EDITORIAL: There is nothing wrong with the idea of tax exemptions for producers in former Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA), as the government has done, to give a fillip to growth and employment in those places, but sectors like steel and cement are up in arms for very good reasons as well. The steel industry is in fact so taken aback by the decision to remove 17 percent Federal Excise Duty (FED) on units operating in the old FATA/PATA areas that large producers and documented plants are threatening a temporary shutdown and even a hunger strike if a U-turn is not very quick in the coming.
It turns out that the prospect of this exemption to Fata may end in a replay of the infamous ‘Gadoon Amazai’ phenomenon. It may be recalled that decades ago, the federal government in its zeal to promote industrialization in Fata granted similar exemptions from ‘indirect taxes’ to industries established there. What happened is a case study in how to ruin industry situated in the tariff area and how to thrive at the expense of the exchequer. Most of the establishments with industrial units in the tariff area either relocated to Gadoon, if they could, or established a similar unit in Gadoon and shut down the one in the tariff area, the unscrupulous among them even dared to run both the units, one in tariff area and the other in Gadoon but declared major portion of their production from their Gadoon facility in cahoots with FBR (then CBR) staff. As it is, even without the proposed exemption from import tariff on raw materials, there are complaints by industry in the tariff area that Fata units are selling the imported raw material in the open market and claiming refund of FED or sales tax paid at the import stage; instead of using the imported raw material in their industrial plant. Production of steel bars from imported steel scrap is one such instance of the rampant fraud cited by the steel melters.
It’s not as if this problem has just popped out of nowhere.
Now who is to blame because an initiative that was supposed to stimulate investment and employment in one part of the country not only did not do that in that part because of exploitation by outsiders, but also led to a lot of economic destruction in other parts of the country because of the same exploiters; who, incidentally, seem to be the only party making a killing out of all this? The simple point is that such area-specific tax exemptions only do the trick when the government is able to police the movement of everything produced in the exempted areas extremely well. That, sadly, is simply not the case in this country so far so the least the government can do is take all industry on board before it green-lights any initiatives that can have deep-rooted, far-reaching consequences. That way, at worst, they can at least hold their breath and prepare for the gut punch.
In acting in the manner it has done, the government is achieving exactly the opposite of what is intended. When big money is able to manipulate the system with such impunity the idea of stimulating the local economy is not achieved. What is more, as this case shows so clearly, matters are made that much worse when the same policy actually ends up hurting both employment and growth over a wider area. It seems the government isn’t quite up to speed with monitoring and evaluation of the practicality and affordability of some of its well-meaning schemes.
Copyright Business Recorder, 2021
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