC would increase the attractiveness of Punjab as an FDI destination, due to growth in modern services such as �nance and insurance, IT and communication, business services and tourism. It is expected that CPEC will lead to $43 billion worth of private investment.61 For instance, other Chinese private investors are also investing in the country on roads and hotels, while international hotel chains such as Hyatt Hotels Corporation have also announced four new projects to be completed till 2023, of which three are located in Punjab.62

�e CPEC will serve to enhance road and rail connectivity of Punjab with the rest of the country and with China.Punjab has the largest road network in Pakistan (about 41 percent of the total, as of 2013-14).63 �is will undoubtedly a�ect the scale and scope of logistics in Punjab as demand for 3PL services in logistics—transportation, warehousing or supply chain management— is already increasing in Punjab.64 �is should help Punjab achieve lower domestic transport cost shares in the �nal value of goods. It is estimated that to be globally competitive, the share of (domestic) transporta-

Source: CPEC Official Website

Table 3:


projects pertaining to services sector Punjab, as of 2017CPEC

Project Cost Stage

Western Alignment: Hakla-Dera Ismail Khan Motorway (M-13) $1.5 billion Under construc n

Railways: Main-Line 1 railway overhaul between Karachi and Peshawar (both phases) $8.2billion Under construc n

Main Line 2 ( -2) railway Kotri-A ockML Under construc n

Eastern Alignment motorway project: $6.6billion

Under construc n

Sukkur - Multan motorway $2.9 billion Under construc n

Multan-Lahore motorway $1.5billion Under construc n

Pak - China Science, Technology, $1.5 billion Planning

Commer c Park, Islamabad

Orange Line (Lahore Metro) $1.6 billion Under construc n

Pakistan - China Fibre Op Project $44 million

Non - funded projects vital to PunjabCPEC

Multan - Faisalabad motorway $275 million Under construc n

Hazara Expressway (Hasan Abdal - Havelian) $417 million Under construc n

tion costs in the �nal value of goods should not exceed 0.8 percent. As of 2006, domestic transport costs were too high, accounting for 1.3 percent of the �nal value of selected goods. It is also expected that national savings on non-factor services could be as high as $525 million per year, if companies have cost-e�ective (external) alternatives to using in-house logistics services.65 With the ADB, DFID and WB assisting the government in implementing its National Trade Corridor Improvement Program (NTCIP 2007-17) and the early harvest projects of CPEC to be completed by 2019, Punjab should bene�t from both.

A main component of the NTCIP aimed to strengthen the trade corridor consisting of roads, ports, and railways that connect Karachi to Punjab, running through the golden triangle, Lahore, Islamabad and Peshawar, all the way to Afghan-istan and the Central Asian Republics (CARs). �e signi�cance of this corridor for Punjab can be gauged from the fact that almost 95 percent of all external trade taking place through Karachi and land borders occurs through this corridor, as well as 65 percent of total inland freight transport.66 Many of the non-CPEC upgradations of the Punjab highways and motorways are an outcome of this project. �e overall objective of the NTCIP was to improve the quality of services and cut costs and transit times of trade and transport by strengthening national physical infrastructure, introducing private-sector vetted investments, policy interventions and institutional reforms in both the public and private sectors. Collectively, the national trade corridor connects areas that contribute to almost 80 to 85 percent of Pakistan’s GDP. 67

�e CPEC constitutes three main routes. Work on the eastern (passing through Sindh and Punjab) and western (passing through Baluchistan, KPK and western Punjab) routes is occurring simultaneously, while work on the central (Baluch-istan, KPK and Punjab) route will begin later. Punjab has more to gain from the western route as it will signi�cantly improve road networks, that are currently relatively less developed than eastern Punjab. In general, the eastern route is being developed by adding missing links to the existing motorway network—the most important of these is the Kara-chi-Lahore motorway— and upgradation the Karakorum Highway (from Rawalpindi to China) that links Pakistan and China. �e western route involves construction/reconstruction of roads, widening and modernization. Local companies such as National Logistics Cell (NLC), the Frontier Works Organisation (FWO) and ZKB are already involved in the western route from Burhan to Gwadar, passing through DI Khan.68

�e corridor and its many passages will connect all parts of the country with Punjab, boosting intra-provincial trade through increased �ow of services, goods and people. At the same time, regional connectivity within South Asia and extension to Turkey will allow Punjab to leverage its strong services sector. Punjab already has the strongest transport and urban infrastructure in the country. CPEC has given Punjab an opportunity to make strategic investments in southern Punjab to take advantage of improved road density. Punjab has already made plans to strengthen provincial and district roads that link the western route with the existing motorway (M2) and highway (N2). Many underdeveloped districts of Punjab are proposing that their provincial/district road network density be increased, that interchanges be built to allow their district access to the corridor (eight are being proposed in CPEC), and �nally that these interchanges be linked to a dense network of provincial and district roads.69 �e Punjab government has begun acquiring land in Attock, Bhakkar, Mianwali for road widening due to the under-developed nature of the main arteries of the western route. However, it is necessary that this be done in a transparent and fair manner to ensure that all stakeholders bene�t in the process (Box 5-6).





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61Economic Survey, 2015-16.62Zack Equi�es (2016). Hya� (H) Reveals Large-Scale Expansion Plans in Pakistan. 14th November, 2016. h�p://www.nasdaq.com/ar�-cle/hya�-h-reveals-large-scale-expansion- plans-in-pakistan-cm70844863Pakistan Economic Survey. Chapter 13: Transport and communica�on. Available at h�p://finance.gov.pk/survey/chapters_14/13_Trans-port_and_coms.pdf. Retrieved on 6th June, 201764h�p://searchmanufacturingerp.techtarget.com/defini�on/3PL



Figure 34: Benefi�ng from The CPEC: Punjab

Table 3: CPEC Projects Pertaining to Services Sector Punjab, as of 2017

�e CPEC will serve to enhance road and rail connectivity of Punjab with the rest of the country and with China.Punjab has the largest road network in Pakistan (about 41 percent of the total, as of 2013-14).63 �is will undoubtedly a�ect the scale and scope of logistics in Punjab as demand for 3PL services in logistics—transportation, warehousing or supply chain management— is already increasing in Punjab.64 �is should help Punjab achieve lower domestic transport cost shares in the �nal value of goods. It is estimated that to be globally competitive, the share of (domestic) transporta-

tion costs in the �nal value of goods should not exceed 0.8 percent. As of 2006, domestic transport costs were too high, accounting for 1.3 percent of the �nal value of selected goods. It is also expected that national savings on non-factor services could be as high as $525 million per year, if companies have cost-e�ective (external) alternatives to using in-house logistics services.65 With the ADB, DFID and WB assisting the government in implementing its National Trade Corridor Improvement Program (NTCIP 2007-17) and the early harvest projects of CPEC to be completed by 2019, Punjab should bene�t from both.

A main component of the NTCIP aimed to strengthen the trade corridor consisting of roads, ports, and railways that connect Karachi to Punjab, running through the golden triangle, Lahore, Islamabad and Peshawar, all the way to Afghan-istan and the Central Asian Republics (CARs). �e signi�cance of this corridor for Punjab can be gauged from the fact that almost 95 percent of all external trade taking place through Karachi and land borders occurs through this corridor, as well as 65 percent of total inland freight transport.66 Many of the non-CPEC upgradations of the Punjab highways and motorways are an outcome of this project. �e overall objective of the NTCIP was to improve the quality of services and cut costs and transit times of trade and transport by strengthening national physical infrastructure, introducing private-sector vetted investments, policy interventions and institutional reforms in both the public and private sectors. Collectively, the national trade corridor connects areas that contribute to almost 80 to 85 percent of Pakistan’s GDP. 67

�e CPEC constitutes three main routes. Work on the eastern (passing through Sindh and Punjab) and western (passing through Baluchistan, KPK and western Punjab) routes is occurring simultaneously, while work on the central (Baluch-istan, KPK and Punjab) route will begin later. Punjab has more to gain from the western route as it will signi�cantly improve road networks, that are currently relatively less developed than eastern Punjab. In general, the eastern route is being developed by adding missing links to the existing motorway network—the most important of these is the Kara-chi-Lahore motorway— and upgradation the Karakorum Highway (from Rawalpindi to China) that links Pakistan and China. �e western route involves construction/reconstruction of roads, widening and modernization. Local companies such as National Logistics Cell (NLC), the Frontier Works Organisation (FWO) and ZKB are already involved in the western route from Burhan to Gwadar, passing through DI Khan.68

�e corridor and its many passages will connect all parts of the country with Punjab, boosting intra-provincial trade through increased �ow of services, goods and people. At the same time, regional connectivity within South Asia and extension to Turkey will allow Punjab to leverage its strong services sector. Punjab already has the strongest transport and urban infrastructure in the country. CPEC has given Punjab an opportunity to make strategic investments in southern Punjab to take advantage of improved road density. Punjab has already made plans to strengthen provincial and district roads that link the western route with the existing motorway (M2) and highway (N2). Many underdeveloped districts of Punjab are proposing that their provincial/district road network density be increased, that interchanges be built to allow their district access to the corridor (eight are being proposed in CPEC), and �nally that these interchanges be linked to a dense network of provincial and district roads.69 �e Punjab government has begun acquiring land in Attock, Bhakkar, Mianwali for road widening due to the under-developed nature of the main arteries of the western route. However, it is necessary that this be done in a transparent and fair manner to ensure that all stakeholders bene�t in the process (Box 5-6).





