EDITORIAL: The industrial policy, as pledged in Prime Minister Imran Khan’s Tuesday address to the nation, was announced in Lahore (though a more appropriate venue would have been the federal capital as it is a policy that would be applicable throughout the country) where he stated that his one regret is that he did not announce this policy sooner — a regret that incidentally he also mentioned with respect to the delay in going on the International Monetary Fund (IMF) programme.
However, while the IMF programme was delayed by eight-and-a-half months (the staff-level agreement was signed on 12 May 2019) yet this three-and-a-half years delay in the announcement of the industrial policy is really not as valid as nearly all components of the policy were being implemented during the past three-and-a-half years to some extent though, perhaps, not concurrently as a special tax regimen was introduced for manufacturing small and medium enterprises sector for 2020-21, special technology zones were granted 10-year exemption last fiscal year, and special economic zones were exempted from income tax in the finance bill 2021 but with little positive outcome. In the recent address to the nation, the Prime Minister also made the IT sector exempt from all taxes, which is fully supported.
The amnesty, no questions asked as to the source of funds with the applicable period not yet known, was available twice before — once due to the extension of the scheme that was introduced by the Shahid Khaqan Abbasi government and once with specific reference to the construction sector.
Sadly, neither of these schemes attracted the amount of investment that was anticipated though one would hope that this latest scheme bears fruit. The International Monetary Fund (IMF) is unlikely to support it as it has frequently stated that such schemes act as a disincentive for honest taxpayers and the Financial Action Task Force (FATF) may have its own reservations, therefore its continuation may well depend on the outcome of the seventh review that is scheduled this month and, of course, on the government’s assessment of the need for the next Fund tranche.
Details of the package have not yet been made public and it is not known whether the five-year tax holiday will be extended to even those who procure loans to set up industry (in 2011 Dr Hafeez Sheikh announced a five-year tax holiday on loan-free equity investments, a sound policy measure though disturbingly it did not increase industrial output significantly) or applicable also to existing industries (through joint ventures with locals and/or overseas Pakistanis) or indeed is sector specific (as was the case in 2015 budget which incentivised agriculture and construction sectors with all units to be set up in Khyber Pakhtunkhwa till 2018 exempted from income tax and turnover tax for five years).
This component of the policy may also be opposed by the Fund under its ongoing programme as it supports withdrawal of exemptions — the raison détre for the passage of the politically challenging December 2021 finance amendment bill that withdrew exemptions was an upfront sixth review condition.
It is quite clear that the 2022 industrial policy’s overarching objective is to incentivise investment in industry as industrial growth is critical for sustainable economic prosperity by generating jobs, achieving higher exports and in meeting goals/targets, as per Khusro Bakhtiar, Federal Minister for Industries and Production. The Prime Minister added that this policy would divert money invested in plots into industrial growth.
However while time will tell if this policy will be as successful as envisaged by the Prime Minister and members of his cabinet yet past precedence shows that tax holidays are not as efficacious as envisaged at the time of the announcement of the policy in increasing investment in industry. The Prime Minister also took the credit for the massive rise in remittance inflows due to incentives given by his administration, however, while the incentives were certainly one factor yet another equally if not more powerful factor was the global lockdown during the pandemic that also led to lay-offs of foreign workers in the Middle East, including Pakistanis.
Last but not least, it is relevant to note that the Chief Justice of the Islamabad High Court observed that the Prime Minister was misguided over the Prevention of Electronic Crimes (Amendment) Ordinance 2022. One would hope that he is not similarly misguided about the industrial policy.
Copyright Business Recorder, 2022
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