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Huzaima Bukhari & Dr. Ikramul Haq
In a country of about 210 million people, about 10,000 individuals, prominent in business or profession or holding key positions in state institutions, think they know each and everything and can fix the multiple and complex problems faced by Pakistan, either single-handedly or by forming WhatsApp groups. So, we see minute-to-minute discussions on various groups on social media, containing never-ending proposals for fighting the coronavirus crisis while at the other end, the top leadership is clueless as to how to help the millions rendered without jobs, especially the daily wage earners and showing incompetence, indecisiveness and apathy towards the poorest of the poor of Pakistan.
In out last column [When challenges offer opportunities, Business Recorder, March 27 & April 2, 2020], we analysed in detail the long-delayed and much-needed financial relief and stimulus package in the wake of corona pandemic hitting Pakistan like the rest of the world, announced by the Prime Minister on March 24, 2020 [March-24-Package] of Rs. 1.2 trillion and offered concrete proposals regarding what to do in the coming days on various fronts. Unfortunately, all these have been ignored by the coalition Government of Pakistan Tehreek-i-Insaf (PTI) as proved by a brief address to the nation by the Prime Minister on March 30, 2020, which was unexpected and devoid of any wisdom especially during the kind of crisis we are facing these days.
The crux of our proposals was that we must learn from China of the type of incentives it offered as relief/tax concessions/stimulus-package to help businesses hurt by the deadly corona outbreak in addition to overcoming it in a short time. As we mentioned earlier the relief package [March-24-Package] of Rs. 1.2 trillion by the Prime Minister, now approved by the Economic Coordination Committee (ECC) of the Cabinet, was not only delayed but failed to offer meaningful and necessary tax and other incentives to the affectees of the outbreak, ensuring food and other facilities for the daily wage earners, dealing with lock-down and consequential contraction in economy, stopping lay-offs and providing income support to those losing jobs or to the self-employed, reviving real estate, housing and construction industries, incentivise investors at stock-exchanges and helping farmers, exporters, in fact all sectors of economy—just to mention a few.
It may be remembered that in March-24-Package it was said: “Special relief package for construction sector will be announced in the next few days aimed at “kick-starting different industries and providing jobs in these difficult times”. Where is the said package? It was completely ignored by the economic team of PTI Government as there was no mention of the same either in the Press Release issued by Ministry of Finance or in the address of the Prime Minister of March 30, 2020.
Much before the March-24-Package and address of Prime Minister, we suggested that “if the government wants to avoid deep recession, overcome economic toll during and after the lockdown, it must announce a comprehensive relief plan for real estate, housing and construction sectors that should be at least a 10-year tax holiday”. Tax relaxation for the real estate/housing/construction sectors is a must as over 40 industries are linked to the construction industry and Pakistan needs millions of houses every year. This measure alone can avoid recession, revive economy and provide employment to millions. It was specifically highlighted that the construction industry in return must provide full social protection and universal entitlements to its workers. Needless to point out that construction industry absorbs both skilled and unskilled workforce on a large scale. Once construction boom takes place in any economy, demand for numerous industries supplying goods and services also increase giving impetus for creating more and more jobs. It was once the main agenda of Prime Minister. One wonders what is preventing him now to implement it! His complete silence over it in the address to the nation was flabbergasting, especially in the event of his promise that he would soon announce a special package for this sector that would “kick-start different industries and provide jobs in these difficult times”. The tax concessions to real estate, housing and construction sectors will be set-off automatically by higher turnovers of industries allied with them, besides giving these capacity to retain employees and revival of industries hit by the lock-down and contraction in demand.
Many have suggested the Prime Minister to again peruse the document,‘First 100-Day Plan of PTI’, and see what he had missed. Unfortunately, the Opposition is also busy merely criticising the PTI Government, and till today has not bothered to provide alternate strategy/plan to deal with the ongoing critical situation demanding national unity, above party lines. This is the real malady of Pakistan. Democracy requires participation and public debate as well as unity on issues of national importance, mobilise masses, help the needy and ensure protection of the weaker segments of society, but our system (sham democracy) represents apathy and indifference and non empowering the masses as required under Article 140A of the Constitution [2020: main fiscal challenges, Business Recorder, December 20, 2019].