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65World Bank (2007). South Asian region update. Available at h�p://siteresources.worldbank.org/SOUTHASIAEXT/Re-sources/223546-1174426445479/annex27.pdf66ADB. Na�onal Trade Corridor Highway Investment Program2007-17. Available at h�ps://www.adb.org/projects/40075-043/main67ADB. Na�onal Trade Corridor Highway Investment Program2007-17. Available at h�ps://www.adb.org/projects/40075-043/main68Rana, I. (2016) New industrial ci�es to be set up to meet future needs. 20th July, 2016. The Express Tribune. Available at h�ps://tri-bune.com.pk/story/1145166/cpec-new-industrial-ci�es-set-meet-future-needs69Bu�, T. (2017). Punjab taking steps to benefit from CPEC’s western route. 14th March, 2017. The News. h�ps://www.the-news.com.pk/print/192207-Punjab-taking-steps-to-benefit-from-CPECs-western-route

Box 5-6 CPEC and roads: Land acquisi�on in Punjab

It has been reported that District Land Acquisi�on Authori�es have started to purchase land to widen exis�ng roads in the rural and sub-urban areas of the southern districts of Punjab at low prices. For example, in Mianwali, 7879 acres of rural land have been bought at between Rs. 2500 to Rs. 160000 per canal. There have been reports that land valua�on has been based on average prices for the last five years, and sellers have received much lower rates than the market value of land. Moreover, some business interests bought land before the compulsory district land acquisi�on, i.e. before it was announced that the CPEC route would include nine revenue estates in Mianwali. This could indicate insider informa�on, which allowed the private sector to buy land much cheaper than what its CPEC value would be.aOf course, land prices will rise near the western route, so the Punjab government must regulate prices, as commercial and residen�al real estate ac�vi-ty is expected to quadruple in the coming years.bRegula�on is always tricky, but the Punjab government is currently considering a “land bank” through which it would buy up tracts of land along the western route. However, in doing so the government must pay the fair land rate, which in this case would be significantly higher than the market rate, as the value of the land will undoubtedly rise once the western route is complete. This would be quite complicated and costly. It is recommended that the Punjab government not establish “land banks” as it would raise more problems than solu�ons.

Notes:aKhan, Khurshid. (2016). CPEC route through Mianwali a bombshell for landowners. 16th November, 2016. Dawn. h�ps://www.dawn.com/news/1295432bAshraf, M. (2017). The CPEC opportunity. Jan-Feb 2017. Dawn. Available at h�p://auro-ra.dawn.com/news/1141730

In Punjab—and Pakistan— the logistics sector is heavily dependent on the road network. Government of Pakistan (2009) estimated that historically 96 percent of freight travels on roads, with rail accounting for only 4 percent of freight tra�c. �e CPEC will change this by improving road and rail connectivity, thereby increasing the feasibility of using co-modal transportation systems comprising rail and road. Co-modal transport is considering vital to maximize the complementarities of di�erent modes of transport (especially rail and road) through linkages. Evidence suggests that rail is cheaper than roads for carrying cargo over distance exceeding 500km and given the physical distances between Punjab and the rest of the country (Table 4), this means that rail should be the primary mode of freight cargo for Punjab.





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70Hussain, I. (2017). The economics of CPEC. Dawn. January 3rd, 2017. Available at h�ps://www.dawn.com/news/130599271Wikipedia. CPEC. Available at h�ps://en.wikipedia.org/wiki/China%E2%80%93Pakistan_Economic_Corridor#cite_note-140

Table 4: Distances to Punjab

City or town

Karachi

Karachi

Gwadar

Gwadar

to

Lahore

Rawalpindi

Lahore

Rawalpindi

Distance (km)

1,260

1,540

2,400

1,771

Table 4: Distances to Punjab

5.1.6.2 CPEC, housing and IT

�e Punjab government should play an active role in alleviating the existing urban housing shortage in Punjab. CPEC has provided Punjab with a unique opportunity to develop planned cities along the main CPEC road links in sparsely populated areas of western Punjab. New settlements generally require road connectivity with main cities, a�ordable housing, jobs, and mobility. If the Punjab government can provide cheap but good quality housing, the new city it is planning could be a success. Short of building cities, the Punjab government could develop satellite towns near inter-changes on the western route.

To ensure that SMEs from Pakistan bene�t from CPEC, SMEDA has identi�ed 70 direct interventions in 13 economic sectors as part of its Five-Year SME Development Plan (included in Vision 2025). Punjab could transition to modern services considering the infrastructural and regulatory reforms that will accompany CPEC, and bene�t from better energy (CPEC should add 10,400 MW to the national grid by 2018). Additionally, improved internet connectivity will result from the 820 km CPEC Fibre Optic Project that will span the country from Khunjrab to Rawalpindi (with 6

Box 5-7: CPEC and logis�cs in Punjab— A “game-changer”

•Transport service opportuni�es Punjab business volume increases due to improved connec�vity, lowering �me and cost: new markets Establish joint ventures and invest-ments in this trade corridor with Chinese.

•Establishing inland container depots (ICD) Build freight sta�ons in Punjab to bring port services closer to shippers Create specialized rail-road services from such sta�ons.

•Efficient freight villages Create world-class freight handling facili�es near all major ci�es to reduce trans-shipment �mes.

•Investment to improved trucking fleet Larger players in Punjab will expand by moderniz-ing their fleet to take advantage of higher demand.





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percent of the cable passing through Punjab).76


197

72Bu�, T. (2017). Punjab taking steps to benefit from CPECs western route. 14th March, 2017. The Na�on. Available at h�ps://www.the-news.com.pk/print/192207-Punjab-taking- steps-to-benefit-from-CPECs-western-route73Pak-China links: Logis�cs complex construc�on to facilitate trade. (2016). 3rd April, 2016. The Express Tribune. Available at h�ps://tri-bune.com.pk/story/1077809/pak-china-links-logis�cs-complex-construc�on-to-facilitate-trade/74‘Gwadar will emerge as key shipping point.’ 4th March, 2016. The Express Tribune. Available at h�ps://tribune.com.pk/sto-ry/1058981/gwadar-will-emerge-as-key-shipping- point/75h�p://www.idap.pk/sectors/highways.html

�e Punjab government should play an active role in alleviating the existing urban housing shortage in Punjab. CPEC has provided Punjab with a unique opportunity to develop planned cities along the main CPEC road links in sparsely populated areas of western Punjab. New settlements generally require road connectivity with main cities, a�ordable housing, jobs, and mobility. If the Punjab government can provide cheap but good quality housing, the new city it is planning could be a success. Short of building cities, the Punjab government could develop satellite towns near inter-changes on the western route.

To ensure that SMEs from Pakistan bene�t from CPEC, SMEDA has identi�ed 70 direct interventions in 13 economic sectors as part of its Five-Year SME Development Plan (included in Vision 2025). Punjab could transition to modern services considering the infrastructural and regulatory reforms that will accompany CPEC, and bene�t from better energy (CPEC should add 10,400 MW to the national grid by 2018). Additionally, improved internet connectivity will result from the 820 km CPEC Fibre Optic Project that will span the country from Khunjrab to Rawalpindi (with 6

5.1.7 Key Government Initiatives, Policy and Regulation

In this section, the focus is on existing policies, the regulatory framework which governs the services sector and the key initiatives to evaluate how the overall policy environment has a�ected services growth and investment since 2007. Over-all, the lack of dedicated support for the services sector in terms of the existing policy and regulatory regime has not provided an enabling environment for private sector investment in the services sector. Consequently, the services sector has been unable to leverage its critical position in supporting private sector development in Punjab. As investment data on the services sector is not available, the health of the sector will be judged from incorporation data as a proxy for �rm growth and investment. Most importantly, changes in tax regimes and policies are reviewed, as they directly increase the cost of doing business in Punjab. �ere is a special focus on the di�erent types of taxes, both direct and indirect, levied at both the federal and provincial level on various services since 2007 and their impact on the sector’s performance.

5.1.7.1 Absence of policy

Despite its contribution to Punjab and national GDP, tax revenues, and export earnings, there is no data, no dedicated ministry, or policy framework for this critical sector. Subsequently, the services sector has not been given the recognition that it deserves. �e services sector has been assigned a secondary role in Punjab government growth strategies, sector plans, policies and initiatives. �ere is no Services Sector Plan, unlike the Agriculture and Industry Sector Plans. �e Punjab Growth Strategy 2018 (released in 2015), and subsequent growth strategies have never presented a roadmap, or vision for this increasingly important sector. Di�erent sub-sectors have been targeted in other policy documents, but an exclusive focus on the merits of services sector is as follows. Firstly, it would cement the status of services as a distinct economic sector that is important and di�erent than the general notional “services” sectors that focus on social services. Secondly, the services sector requires a separate Sector Plan that combines all its sub-sectors to understand the comple-mentarities within services and linkages with agriculture and industry. Currently, there is very little data at the provincial level which quanti�es input linkages between sectors. �irdly, the Services Sector Plan would require documentation of the services sector at the provincial level, which is currently not done on an annual basis. Up-to-date and annual data would allow a proper mapping of units, inputs, outputs for all sub-sectors, which would be the starting point for data- informed policies and strategies. �is would enable geographical mapping to examine infrastructural de�cits if any, to help evaluate the economic geography gains from clustering/networks/platforms. �ese could be used to propose services sector parks (retail parks, science parks, and IT parks). In addition, better data would allow a more rigorous computation of services sector productivity at the provincial level77 and allow Punjab to map the extent of its e�ciency/technology frontier in comparison to other provinces, the country and eventually to other countries. Fourthly, a detailed Sector Plan would allow formulation of an education and training policy for Punjab as determined by sector needs. Devising a Services Sector Plan should be a top priority for the Punjab government as it will remedy many data gaps, highlight distortionary and weak policies (including tax frameworks) and draw attention to the need for a streamlined and stable incentive structure that covers the entire spectrum of service providers from corporations to sole proprietorships.

5.1.7.2 Regulatory Framework

Incorporation rules

�e corporate services sector of Punjab is subject to the same rules and regulations as other sectors. However, sole propri-etorships must register with the Punjab Registration Board, while partnerships are encouraged to (as under Punjab Partnership (Registration of Firms Rules 1932). Most establishments in the services sector belong to the small and medium size according to what little information is available in the Punjab Statistical Pocketbook 2016. Most of these are not registered, and the services sector is perhaps the most undocumented sector of all, and little updated data is avail-able. Formal sector �rms must follow federal incorporation rules. Private and public- sector services �rms are required to register their company according to the Companies Ordinance, 1984. In terms of formal new businesses set up, the sector shows promise as 59.2 percent of newly incorporated private sector companies in 2014-15 belonged to the services sub-sectors. Although these are national data, the provincial break- up indicates that 49 percent of all new companies registered in Punjab, and therefore, it would be reasonable to assume that Punjab has seen a healthy increase in new private sector entrants in the services sector (Figure 35).





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percent of the cable passing through Punjab).76


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76Fibre Op�c Project under CPEC. Available at h�p://cpec.gov.pk/map-single/377Recently, the KLEMS methodology has been applied to na�onal services sector for 1980-2015 and will soon be available (Burki and Khan, forthcoming).

