by Hassan Arshad Chattha（Special commentator for China Economic Net）
Pakistan’s Finance Minister Asad Umar presented the third finance bill for the current fiscal year in the National Assembly on January 23rd, clarifying that, “This is not a budget, this is a corrective package aimed at addressing various sectors of the economy.”
Since taking charge in the third quarter of 2018, the new government faces an uphill task of restructuring the Pakistan economy towards a more growth and development oriented direction. The measures outlined in this finance bill reflect the government’s intent to carry on in that direction by carefully introducing a slew of measures to tweak the system gradually towards the desired direction.
The challenge lies in changing some key traits about the economy of Pakistan. Over the last couple of decades, it has lost some of its competitiveness due to external and internal turmoil as well as implementation of policies misaligned with long term economic stability.
Currently, the core focus of the government on the development end is to enable the economy to fully reap the benefits of afforded by CPEC (China Pakistan Economic Corridor) initiative, a key part of the even larger BRI (Belt and Road Initiative), a massive development and trade oriented undertaking by China with a host of partner nations. Governments on both sides are aware that CPEC can allow the Pakistan economy to unleash its massive development potential, which will enhance stability and development in the entire region.
The newly introduced finance bill aims to take steps to begin realigning policy and its implementation to gear up the economy for greater restructuring and changes coming up ahead to address a myriad of issues.
In an attempt to broaden the tax net, a slew of taxes over the years had been implemented across a broad range of businesses and the population in general. One key change introduced is the reduction in tax on income generated from loans to small businesses, agriculture, and low-income housing from 39 percent to 20 percent. This will prevent stagnation at the grass-roots level of the economy and keep economic activity unshackled at that level. Furthermore, additional taxes were also rationalized, some withholding taxes were waived, small businesses and the agriculture sector got some administrative and tax relief; exemption of customs and duties, sales and income tax (for five years) on import of machinery for greenfield projects (including renewables), and a welcome exemption from duties and taxation on investment in solar panels and wind turbines for five years.
Over the last couple of months, the government has also been actively pursuing foreign investment and has received a positive responses from various sources such as the massive $10 billion oil refinery by Saudi Arabia, Russian interest in investing billions in the energy sector, to various conglomerates and corporations eying Pakistan for heavy investment in sectors ranging from agriculture, textiles, development and FMCGs. Enhancing exports is also a key agenda on the governments list of things to do, and there has been development on that front with various countries.
The key takeaway from the newly introduced measures indicate that the government is acutely aware of the challenges facing it and is willing to address them by taking decisions based on data and objective awareness of what needs to be done. The measures introduced seem to be a stepping stone leading to more far reaching changes and measures intended to be announced and implemented in the near future.