EDITORIAL: As anticipated on the last day of 2020 Prime Minister Imran Khan announced a six-month extension of the construction sector amnesty scheme and one calendar year extension of the incentives to the construction sector that he announced April on 2020 which included monetary incentives with State Bank of Pakistan to commercial banks to extend 5 percent of their total loan portfolio to this sector subject to the passage of the foreclosure laws (passed by the national assembly on 7 November 2020) and computerization of land records for ‘facilitation of clean title for bank lending’ and fiscal incentives including capital gains tax to be levied by a one-year reduction in holding period, rationalization/reduction of sales tax on construction material, waiving off withholding tax on all construction materials while tax on builders and developers to be levied at a fixed rate. And a subsidy of 30 billion rupees for low-cost housing projects by Naya Pakistan Housing and Development Authority (NAPHDA).
The Prime Minister’s critics no doubt would attempt to focus attention on the extension of second amnesty scheme launched during his ongoing tenure: (i) the first titled asset declaration scheme 14 May 2019 ending 3 July 2019 led to 110,000 availing this scheme and declaring assets of 55 billion rupees; (ii) 10 April 2020 construction package that extended the amnesty till 31 December 2020, a date agreed with the International Monetary Fund (IMF) as amnesty schemes are opposed by multilaterals on the grounds that such relief penalizes the legitimate taxpayers. The scheme has reportedly generated 186 billion rupees which is currently parked in bank accounts and registered with the Federal Board of Revenue (FBR) as required; and (iii) its extension till 31 December 2021 which has been approved by the IMF with its representative in Islamabad maintaining that “IMF’s advice to Pakistan as well as to other member countries is to continue implementing policy actions that are targeted, temporary, focused on providing support to the most vulnerable segments of the population and consistent with their fiscal and financial envelopes” – a cautionary note almost identical to what is contained in the documents titled “Pakistan’s request for Rapid Financing Instrument in April 2020”. Needless to add, the second Covid-19 wave in Pakistan may account for the Fund’s agreement to extend the amnesty package by one year.
However, these critics clearly fail to take note of the continuing devastating impact of the deadly virus on the economy, the sustained failure of previous general amnesty schemes to mobilize a sufficiently large number of filers to legalize/declare their assets, reluctance of banks to lend to this sector for fear of a rise in non-performing loans (NPLs) due to lack of foreclosure laws, an assessment based on more than a couple of hundred billion dollars held by Pakistani nationals in foreign banks, and last but not least the new global anti-money laundering rules and regulations that have rendered it difficult if not impossible to hide ill-gotten or tax evaded/avoided assets anywhere in the world. Be that as it may, the National Coordination Committee on housing, construction and development informed the Prime Minister in December that banks had ‘almost’ achieved their quarterly targets of disbursement of house loans.
To add to the rationale behind an extension to this sector specific amnesty it is equally relevant to note that the PTI administration has announced two mega construction projects – (i) Ravi Riverfront Development Project, inaugurated by the Prime Minister on 7 August 2020, at a projected cost of 5 trillion rupees; the Prime Minister was reportedly informed early December 2020 that the Frontier Works Organization and National Logistics Cell have begun development work; and (ii) development of Bundal and Bodha islands off Karachi projected to provide employment to 2.5 million people though the status of work today is not known given that the Sindh government is opposing federal development’s approach to the islands. In short, as the world gets smaller for those hiding undeclared wealth these two projects alone provide an opportunity for investment with enviable rates of return.
The Prime Minister stated that there has been an increase in cement dispatches as a consequence of the April incentives and data partially supports his claim with cement dispatches rising to 26.46 million May-November 2020 against 24.5 million in the comparable period of the year before as per the All Pakistan Cement Manufactures Association. This rise, reports indicate, is partly accounted for ongoing construction of Suki Kinari, Dasu and Karoot hydel projects as well as ongoing excavation work on Mohmand dam. There is obviously a lag between the start of the construction activity and the incentives. The government is hopeful that it would pick up as 2021 comes to an end.
It is heartening to note that the prime minister is optimistic about country’s growth prospects despite the formidable and growing challenge of Covid-19. In relation to government’s strategy on economy, therefore, not only do people need to know what is going right, they also need to know what is going wrong. We earnestly hope and pray that prime minister’s optimism does not prove misplaced.
Copyright Business Recorder, 2021
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