Standards

�e increase in incorporation has been partly due to the introduction of e-registration since 2008, with half the time and cost to register a business online as compared to in-person. In Punjab, the SECP has introduced Company Registration O�ces (CROs) in some districts and added Incorporation and Facilitation Desks at CROs in Lahore and Islamabad. Most importantly, SECP and PBIT have signed an MoU to integrate e-services with the Business Registration Portal of the Punjab Government.78

For the services sub-sectors, Metrology, Standards, Testing and Quality (MSTQ) infrastructure is critical, be it the trans-port or the IT sector. �e PSQCA established in 1996 (active in 2000) is responsible for developing Pakistan Standards for the manufacturing and services sectors, while at the same time helping �rms acquire quality, system, system and environment certi�cations under ISO-9000 and ISO-14000 (compliance). �e PSQCA also provides testing services and quality control. �e standards relevant for the services sector include information security standards for �nance, IT and ICT, infrastructure and technical standards for highways, building construction, mechanical transport, storage equipment, and horizontal standards (broadly applicable) such as Management Standards System (MSS) for human resource and asset management.79 It is suggested that Punjab create an independent body— with stakeholders from both





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the government and the private sector— to review (in the short- run) and eventually recommend (in the long-run) quali-ty standards for the services sector. As an immediate step, this body could compile the relevant standards being currently implemented by di�erent regulatory bodies at the federal and provincial level. In these cases, sector-speci�c standards can be speci�ed and recommended to the Standards Development Centre of the national PSQCA. Secondly, in sectors where Pakistan Standards exist, they must be reviewed to check conformity (on paper) with international standards. �irdly, the body must achieve consensus about what constitutes basic minimum standards for each sector, identify global best practice, and based on Punjab’s distance to that best practice, set targets that can be achieved in the medium and short-term. �is body should not be concerned with compliance or implementation of standards, as it would not have the technical capacity to do so.

However, at the same time, Punjab is currently developing its own technical capacity for testing and maintaining quality standards in some sub-sectors such as hospitality and public transport. In 2016, the Punjab Agriculture, Food and Drug Authority (PAFDA) was created, which would oversee standards in the food industry. To improve the existing level of capacity—which is almost non-existent— the food laboratory will test raw foods for composition and contamination, prepared food for undeclared ingredients, adulteration and food labelling.80 Similarly, in the transport sector, the existing motor vehicle examination (MVE) and �tness certi�cate in the country amounts to nothing more than revenue-spinning (the annual per district revenue generated is on average Rs.150 million for Punjab),82 with examiners having no capacity to technically inspect vehicles or check �tness. �e MVE is limited to public transport and in 2014, the Punjab Transport Authority entered into a PPP to launch a Punjab Transport Vehicle Inspection and Certi�cation System (VICS). While this is essential to increase safety in public road transport, it also suggests that the load on existing transport providers would increase, as many vehicles could be declared unroadworthy according to international standards.

While industry and technical standards are easier to set, quality standards are very di�cult to set within the services sector, as quality can often only be determined through consumption. It is very di�cult for services �rms to credibly signal quality. Given the contribution of services to the Punjab economy, the Punjab government is right to invest in upgrading and creating its technical capacity in standards and quality control. In fact, the Punjab government can create a policy framework to guide businesses in creating their own sector standards in line with global best practice. �is will reduce client uncertainty and incentivize innovation as �rms could then provide a credible signal to their potential customers, improve quality, and compete aggressively with other �rms. Indeed, a 2011 international study found that impact of adoption of services standards on business performance was quite favourable. For clients, this was due to better signalling of quality. But another advantage was more e�ective business-to-business relations due to having common terminology/de�nitions and being able to rank clients using the same (Table 5).83 Adopting standards in the services sector of Punjab should have similar positive impacts and generate substantial bene�cial spill overs given the increased “servitization” of industry.


199

78SECP. (2017). SECP signs MOU with Punjab IT Board. Dated 26th April, 2017. Available at h�ps://www.secp.gov.pk/wp-content/up-loads/2017/04/SECP-signs-MOU-with-Punjab- IT-Board-.pdf. Retrieved on 30th April, 2017.79h�p://www.psqca.com.pk/tcs.html

Note: This is Na�onal DataSource: Securi�es and Exchange Commision Pakistan (2017). Companies Incorpora�on data.Available at h�ps://www.secp.gov.pk/document/companies-incorpora�on-data/?wpdmdl=14930

Figure 35: New Incorpora�ons, Services 2014-15 and Provincial Share

Table5: Quality Controls and Services

Source: ISO (2017). ISO strategy for service standardiza�on.

For the services sub-sectors, Metrology, Standards, Testing and Quality (MSTQ) infrastructure is critical, be it the trans-port or the IT sector. �e PSQCA established in 1996 (active in 2000) is responsible for developing Pakistan Standards for the manufacturing and services sectors, while at the same time helping �rms acquire quality, system, system and environment certi�cations under ISO-9000 and ISO-14000 (compliance). �e PSQCA also provides testing services and quality control. �e standards relevant for the services sector include information security standards for �nance, IT and ICT, infrastructure and technical standards for highways, building construction, mechanical transport, storage equipment, and horizontal standards (broadly applicable) such as Management Standards System (MSS) for human resource and asset management.79 It is suggested that Punjab create an independent body— with stakeholders from both

Box 5-8: Services sales tax— A �meline

1. Punjab Sales Tax on Services Act, 2012 - amended up to 01.07.20152. Punjab Finance Act 20153. Changes in Punjab Sales Tax through Punjab Finance Act 20154. Punjab Sales Tax on Services (Withholding) Rules 20155. Punjab Infrastructure Development Cess Act 20156. Stay Order against recovery of sales tax on services provided by tax and corporate consultants.7. Punjab Revenue Authority (Amendment) Ordinance 20158. Changes in Punjab Sales Tax on Services Act, 2012 - through Punjab Finance Bill 2016-179. Punjab Infrastructure Development Cess on petroleum products supplied through pipelines held in abeyance.





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the government and the private sector— to review (in the short- run) and eventually recommend (in the long-run) quali-ty standards for the services sector. As an immediate step, this body could compile the relevant standards being currently implemented by di�erent regulatory bodies at the federal and provincial level. In these cases, sector-speci�c standards can be speci�ed and recommended to the Standards Development Centre of the national PSQCA. Secondly, in sectors where Pakistan Standards exist, they must be reviewed to check conformity (on paper) with international standards. �irdly, the body must achieve consensus about what constitutes basic minimum standards for each sector, identify global best practice, and based on Punjab’s distance to that best practice, set targets that can be achieved in the medium and short-term. �is body should not be concerned with compliance or implementation of standards, as it would not have the technical capacity to do so.

However, at the same time, Punjab is currently developing its own technical capacity for testing and maintaining quality standards in some sub-sectors such as hospitality and public transport. In 2016, the Punjab Agriculture, Food and Drug Authority (PAFDA) was created, which would oversee standards in the food industry. To improve the existing level of capacity—which is almost non-existent— the food laboratory will test raw foods for composition and contamination, prepared food for undeclared ingredients, adulteration and food labelling.80 Similarly, in the transport sector, the existing motor vehicle examination (MVE) and �tness certi�cate in the country amounts to nothing more than revenue-spinning (the annual per district revenue generated is on average Rs.150 million for Punjab),82 with examiners having no capacity to technically inspect vehicles or check �tness. �e MVE is limited to public transport and in 2014, the Punjab Transport Authority entered into a PPP to launch a Punjab Transport Vehicle Inspection and Certi�cation System (VICS). While this is essential to increase safety in public road transport, it also suggests that the load on existing transport providers would increase, as many vehicles could be declared unroadworthy according to international standards.

While industry and technical standards are easier to set, quality standards are very di�cult to set within the services sector, as quality can often only be determined through consumption. It is very di�cult for services �rms to credibly signal quality. Given the contribution of services to the Punjab economy, the Punjab government is right to invest in upgrading and creating its technical capacity in standards and quality control. In fact, the Punjab government can create a policy framework to guide businesses in creating their own sector standards in line with global best practice. �is will reduce client uncertainty and incentivize innovation as �rms could then provide a credible signal to their potential customers, improve quality, and compete aggressively with other �rms. Indeed, a 2011 international study found that impact of adoption of services standards on business performance was quite favourable. For clients, this was due to better signalling of quality. But another advantage was more e�ective business-to-business relations due to having common terminology/de�nitions and being able to rank clients using the same (Table 5).83 Adopting standards in the services sector of Punjab should have similar positive impacts and generate substantial bene�cial spill overs given the increased “servitization” of industry.


200

80Its scope was broadened to include tes�ng of raw and processed foods as well as water and the PAFDA Laboratories are now under planning. Adnan, I. (2017). Following safety protocols: Seeking standards, Punjab to set up modern tes�ng lab. The Express Tribune. 16th January, 2017. Available at h�ps://tribune.com.pk/story/1296135/following-safety-protocols-seeking-standards-punjab-set-mod-ern-tes�ng-lab/81Alam, I. (2016). 750000 vehicles to undergo fitness test. July 26th, 2016. The Na�on, Available at h�p://na�on.com.pk/la-hore/26-Jul-2016/750-000-vehicles-to-undergo-fitness-test82h�p://na�on.com.pk/lahore/26-Jul-2016/750-000-vehicles-to-undergo-fitness-test83ISO (2017). ISO strategy for service standardiza�on.

Taxes

Broadly speaking, Punjab must be forward-looking in its vision for the services sector, put in place the requisite pruden-tial regulations for the �nancial sector, and uphold intellectual and privacy rights in the cellular and IT sectors. At the same time, quality standards and global best practice industry standards must be enforced to ensure that the services sector is globally competitive with an aim to establish a strong global export presence. �is requires building capacity of existing regulatory bodies and the development of new ones, as the sector is diverse and each sub-sector must meet its own set of quality and regulatory standards.

�e 18th Amendment to the Constitution enhanced the �scal envelope of the Punjab government by allowing provinces to impose more taxes. Speci�cally, after the 18th Amendment, the power to levy and collect sales tax on services were transferred to Punjab. In response, Punjab constituted the Punjab Revenue Authority in 2012 to administer this tax, which by 2016 amounted to collecting 44.6 percent of total Punjab tax revenue. Punjab charges a total of 17 taxes, direct and indirect.84 �rough the second Schedule of the Punjab Sales Tax on Services Act 2012, a current �gure of 59 services has been included, a signi�cant increase from the now repealed Punjab Sales Tax Ordinance 2000 which covered only 14 services.85 Moreover, service providers operating from another province must �le a return with the Punjab Revenue Authority. In addition, the tax regime covering immoveable property has also changed, and since 2014-15, a rural immoveable property tax is also being levied. �e rates of urban immoveable property taxes (UIMT) have also been changed. Together, property and services are seen by the Punjab government as having high revenue generating potential. In theory, these sectors have high revenue elasticity due to a wide and fast-growing tax base, and contribute to 72 percent of tax revenue (this includes countervailing taxes (CVT) on urban property, stamp duty, UIMT, and sales tax on services) in 2015-16 (see Table A 5-3, Annex A for details).86

Taxes in Punjab are collected by �ve departments, although it is expected that the Punjab Revenue Authority (PRA) will assume all tax collection responsibilities in Punjab.87 �e major share comes from sales tax on services, land revenue, motor vehicles taxes, stamp duties and property tax (87.8 percent).88 In 2015-16, general revenue receipts for the Punjab government were Rs.1135.8 billion (revised estimate), of which provincial tax receipts were roughly 13 percent. Of this amount, direct taxes amounted to 22.3 percent (based on budget estimates).

�e largest contribution to indirect taxes was of provincial GST on services (57.8 percent). Figure 36 shows that provin-cial sales tax on services is the largest overall tax contributor (almost 45 percent), followed by property, land and stamp duties (35.6 percent).





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84Direct taxes include Agricultural Income Tax, Property Tax, Land Revenue, Professional Tax, Capital Value Tax, while indirect taxes include85These include services rela�ng to hotels, clubs, caterers, adver�sements on T.V & radio including cable TV, customs agents, ship chandlers, stevedores, telecommunica�on services, insurance and re-insurance, banking companies, non-banking financial ins�tu�ons, stock brokers, shipping agents and courier services.86Government of Punjab, 2017. Es�mates of receipts for 2015-16. Available at h�p://www.finance.punjab.gov.pk/system/files/Re-ceipts201516.pdf87The Punjab Revenue Authority (sales tax on services, Punjab Infrastructural Development Cess), the Excise, department (urban immove-able property tax, motor vehicle tax, professional tax, and provincial excise), the Punjab Board of Revenue which collects land tax, stamp du�es, and capital value tax on property), Transport department (fitness cer�ficates and route permits) and the Energy department (electricity duty). Housing coopera�ves/socie�es also collect capital value tax on acquired property and stamp duty of 2 percent along with property tax.88Khan, M.Z. (7th September, 2015). Ra�onalising provincial taxes to spur investment. Dawn. 7th September, 2015. h�ps://ww-w.dawn.com/news/1205344Coopera�ves Department, Government of Punjab. h�p://coopera�ves7.pitb.gov.pk/housing_socie�es

Sales tax on services: 2012-2016

�e most signi�cant shift in the provincial tax regime for the services sector was the Punjab Sales Tax Act 2012. �e sales tax regime from 2012 to 2016 has seen the number of taxable service sectors rise from 14 to 59, signalling the highly unpredictable tax structure that the sector faces. In conjunction with the federal taxes (especially withholding) and mini-mum taxes, the tax structure is imposing a substantial operating cost for the services sector. �is is not unique to Punjab, as after the 18th Amendment and the 7th NFC Award, Sindh and KPK have also levied sales tax through their respective provincial Finance Acts. But there is much to be said for rationalising the sales tax, which ranges from 19.5 percent on call centres and telecommunications to 5 percent on tail-end services such as dry cleaning, to 0 percent on internet service providers.





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Figure 36: Break-up of Provincial Tax Receipts, 2015-16

*: Based on budget es�mates, 2015-16.Source: Government of Punjab, 2017. Es�mates of receipts for 2015-16





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a

b


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Table 6: Changes in Punjab Services Sales Tax: 2013-2016

Source: Punjab FInance Bill.

aExcluding dial-up or broadband internet services and value added data services; charges payable on international leased lines or bandwidth services used by software exporting �rms registered with Pakistan Software Exporting Board & data and ISPs licensed by PTA; amounts received by long-distance international license holders, includ-ing PTCL on international incoming calls; bReduced to 2 percent in 2015-16. Wherever sales tax reduced rate applicable, cannot use as input tax to reduce overall tax liability

Other taxes

Apart from the sales tax on services, the Urban Immoveable Property Tax (UIMT), stamp duty, provincial excise, profes-sional excise, motor vehicle tax, stamp duty and a host of other taxes are charged, including the professional tax. �e most substantial is the UIMT, which has been reformed in 2016 to by adjusting re-evaluating the tax base, lowering tax rates and issuing noti�cation for new areas.

�e telecommunication sector has been the prime source of sales tax revenue due to its corporate nature, but tax collec-tion has decreased since 2013-14. On the other hand, tax collection from the non-telecommunications sector is increas-ing. �ere are four reasons for this. �e build-up to the biometric veri�cation drive of the Punjab government in 2015. Custom duties and federal withholding on capital machinery imports lowered the taxable liability of the sector after adjusting for input taxes. �is trend intensi�ed after the upgradation to 3G/4G spectrum services in 2015 as imported inputs increased (which now became subject to 6 percent customs duty). �irdly, the rise in taxable services and the Punjab Sales Tax on Services (Withholding) Rules, 2015 meant that the telecom sector had to withhold sales tax which it could use to o�set its corporate tax liability (as a formal corporate service provider). Fourthly, the rise in taxable non-telecom sectors at the same time has reversed the tax revenue trend. �e tax spread in the services sector is quite high. Due to frequent changes in tax rates and taxable services, there have been numerous instances of taxes being levied, and then reduced or removed (Table 6). �is creates uncertainty, which has an adverse e�ect on both the private sector and the government’s ability to collect tax revenue. For example, in 2015, ten new services were brought into the tax net including services provided by chartered accountants, auditors, and corporate law consultants, which were subsequently excluded. Similarly, in 2015, internet service providers were excluded from the services sales tax (previously being charged 19.5 percent), reportedly costing a minimum of Rs.5 billion in foregone tax revenue.89

�ese measures by the PRA have increased services sector registered taxpayers by a factor of 35 times between 2012 (from 615 existing registered services) as of May 2016 (Figure 37).

�e tax structure is signi�cantly important for small and low-skilled �rms. �e personal services sector relies mostly on low-skill/ second-income workers and would be adversely a�ected by high tax rates. Secondly, services sector entities are often in-house production units (sole proprietorship, association of persons, or informal business) and therefore the tax structure can signi�cantly change the production and employment structure of this sector by changing incentives for registering their business. Tourism is also a�ected by the services tax, as travel agents including all their allied services or facilities are taxed at 16 percent.





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89h�p://akhtarali.com/2016/01/13/reduced-rate-of-sales-tax-on-services-in-punjab/

Figure 37: Expansions in Sales Tax Net: 2012-16

Federal taxes92

�ere are many federal taxes that are relevant for all service providers in Punjab, having to do with income tax (corporate income tax, alternative corporate tax, turnover tax, minimum tax) sales tax, and federal excise duty. �e federal corporate tax rate is 31 percent for companies (other than banks and small companies, which are taxed at 35 and 25 percent respec-tively). A super tax in 2016 is also applicable on companies with incomes exceeding Rs. 0.5 billion. Moreover, withhold-ing taxes on sales and income are also quite complex (see Table A 5-4, Annex A for details).

�e most signi�cant change in the federal tax regime for the services sector was in the Finance Bill 2015 with the imposi-tion of the minimum tax on the corporate services sector. �is tax still applies, although some sectors can avail reduced rate facilities. Secondly, by default, the Federal excise duty regime existing in 2014 meant that when Punjab started to tax its services sector, the services sector was being taxed twice. In 2016, double indirect taxation through a federal excise duty was eliminated for 12 service sectors, which had previously been allowed only for the telecommunications sector. It is hoped that the FED be withdrawn in 2017-18 on all services that are being provincially taxed.

�irdly, there was a change in the de�nition of input tax as per the Finance Act 2016. In the new de�nition, sales tax paid to Punjab would not be included as input tax, and hence, will not o�set federal sales tax on output. �is unprece-dented change in de�nition was applicable to all sectors, not just services and constituted a signi�cant and unwelcome departure from VAT principles. E�ectively, this amounted to dual indirect taxation in the country, as Punjab sales tax would not reduce the incidence of sales tax paid to federal government. Fortunately, an MoU has been signed between the PRA and the FBR (and a similar MoU with Sindh), that would allow Punjab sales tax to be included as input tax and hence be adjusted against overall output tax.91

Fourthly, the Finance Act 2016 speci�ed that input tax adjustment was inadmissible if the input supplier (vendor) did not �le a tax return, meaning that �rms would be unable to adjust their input taxes against their output taxes if their vendor had not declared its supply/paid the tax on sale to the �rm. E�ectively, the �rm would be penalized for vendor tax evasion. Given the extended scope of taxable services, the number of evaders would also be large, leading to high costs for industrial �rms using services inputs. In this way, the tax burden rises, and leads to cost- push in�ation by passing on the tax. �e federal government’s principle seems to rest on increasing the burden those in the tax net through withhold-ing taxes, rather than widening the tax net itself.

�e manner in which the minimum tax was introduced by the federal government and its applicability are particularly instructive in highlighting how provincial and federal taxes can combine to create an unbearable tax burden for a business. �e Federal Finance Act 2015 levied a minimum tax of 8 percent of turnover (gross pro�t including GST) on service providers registered in the corporate sector [and 12 percent for non-�lers] un-adjustable against their total tax liability. �is was in complete contrast to the corporate sector �rms that did not belong to services and were taxed at 1 percent, adjustable against �nal tax liability.92 �is meant that all corporate services sectors were taxable at a minimum (�nal) tax rate of 8 percent on gross pro�ts, and not net pro�ts.

Given the low (before-tax) pro�t margins of service providers such as those in the IT sector, or of third-party service agents, the opposition was immense. For example, the high costs of the IT and ITeS sector meant that pro�t margins for IT were 8-10 percent of revenue and for ITeS, roughly 4-6 percent of revenue, and that too �ve years after starting. Simi-larly, customs and cargo agents with net pro�t margins of 4 percent would go out of business.93 With a minimum tax of 8 percent, these sectors would be paying almost all pro�ts in taxes. For loss- making companies, this would mean borrow-ing or reducing own capital to pay tax. For �rms making losses, the tax liability would have to be paid by existing capital or by loans, seriously a�ecting the business model and liabilities of the services sector.

�e move was heavily criticised as being discriminatory (all other sectors had a minimum tax of 1 percent), sudden (it was not announced in the 2015-16 Budget Speech as is the norm), and untimely (when services are increasingly becom-ing such an integral part of modern economies through use of IT, innovations, logistics, manpower outsourcing, etc.).

Moreover, it sent a poor signal to potential investors who will often operate at break-even or even losses in their �rst years in many services sectors. �ese include sectors that require heavy R&D (IT, communications, ITS), or that have substan-tial �xed costs (transport, storage, logistics, and �nance). �e opposition to this was immense (especially since the telecommunications sector—the largest corporate service provider— was the only sector to originally be exempted). By November 2015, 12 sectors successfully acquired partial relief from June 2015 to June 2016. In the Finance Bill 2016, this relief has been extended till June 2017 and the IT and ITeS sector has also been added. Currently, the minimum tax rate for non-services corporate sector is 1 percent, compared to 8 percent on corporate services sector, or 2 percent turnover tax rate for the 13 reduced rate sectors.

�e tax regime in Punjab must be simpli�ed to allow this sector to expand. A balance must be struck between raising tax revenues through higher sales tax and withholding tax rates applicable on wider services sectors and widening the tax net itself. An unbearable tax burden could increase the undocumented services sector further. In the Paying Taxes report for 2017, Pakistan has the highest number of tax payments made (47) in the Asia-Paci�c region, for which the average is 23.5. �e average number of tax payments for Malaysia is 9, �ailand 21, India 25 and Bangladesh 33. Similarly, the number of hours required for tax compliance are 312 hours as compared to 241 for India and 164 and 179 hours for Malaysia and Sri Lanka respectively. Overall, Pakistan ranks 156 out of 189 countries in terms of paying taxes, including post-�ling index, while Bangladesh ranks 151st, India 172nd and Sri Lanka 158th. �e services sector is not heavily taxed in countries which seek to leverage their economic growth on services. For example, the sector provides 10 percent of indirect taxes and around 6 percent in the total tax revenue of India. On the other hand, in Punjab, a total of 17 taxes had to be paid in 2015 as per a BOI study which found that new investors make 47 tax payments to start a business.


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90Informa�on for this sec�on is extracted from the Finance Bill 2015 and Finance Bill 2016. Available at h�p://www.�r.gov.pk/bud-get2016-17/SalientFeatures/Salient%20Fea- tures_2016_Final%20at%2009.10%20am.pdf91Government agrees to re-enable input tax adjustment. 27th August, 2016. The Express Tribune. h�ps://tribune.com.pk/sto-ry/1170654/provincial-services-govt-agrees-re-enable-input-tax-adjustment/92Sarfaraz, S. (2015). 8 per cent minimum tax applicable to service providers. 25th June, 2015. Business Recorder. h�p://fp.brecord-er.com/2015/06/201506251199427/th June, 93The case against minimum taxes on the services sector in Pakistan. Available at h�ps://propaki-stani.pk/2015/09/14/the-case-against-minimum-tax-on-the-services-sector-in- pakistan/ N.A., 14th September, 2015.

5.1.7.3 Key initiatives in Punjab services sector: 2007-2017

�is section summarizes the key provincial government initiatives in the last ten years that were pertinent to the services sector, and include the transport, urban housing, IT, as well as science and technology initiatives. �e list is by no means exhaustive but is illustrative of the direction Punjab is heading in with respect to the services sector in the coming years (see Table A 5-5, Annex A for completed projects).TransportWithin the transport sector, automation in the district Transport Departments is underway to help curb corruption, decrease human error, and streamline operations. It has been operational in 10 districts since 2013 and has raised TDA revenues by 50-60 percent under just one head (route permit fees).94 �is is part of a larger project on Motor Transport Management Information System,95 Punjab is also involved in the Rs.7.8 billion Pakistan Sustainable Transport (PAK-STRAN) Project, which will develop by 2020 an institutional and policy framework to guide incentives in the urban transport sector (Table 7).

�ere are many federal taxes that are relevant for all service providers in Punjab, having to do with income tax (corporate income tax, alternative corporate tax, turnover tax, minimum tax) sales tax, and federal excise duty. �e federal corporate tax rate is 31 percent for companies (other than banks and small companies, which are taxed at 35 and 25 percent respec-tively). A super tax in 2016 is also applicable on companies with incomes exceeding Rs. 0.5 billion. Moreover, withhold-ing taxes on sales and income are also quite complex (see Table A 5-4, Annex A for details).

�e most signi�cant change in the federal tax regime for the services sector was in the Finance Bill 2015 with the imposi-tion of the minimum tax on the corporate services sector. �is tax still applies, although some sectors can avail reduced rate facilities. Secondly, by default, the Federal excise duty regime existing in 2014 meant that when Punjab started to tax its services sector, the services sector was being taxed twice. In 2016, double indirect taxation through a federal excise duty was eliminated for 12 service sectors, which had previously been allowed only for the telecommunications sector. It is hoped that the FED be withdrawn in 2017-18 on all services that are being provincially taxed.

�irdly, there was a change in the de�nition of input tax as per the Finance Act 2016. In the new de�nition, sales tax paid to Punjab would not be included as input tax, and hence, will not o�set federal sales tax on output. �is unprece-dented change in de�nition was applicable to all sectors, not just services and constituted a signi�cant and unwelcome departure from VAT principles. E�ectively, this amounted to dual indirect taxation in the country, as Punjab sales tax would not reduce the incidence of sales tax paid to federal government. Fortunately, an MoU has been signed between the PRA and the FBR (and a similar MoU with Sindh), that would allow Punjab sales tax to be included as input tax and hence be adjusted against overall output tax.91

Fourthly, the Finance Act 2016 speci�ed that input tax adjustment was inadmissible if the input supplier (vendor) did not �le a tax return, meaning that �rms would be unable to adjust their input taxes against their output taxes if their vendor had not declared its supply/paid the tax on sale to the �rm. E�ectively, the �rm would be penalized for vendor tax evasion. Given the extended scope of taxable services, the number of evaders would also be large, leading to high costs for industrial �rms using services inputs. In this way, the tax burden rises, and leads to cost- push in�ation by passing on the tax. �e federal government’s principle seems to rest on increasing the burden those in the tax net through withhold-ing taxes, rather than widening the tax net itself.

�e manner in which the minimum tax was introduced by the federal government and its applicability are particularly instructive in highlighting how provincial and federal taxes can combine to create an unbearable tax burden for a business. �e Federal Finance Act 2015 levied a minimum tax of 8 percent of turnover (gross pro�t including GST) on service providers registered in the corporate sector [and 12 percent for non-�lers] un-adjustable against their total tax liability. �is was in complete contrast to the corporate sector �rms that did not belong to services and were taxed at 1 percent, adjustable against �nal tax liability.92 �is meant that all corporate services sectors were taxable at a minimum (�nal) tax rate of 8 percent on gross pro�ts, and not net pro�ts.

Given the low (before-tax) pro�t margins of service providers such as those in the IT sector, or of third-party service agents, the opposition was immense. For example, the high costs of the IT and ITeS sector meant that pro�t margins for IT were 8-10 percent of revenue and for ITeS, roughly 4-6 percent of revenue, and that too �ve years after starting. Simi-larly, customs and cargo agents with net pro�t margins of 4 percent would go out of business.93 With a minimum tax of 8 percent, these sectors would be paying almost all pro�ts in taxes. For loss- making companies, this would mean borrow-ing or reducing own capital to pay tax. For �rms making losses, the tax liability would have to be paid by existing capital or by loans, seriously a�ecting the business model and liabilities of the services sector.

�e move was heavily criticised as being discriminatory (all other sectors had a minimum tax of 1 percent), sudden (it was not announced in the 2015-16 Budget Speech as is the norm), and untimely (when services are increasingly becom-ing such an integral part of modern economies through use of IT, innovations, logistics, manpower outsourcing, etc.).

Moreover, it sent a poor signal to potential investors who will often operate at break-even or even losses in their �rst years in many services sectors. �ese include sectors that require heavy R&D (IT, communications, ITS), or that have substan-tial �xed costs (transport, storage, logistics, and �nance). �e opposition to this was immense (especially since the telecommunications sector—the largest corporate service provider— was the only sector to originally be exempted). By November 2015, 12 sectors successfully acquired partial relief from June 2015 to June 2016. In the Finance Bill 2016, this relief has been extended till June 2017 and the IT and ITeS sector has also been added. Currently, the minimum tax rate for non-services corporate sector is 1 percent, compared to 8 percent on corporate services sector, or 2 percent turnover tax rate for the 13 reduced rate sectors.

�e tax regime in Punjab must be simpli�ed to allow this sector to expand. A balance must be struck between raising tax revenues through higher sales tax and withholding tax rates applicable on wider services sectors and widening the tax net itself. An unbearable tax burden could increase the undocumented services sector further. In the Paying Taxes report for 2017, Pakistan has the highest number of tax payments made (47) in the Asia-Paci�c region, for which the average is 23.5. �e average number of tax payments for Malaysia is 9, �ailand 21, India 25 and Bangladesh 33. Similarly, the number of hours required for tax compliance are 312 hours as compared to 241 for India and 164 and 179 hours for Malaysia and Sri Lanka respectively. Overall, Pakistan ranks 156 out of 189 countries in terms of paying taxes, including post-�ling index, while Bangladesh ranks 151st, India 172nd and Sri Lanka 158th. �e services sector is not heavily taxed in countries which seek to leverage their economic growth on services. For example, the sector provides 10 percent of indirect taxes and around 6 percent in the total tax revenue of India. On the other hand, in Punjab, a total of 17 taxes had to be paid in 2015 as per a BOI study which found that new investors make 47 tax payments to start a business.


206

Table 7: Strategic Interven�ons in Urban Transport, Punjab: 2007-16

�e importance of the sector may be gauged by the fact that 84.6 percent of the services budget in the ADP 2016- 17 is for transport and mass transit. In terms of public urban transport, the Metro bus projects represents a big change for public transport in Punjab. It uses dedicated bus corridors to avoid congestion, save time and fuel on safe and fast journeys. Limited to Lahore, Islamabad and Multan (completed in 2013, 2015 and 2017 respectively), the �at fare (Rs.20, with Rs.40 subsidy by Punjab government)96 is intended to improve mobility of the low-income classes, and studies are assessing the positive economic impact on female labour force participation as well. A second mass transit system based on rail is also in the construction stage. In the �rst phase, the Orange Line Metro in Lahore will be a rail-based mass transit system to strengthen public transportation, the largest and busiest city of the province (it sees roughly 12 million trips on a typical weekday, with almost 70 percent by motorized vehicles). �is has resulted in an annual tra�c increase of 12 percent in large cities of the province, much higher than the 8 percent national average in 2011.97 �e objective is to cater to 15 million people through new tra�c links.98�e Apna Rozgar schemes which o�er cheap loans for green taxis are also an e�ective way of increasing public transport through taxi schemes, while providing employment. App-based taxi services have also been introduced in Punjab (Box 5-9). �e urban rural transport sector bene�tted from the repair of 3500 km of rural farm-to-market roads under the Khadim-e-Punjab Rural Road Programme Phase I and II. Phase III of the program is currently underway.

Housing and IT

It is estimated that only 1 percent of housing units built annually in Pakistan are intended for 68 percent of its popula-tion (those with incomes of less than Rs. 30000), while 56 percent of housing is targeting the upper classes the 12 percent

Box 5-9: Urban transport—App based taxis in Punjab

To reduce demand for passenger transport, the government has allowed the entry of mobile taxi-hailing service providers. Companies such as Uber and Careem use private cars as ride-sharing cabs and have changed the private transport landscape since their introduc�on in some big ci�es of Punjab. The Punjab government is keen to leverage these private sector entrants in crea�ng employment opportuni�es for the youth. One such joint ini�a�ve between the private sector and the Punjab Government is the BoP- Uber project. The BoP heavily subsidizes the Apna Rozgar Green and Yellow Cab schemes and Uber have signed an MoU with BoP to u�lize the beneficiaries of the scheme in Punjab, given its expanded opera�ons in Islamabad and Rawalpindi in 2017.a Savaree, A-one, Careem, and Uber have been extremely popular wherever they have been intro-duced, and compe��on amongst them has lowered cab fares, helped create livelihoods (Careem es�mates it will add 0.1 million jobs by 2018), and created an efficient means of public transport. The number of taxi services (including radio cabs) have been on the rise, but not without controversy, such as the nega�ve stance taken by the Punjab Transport Authority in end January 2017. A proper regulatory and tax framework is currently being jointly designed by the PITB, the transport departments, provincial authori�es and private stakeholders. This would ensure that these new businesses formally register, uphold safety laws by acquiring fitness cer�ficates for cars, route permits, registra�on of drivers and private cars, crea�ng jobs and revenue for Punjab. Moreover, a framework would encourage other players in this ac�ve market who have already entered, such as Travely (a rickshaw-based app).b

Notes:aUber arrives officially. h�ps://pakorbit.com/2017/04/uber-arrives-officially-islam-abad-rawalpindi/bBaloch, S. (1st February, 2017). Punjab govt wants legal ac�on against ride-sharing cab firms. Dawn. Available at h�ps://www.dawn.com/news/1311956

of the population of Pakistan who earn more than Rs.100000 per month. 99 �e same trends are re�ected in Punjab. It is therefore essential that the government play an active role in the dwellings sub-sector in Punjab by providing a�ordable and quality public housing. Among recent housing projects, Punjab signed an MoU with the Turkish Housing Develop-ment Association in 2016 to build 50,000 houses for the lower and middle-income classes.100 �e �agship housing project of the Punjab government is the Rs.1 billion Ashiana Scheme. �e Punjab Land Development Company Limit-ed has been created by the Punjab government as a supplier of a�ordable housing in the low to low-middle income end of the housing market. �ese projects include small housing units and apartment buildings in Lahore, Faisalabad and Sahiwal, and future projects in Kasur, Bahawalpur and Chiniot.101

Technology has changed the way agents transact, produce and use knowledge and most importantly, generate value in a modern economy. Punjab is at the forefront of harnessing technology to �rstly improve service delivery (for example in health, education, land management, and policing) and secondly to improve governance through the digitization of many provincial government departments (for instance procurement, transport, labour, and taxation). It is estimated that 17.8 percent of the population had internet access in the country in 2016, representing just one percent of world internet users, and the number of internet users was rising at a much slower rate as compared to 2015 and 2014.102 Given Punjab’s large population, Punjab’s internet usage must be almost the same as Pakistan (if not more), but this �gure remains abysmally low nevertheless. �e Punjab government and the Punjab Information Technology Board (PITB) are trying to increase this number and have recently created more than 200 free Wi-Fi spots in �ve cities of the region to increase internet usage.103

Perhaps the greatest overarching and positive initiative of the government has been a drive towards greater usage of IT since 2007, allowing it to automate systems, support local IT vendors and increase transparency. �is process started in 2007 and has positive spill overs in many services sub-sectors including IT, communications, transport and housing. �e Land Records Management and Information (LRMI) Program was one such initiative to increase the institutional capac-ity of land administration bodies in Lahore. Between 2007-12, a digital land records system was created in Lahore.104

Land records have now been computerized in �ve city district governments as well as in Sialkot. It will be extended throughout Punjab in Rs.12.3 billion projects. In another poorly functioning market— labour—Punjab has implement-ed a Labour Market Information System (2011) which helps the unemployed in job search, matching and general employment intermediation. A similar initiative for skilled graduates of the PVTC is the Punjab Technical and Vocation-al Training Authority Skilled Labour Market Information/Placement System, and the CM’s BISP self-employment scheme.

Tax collection systems in Punjab are being overhauled (under the new Punjab Land Records Authority Act 2017) using technology for better administration and management to reduce time ine�ciencies and corruption, as evidenced by the success of the Sialkot 2014 pilot of the Automated UIPT system. Pakistan was the only country in South Asia to intro-duce reforms in property transfers in 2016, and the Doing Business 2017 Pakistan’s ranking re�ects this as Pakistan moved 1.5 percentage points closer to the (best) frontier between 2016 and 2017. Overall, Pakistan’s ranking improved 4 ranks, as 144th out of 190 countries.105 �e greatest improvement was in access to credit, as banks could possibly have found it easier to extend credit because of improved land records. Punjab is also set to use GIS mapping to expand its tax base by identifying new tax paying establishments (as done by PRA), but is also looking to assess the commercialisation potential of land.

Modern services sub-sectors such as IT and ITeS bene�t greatly from economies of scale (expansion lowers per unit costs) and also agglomeration. Clusters allow businesses to reap agglomeration bene�ts such as access to skilled labour, better knowledge transfer, greater demand, and higher productivity gains in general, since services tend to be more “non-rival” than goods. At the same time, it is more practical to build services sector clusters because services �rms are generally smaller than manufacturing �rms (that often have multiple plants), use clean technology, and do not require bulky trans-portation through already burdened highways, railways, or ports. In Punjab, where the road infrastructure is already facing tremendous pressure, building services clusters as done in China under the “park-in-a-park” model could be one way forward (Box 5-10).


207

94Automa�on of TDAs. Available at h�ps://www.pitb.gov.pk/tdas95h�ps://www.pitb.gov.pk/mtmis_I96Punjab Metrobus Authority. h�p://www.pma.punjab.gov.pk/97Punjab Growth Strategy Chapter 5.98Punjab Urban Sector Development Plan (2015).

It is estimated that only 1 percent of housing units built annually in Pakistan are intended for 68 percent of its popula-tion (those with incomes of less than Rs. 30000), while 56 percent of housing is targeting the upper classes the 12 percent

of the population of Pakistan who earn more than Rs.100000 per month. 99 �e same trends are re�ected in Punjab. It is therefore essential that the government play an active role in the dwellings sub-sector in Punjab by providing a�ordable and quality public housing. Among recent housing projects, Punjab signed an MoU with the Turkish Housing Develop-ment Association in 2016 to build 50,000 houses for the lower and middle-income classes.100 �e �agship housing project of the Punjab government is the Rs.1 billion Ashiana Scheme. �e Punjab Land Development Company Limit-ed has been created by the Punjab government as a supplier of a�ordable housing in the low to low-middle income end of the housing market. �ese projects include small housing units and apartment buildings in Lahore, Faisalabad and Sahiwal, and future projects in Kasur, Bahawalpur and Chiniot.101

Technology has changed the way agents transact, produce and use knowledge and most importantly, generate value in a modern economy. Punjab is at the forefront of harnessing technology to �rstly improve service delivery (for example in health, education, land management, and policing) and secondly to improve governance through the digitization of many provincial government departments (for instance procurement, transport, labour, and taxation). It is estimated that 17.8 percent of the population had internet access in the country in 2016, representing just one percent of world internet users, and the number of internet users was rising at a much slower rate as compared to 2015 and 2014.102 Given Punjab’s large population, Punjab’s internet usage must be almost the same as Pakistan (if not more), but this �gure remains abysmally low nevertheless. �e Punjab government and the Punjab Information Technology Board (PITB) are trying to increase this number and have recently created more than 200 free Wi-Fi spots in �ve cities of the region to increase internet usage.103

Perhaps the greatest overarching and positive initiative of the government has been a drive towards greater usage of IT since 2007, allowing it to automate systems, support local IT vendors and increase transparency. �is process started in 2007 and has positive spill overs in many services sub-sectors including IT, communications, transport and housing. �e Land Records Management and Information (LRMI) Program was one such initiative to increase the institutional capac-ity of land administration bodies in Lahore. Between 2007-12, a digital land records system was created in Lahore.104

Land records have now been computerized in �ve city district governments as well as in Sialkot. It will be extended throughout Punjab in Rs.12.3 billion projects. In another poorly functioning market— labour—Punjab has implement-ed a Labour Market Information System (2011) which helps the unemployed in job search, matching and general employment intermediation. A similar initiative for skilled graduates of the PVTC is the Punjab Technical and Vocation-al Training Authority Skilled Labour Market Information/Placement System, and the CM’s BISP self-employment scheme.

Tax collection systems in Punjab are being overhauled (under the new Punjab Land Records Authority Act 2017) using technology for better administration and management to reduce time ine�ciencies and corruption, as evidenced by the success of the Sialkot 2014 pilot of the Automated UIPT system. Pakistan was the only country in South Asia to intro-duce reforms in property transfers in 2016, and the Doing Business 2017 Pakistan’s ranking re�ects this as Pakistan moved 1.5 percentage points closer to the (best) frontier between 2016 and 2017. Overall, Pakistan’s ranking improved 4 ranks, as 144th out of 190 countries.105 �e greatest improvement was in access to credit, as banks could possibly have found it easier to extend credit because of improved land records. Punjab is also set to use GIS mapping to expand its tax base by identifying new tax paying establishments (as done by PRA), but is also looking to assess the commercialisation potential of land.

Modern services sub-sectors such as IT and ITeS bene�t greatly from economies of scale (expansion lowers per unit costs) and also agglomeration. Clusters allow businesses to reap agglomeration bene�ts such as access to skilled labour, better knowledge transfer, greater demand, and higher productivity gains in general, since services tend to be more “non-rival” than goods. At the same time, it is more practical to build services sector clusters because services �rms are generally smaller than manufacturing �rms (that often have multiple plants), use clean technology, and do not require bulky trans-portation through already burdened highways, railways, or ports. In Punjab, where the road infrastructure is already facing tremendous pressure, building services clusters as done in China under the “park-in-a-park” model could be one way forward (Box 5-10).


208

99Shaikh, A. (2017). Pakistan’s real estate divide: Is the country’s real estate market too eli�st? Aurora, Dawn. 6th February, 2017. Available at h�p://aurora.dawn.com/ news/1141727/pakistans-real-estate-divide100h�p://www.hudphed.punjab.gov.pk/Highlights101Punjab Land Development Company Limited: Projects. Available at h�p://pldc.gop.pk/projOnGo04.php. Retrieved on 23rd April, 2017102Internet Live Stats. (2017). Available at h�p://www.internetlivestats.com/internet-users/pakistan/103Express Tribune (27th April, 2017). Five major ci�es in Punjab now have internet on the go. Available at h�ps://tribune.com.pk/sto-ry/1394372/five-major-ci�es-now-internet- go/104Punjab Land Revenue Authority. Available at h�p://lrma.punjab-zameen.gov.pk/world-bank105Doing Business 2017. Available at h�p://www.doingbusiness.org/data/

Punjab is currently taking steps in the right general direction. Two science parks are under construction in Punjab since 2015: the Lahore Knowledge City (with 20 percent initial investment from the Punjab Government for basic infrastruc-ture) in a $1 billion PPP project located close to the border with India) and a National Sciences Technology Park in Islamabad (a Pak-China initiative through NUST).106 Such parks based on the triple helix model of government, business and academia involvement could address skill gaps in the market. Private sector investment will fund the remaining 80 percent in this PPP project cost. �e Lahore Knowledge Park Company (founded in 2014) anticipates it

Box 5-10: Services clusters in China

China has benefi�ed from developing services sub-sector clusters within their Suzhou Industrial Park (SIP) in recogni�on of its crucial role in backward and forward linkages. This includes parks that cover IT, natural sciences, as well as “crea�ve” parks which house so�ware developers and outsourcers, adver�sing firms, and anima�on design. Realising the economic benefits of business services, China has also created an I-Park (Genway I-Park) in SIP that has been catering to the product localiza�on and marke�ng needs of interna�onal brands like IBM and Kra� Foods since 2010. In 2013, it also built housing to accommodate R&D workers, foreign technical consultants and experts. Given that many service sub-sectors require high-skilled quality labour, a Higher Educa�on Town was also built in 2003, which eventually a�racted joint ventures with foreign universi�es. Ul�mately, SIP has transi�oned from being a manufacturing park built in 1994 to a science and technology park by 2009, with its own urban development plan borrowed from Singapore, top ameni�es and facili�es which make it a�rac�ve for coloniza�on. The vision for SIP is to focus on more broad technologies that would create the knowl-edge-base for suppor�ng the economy at large using park-in-a-park clusters.

Specifically, the aim was to encourage start-up entrepreneurship through university-in-dustry knowledge spill overs and to reduce risk for early stage angel investors and venture capitalists. This was done by establishing specialized sub-clusters for nanotech-nology, biotechnology, and ICT in the SIP Higher Educa�on Town, close to universi�es, research ins�tutes, laboratories and a high-skilled labour force. Overall administra�ve, legal and business support are provided by a one-stop-shop SME Service Centre that provides free services to SIP tenants to help prepare and pitch successful business plans, file taxes, patents, locate VC, and hire labour.

Notes:Van Winden, W., Braun, E., Otgaar, A., and Wi�e,J. (2014). Urban Innova�on Systems. Regional Studies Associa�ons. Routledge Publishing: New York.

Table 8: Ke re ted and ongoingto add 40000 jobs and Rs.6 trillion to the economy over the next 25 years.107 State of the art facilitation is to be provided through tax incentives (import tax breaks, tax credits, special economic zones), funding (government R&D grants, schol-arship funds, international donor grants, angel investment, venture capital) and business management (�nance and insurance, company registration, patenting, legal aid).109


209

106June 28, 2015. h�ps://tribune.com.pk/story/911079/science-and-technology-park-nust-tus-holdings-china-ink-mou/

Table 8: Key Ini�a�ves Rela�ng to Services: Completed and Ongoing

5.1.8 Issues and challenges

�e most serious issue for the services sector of Punjab is that, there is very little data on it, given that it contributes almost two-thirds to provincial gross value added. Data is also quite poor at the national level. While the yearly Economic Surveys record basic information on the services sectors, there is no corresponding provincial exercise to collect similar data. �e annual Labour Force Surveys (LFS) do provide provincially disaggregated service sector- wise employment and earnings information by gender, age, education, and rural/urban. However, the LFS does not collect any data on second-ary occupations. �is lowers employment numbers for the services sectors, as many individuals are employed in services in addition to their primary occupation (which is mostly agrarian in nature). It is worth mentioning that such employ-ment may not be categorized as a distress sale of labour, but rather a way of income-smoothing the cyclical nature of earnings typical of the farm sector.

�ere is no information on number of services-sector units, sub-sector wise break-up, capital stock formation, or input use in terms of energy, raw material and service usage. �e national supply-use tables contain data on input-output usage, but at the national level. Given the diverse nature of the sub-sectors in terms of nature of the service and its scale of opera-tion, it is easy to see why the services sector is so hard to document. Nevertheless, it is essential to spatially map the services sector in Punjab. �is will permit critical assessment of the challenges and opportunities faced, as there are important urban-rural di�erences between service-sector �rms. At the same time, a sub sector-wise spatial decomposition would be essential to devise a meaningful growth strategy to support all crucial sub-sectors. As the services sector leads in terms of gross value addition provincially, this would help Punjab achieve its annual growth target of 8 percent till 2018.

Secondly, there is no apex body, focal department, or dedicated trade body for the services sector in Punjab, or to our knowledge, even in Pakistan. Given that services comprise diverse sub-sectors, it is understandable, yet puzzling that there is no focal point in the Punjab government for the services sector. �is prevents the Punjab government from recog-nizing the sector as important, from viewing the sector holistically and from formulating a growth strategy that captures and capitalizes on the synergies across the diverse services sector activities.

�irdly, data discrepancies due to di�erent classi�cations and reporting systems (ISIC/PSIC, IMF/SB) make data trian-gulation impossible. Empirical research is hindered by the lack of a uni�ed classi�cation system, with LFS using PSIC 2010 (Revision 4) and Board of Statistics, Punjab using PSIC 2007 (Revision 3). As federal agencies collect data for di�ering purposes, they use varied de�nitions of services sector activities: earnings data of the SBP uses IMF de�nitions, whereas the provincial tax regulatory authorities loosely follow the GATS services de�nitions. It is necessary that Punjab initiates a process of data collection that is as detailed and comprehensive as possible following international accounting and reporting standards. 5.9 Way Forward

It is critical that private-sector led development strategies in Punjab encompass the services sector and envision a strategic role for it. �is is especially important in the face of uncertainty in the agriculture sector due to volatile world crop prices and an expected rise in the import bill on account of recovering oil prices. �e import bill will also rise due to increased imports of machinery and equipment for CPEC-related projects. Given that services already contribute almost two-thirds of Punjab’s total value added without any explicit growth strategy or services sector plan, it stands to reason that there are enormous gains to be had from even a slight policy and institutional focus on this overlooked sector. A services sector growth strategy and sector plan must be drafted immediately for the next �ve years, with a special focus on the implications of CPEC.

It is the lack of data which has resulted in a sole focus on agriculture- and/or industry-led growth for Punjab, despite the very glaring challenges faced by both. Agriculture is mired by low productivity, acute water shortages, increasingly erratic weather patterns and global price shocks in agriculture. Industry is su�ering from low value- addition, severe energy

Punjab is currently taking steps in the right general direction. Two science parks are under construction in Punjab since 2015: the Lahore Knowledge City (with 20 percent initial investment from the Punjab Government for basic infrastruc-ture) in a $1 billion PPP project located close to the border with India) and a National Sciences Technology Park in Islamabad (a Pak-China initiative through NUST).106 Such parks based on the triple helix model of government, business and academia involvement could address skill gaps in the market. Private sector investment will fund the remaining 80 percent in this PPP project cost. �e Lahore Knowledge Park Company (founded in 2014) anticipates it

to add 40000 jobs and Rs.6 trillion to the economy over the next 25 years.107 State of the art facilitation is to be provided through tax incentives (import tax breaks, tax credits, special economic zones), funding (government R&D grants, schol-arship funds, international donor grants, angel investment, venture capital) and business management (�nance and insurance, company registration, patenting, legal aid).109

crisis, inadequate quality assurance, and increased competition from foreign entrants in the industrial sector. �e services sector, on the other hand, is neither extremely energy intensive nor does it face the extreme price volatility that typi�es the agrarian sector. It is a low-hanging fruit for the Punjab economy, especially considering how well it has been doing with the disjointed institutional, economic, regulatory and infrastructural support it has historically been extend-ed.

Punjab must promote domestic and foreign investments in this sector, encourage new entry by easing credit constraints, reduce transaction costs of doing business, and most importantly, play a role in collecting, compiling and disseminating information pertaining to all services sub-sectors. Punjab must recognise that a vibrant services sector not only provides employment, but also that it is the anchor of modern economic growth through a highly e�cient �nance and insurance sector, powered by a high quality, low cost information and communication system which stimulates both domestic and international commerce activities. Commerce, or wholesale and retail trade sector, is the crucial link in the farm/�rm to market chain that is made possible through e�ective and state-of-the- art transport and storage services.

While Punjab is at the forefront of many endeavours in the �elds of IT and transport, it has till now failed to truly appre-ciate the potential economic, social, and infrastructural spill-overs IT and transport can provide. Although the transport sector o�ers economies of scale, innovations in the IT sector can usher in decade’s worth of scope economies for virtually every service sub-sector as well as for industry and agriculture. �e rate of return on investments in the IT sector are remarkable in this regard. Moreover, given the rudimentary state of the storage and logistics sub-sectors, there is a sizeable �rst mover advantage for new entrants.

Following successes in the education and health sectors, the Punjab government has shown serious intent to use public-private partnerships (PPPs) in transport, employment creation, and use of IT. �is trend must continue. �e Punjab Public Private Partnership Act, 2014 was a move to strengthen the regulatory framework for PPPs that will stimu-late private investment. PPPs allow the public sector to leverage private �nancing and sector expertise to overcome �scal and human capital constraints.

At the same time, given the increased FDI and global attention Punjab will receive due to CPEC, all taxes on services must be streamlined, with minimum tax spread to ensure low costs of doing business. �is incentive structure will not only determine domestic entrepreneurship, but also encourage foreign joint ventures (directly or indirectly related to CPEC) to invest in the service ecosystem through trainings as well as technology sharing. It is recommended that Punjab withdraw all taxes that contribute less than 1 percent of provincial tax revenue, merge all tax collection bodies with the Punjab Revenue Authority, and remove overlapping taxes. Rationalizing tax rates will ease the costs of doing business, increase the viability of medium and small medium enterprises (MSMEs) that dominate the service sector, and most importantly, lower informality in the Punjab services sector by decreasing incentives for tax evasion. Unfortunately, it appears that the federal government has been following a policy of increasing the costs of non-compliance (through with-holding taxes) by raising e�ective tax rates, instead of trying to increase the rates of compliance. By increasing the tax rate applicable to the existing base, the tax authorities must weigh the trade-o�s in terms of decreasing an already narrow tax base even further. Provincially, the move to include services in the tax net is a positive step, but that too must be done in a phased manner, with time-bound relaxations (but not exemptions).

�e discussion above highlights that services growth is complementary to the commodity producing sectors of agricul-ture and manufacturing. Policies introduced in this sector would be mutually reinforcing and create positive spill overs for other sectors, especially in terms of IT infrastructure, which would lead to higher productivity in manufacturing through e�cient and cost-e�ective services sector inputs. �is would translate into higher earnings in manufacturing and greater employment in services, and increased innovation in the overall economy. �e �rst step will be to collect statistics and develop a comprehensive knowledge base about the sub-sectors to allow the provincial government to empirically identify the growth drivers among these sub-sectors, with an eye to the global market. Only through data-informed analysis can appropriate policies be developed, monitored and evaluated for the services sector of Punjab, and eventually for the overall economy.


210

107h�ps://www.techjuice.pk/a-billion-dollar-project-lahore-knowledge-park-to-produce-11200-phds/108Mughal, S. (2016). A billion-dollar project, Lahore Knowledge Park, to produce 11,200 PhDs. 25th July, 2016. Lahore Knowledge Park Company. h�p://lkpc.com.pk/facilita�on/

It is critical that private-sector led development strategies in Punjab encompass the services sector and envision a strategic role for it. �is is especially important in the face of uncertainty in the agriculture sector due to volatile world crop prices and an expected rise in the import bill on account of recovering oil prices. �e import bill will also rise due to increased imports of machinery and equipment for CPEC-related projects. Given that services already contribute almost two-thirds of Punjab’s total value added without any explicit growth strategy or services sector plan, it stands to reason that there are enormous gains to be had from even a slight policy and institutional focus on this overlooked sector. A services sector growth strategy and sector plan must be drafted immediately for the next �ve years, with a special focus on the implications of CPEC.

It is the lack of data which has resulted in a sole focus on agriculture- and/or industry-led growth for Punjab, despite the very glaring challenges faced by both. Agriculture is mired by low productivity, acute water shortages, increasingly erratic weather patterns and global price shocks in agriculture. Industry is su�ering from low value- addition, severe energy

crisis, inadequate quality assurance, and increased competition from foreign entrants in the industrial sector. �e services sector, on the other hand, is neither extremely energy intensive nor does it face the extreme price volatility that typi�es the agrarian sector. It is a low-hanging fruit for the Punjab economy, especially considering how well it has been doing with the disjointed institutional, economic, regulatory and infrastructural support it has historically been extend-ed.

Punjab must promote domestic and foreign investments in this sector, encourage new entry by easing credit constraints, reduce transaction costs of doing business, and most importantly, play a role in collecting, compiling and disseminating information pertaining to all services sub-sectors. Punjab must recognise that a vibrant services sector not only provides employment, but also that it is the anchor of modern economic growth through a highly e�cient �nance and insurance sector, powered by a high quality, low cost information and communication system which stimulates both domestic and international commerce activities. Commerce, or wholesale and retail trade sector, is the crucial link in the farm/�rm to market chain that is made possible through e�ective and state-of-the- art transport and storage services.

While Punjab is at the forefront of many endeavours in the �elds of IT and transport, it has till now failed to truly appre-ciate the potential economic, social, and infrastructural spill-overs IT and transport can provide. Although the transport sector o�ers economies of scale, innovations in the IT sector can usher in decade’s worth of scope economies for virtually every service sub-sector as well as for industry and agriculture. �e rate of return on investments in the IT sector are remarkable in this regard. Moreover, given the rudimentary state of the storage and logistics sub-sectors, there is a sizeable �rst mover advantage for new entrants.

Following successes in the education and health sectors, the Punjab government has shown serious intent to use public-private partnerships (PPPs) in transport, employment creation, and use of IT. �is trend must continue. �e Punjab Public Private Partnership Act, 2014 was a move to strengthen the regulatory framework for PPPs that will stimu-late private investment. PPPs allow the public sector to leverage private �nancing and sector expertise to overcome �scal and human capital constraints.

At the same time, given the increased FDI and global attention Punjab will receive due to CPEC, all taxes on services must be streamlined, with minimum tax spread to ensure low costs of doing business. �is incentive structure will not only determine domestic entrepreneurship, but also encourage foreign joint ventures (directly or indirectly related to CPEC) to invest in the service ecosystem through trainings as well as technology sharing. It is recommended that Punjab withdraw all taxes that contribute less than 1 percent of provincial tax revenue, merge all tax collection bodies with the Punjab Revenue Authority, and remove overlapping taxes. Rationalizing tax rates will ease the costs of doing business, increase the viability of medium and small medium enterprises (MSMEs) that dominate the service sector, and most importantly, lower informality in the Punjab services sector by decreasing incentives for tax evasion. Unfortunately, it appears that the federal government has been following a policy of increasing the costs of non-compliance (through with-holding taxes) by raising e�ective tax rates, instead of trying to increase the rates of compliance. By increasing the tax rate applicable to the existing base, the tax authorities must weigh the trade-o�s in terms of decreasing an already narrow tax base even further. Provincially, the move to include services in the tax net is a positive step, but that too must be done in a phased manner, with time-bound relaxations (but not exemptions).

�e discussion above highlights that services growth is complementary to the commodity producing sectors of agricul-ture and manufacturing. Policies introduced in this sector would be mutually reinforcing and create positive spill overs for other sectors, especially in terms of IT infrastructure, which would lead to higher productivity in manufacturing through e�cient and cost-e�ective services sector inputs. �is would translate into higher earnings in manufacturing and greater employment in services, and increased innovation in the overall economy. �e �rst step will be to collect statistics and develop a comprehensive knowledge base about the sub-sectors to allow the provincial government to empirically identify the growth drivers among these sub-sectors, with an eye to the global market. Only through data-informed analysis can appropriate policies be developed, monitored and evaluated for the services sector of Punjab, and eventually for the overall economy.


211

Annexure

Table 5-1: Key labour market interv


212

Table 5-1: Key Labour Market Interven�ons, Punjab: 2007-17

Table 5-3 Provincial tax receipts, 2015/16-2016/17(Rs. in million)

Source: White Paper Budget 2016-17

BE 2016-17Tax receipts BE 2015-16 RE 015-16

Punjab Revenue Authority 72,000 62,000 86,500

Sales tax on Services 72,000 62,000 86,500

Board of Revenue 50,000 50,001 61,400

Agricultural income tax 2,300 1,550 2,300

Registra n 820 566 779

Land revenue 13,679 11,303 14,447

Capital value tax 8,800 11,270 12,274

Stamps 24,401 25,312 31,599

Excise & T on 25,000 23,667 29,500

Urban immoveable property tax 8,660 8,647 11,510

Tax on professions, trades and callings 770 795 810

Receipts under motor vehicles 11,205 10,815 12,724

CVT on moveable assets (vehicles) - 361 -

Other direct taxes - 16 -

Provincial excise 2,800 2,651 2,920

Farm house tax 15 1 10

Tax on luxury houses 825 10 825

Other indirect taxes 725 371 701

Energy 13,041 14,459 6,235

Electricity duty 13,041 14,459 6,235

Transport 551 660 801

Motor vehicles fitness cer cates and permit fee 551 660 801

Total provincial tax revenue 160,591 150,787 184,436


213

Table 5-2: Labour Regula�ons for Services, Punjab

Table 5-3: Provincial Tax Receipts, 2015/16-2016/17

Source: White Paper Budget 2016-17

Insurance premiums 1 to 4


214

Table 5-4: Federal Taxes in Fiance Bill 2016 Applicable to Services Sector, Punjab

Table A5-5 Key achievements related to services sector, 2010-2016.

Ini e Descrip n

Apna Rozgar Scheme (2012) 2017-18 In-kind assistance to provide (20000) 50,000 subsidised green Taxis/vans per annum

Khud Rozgar Scheme 2012-date Interest-free loans to priority groups to establish small shops or other local business

Punjab Metrobus Authority2013 on, oper on and maintenance of rapid bus transit systems in Punjab

R on of food hygiene in PunjabPunjab Food Authority2011

Punjab Inf on Technology Board 2011 ached to Punjab Planning &Development Department

Punjab Land Development Company 2010 To provide funding, reg on and capacity to build affordable housing schemes inPunjabAashiana Housing Scheme 2011-to date Affordable modern housing for low income groups in Lahore, Faisalabad, Rawalpindi,

Sargodha, Gujranw es of Punjab.e-Youth Ini e 2012-to date Provision of free laptops to 100 thousand on merit for students at public sector

colleges & univers esPunjab Youth Internship Program 2012 Skills training program for 50,000 unemployed Punjab youth with monthly

pend of Rs 10,000 to internsPlan9 - Tech Incubator 2012 Tech accelerator for entrepreneurial companies through an array of business

support resources and servicesPunjab Women Empowerment Package 2012, 2016 Employment quotas, inheritance law amendments, harassment laws, day cares,

interest-free loans and skills trainingWomen-on-Wheels es provided on subsidised instalments to women in Lahore, Multan,

Faisalabad, Sargodha and Rawalpindi


215

Table A5-5: Key Achievements Related to Services Sector, 2010-2016.