Self-acclaimed wizards in the federal and provincial governments do not believe in proper homework, research, alternatives or learn from those who have delivered successful models elsewhere not only on the health front but have also saved people from economic hardships. There is a need to mention that Ministry of Finance of China announced in early February 2020 exemption from import duties, Value Added Tax (VAT) and consumption tax for any imported materials for epidemic prevention.
China waived corporate income taxes and “VAT for companies purchasing materials that were to help continue production during the outbreak. The economic/tax wizards in Pakistan have not announced any such concessions till today. China also exempted transport industry, express delivery, and businesses associated with daily necessities from VAT, all epidemic-hit companies in the catering, tourism, accommodation, and transportation sectors. These can also carry over losses for an additional 3 years, to a total of 8 years. This is the way businesses are incentivised and not through meaningless measures announced in March-24-Package.
The State Administration of Taxation in Chinamade eligible for tax deductions all donations by businesses and individuals in cash, material and supplies to counter the epidemic. It also waived personal income tax on salaries and bonuses for medical workers involved in epidemic prevention. We have yet not given them proper safety equipment what to speak of income tax exemption on their salaries, allowances etc! This is shocking and lamentable as they are at the forefront of fight against the epidemic. This shows callousness as well as lack of vision to timely and efficiently deal with emergent problems.
In China, all provinces/municipalities presented their own policies to help small and medium sized enterprises (SMEs). Our provinces have not given any relief in multiple taxes they impose on them, especially sales tax on services. Guangdong province in South China, the country’s most populous province and most important manufacturing region, released 10-major-tax-relief measures on February 2, 2020. Our economic/tax managers in the Center and provinces (except the Finance Minister of Punjab) till today have done little and/or cosmetic to soften the economic toll of corona outbreak on businesses, especially the SMEs. The Punjab Finance Minister Hashim Jawan Bakht on March 30, 2020 announced targeted Rs. 18 billion tax relief package to the sectors affected due to Covid-19. Hopefully, other provinces will follow it.
The timely actions of Chinese governments at all tiers of drastic tax reductions on medical supplies and other materials helped in controlling the outbreak but also ensure economic survival of all citizens. The companies in China engaged in supplying and store meat, vegetables, and eggs and daily necessities have been given reductions in VAT, real estate taxes, and urban land use taxes. Where are these incentives in Pakistan?
Beijing municipality announced several concessions including: tax cuts and deferred payments for dormant companies, taxis and ride-hailing companies to continue operations and subsidies for research and development for SMEs through a special fund. Suzhou, a manufacturing and tech-hub city in Jiangsu province near Shanghai, released a set of 10 policies to support all companies in financial difficulty. Relief measures on real estate/urban land tax, and defer tax payments for all SMEs. Shanghai and all other areas of China prepared/implemented combinations of polices similar to those described above.
Pakistan, prior to corona outbreak, faced with lay-offs, industrial slow-downs, dwindling agriculture, sluggish economy, high inflation, exorbitant interest rates, fiscal deficit and unbearable debt servicing, is now heading towards recession. If lock-down continues for a prolonged time, consequences will be disastrous, no matter even if we get some concessions/aid from World Bank or IMF. Actions like establishment of Corona Relief Fund and Corona Relief Tiger Force, and cosmetic relief measures by State Bank of Pakistan (SBP), cannot not adequately help overcome the existing challenge and its negative impact in the coming days.
Our wizards in the Ministry of Finance, SBP, Federal Board of Revenue (FBR) and policymakers at provincial level must study Guangdong Model of Tax Relief Package that includes special tax incentives for catering, hotels, and other companies that cannot resume production as usual, and support further tax reductions for SMEs.
It is necessary for us to learn from China and take the same steps they took without wasting time to overcome the outbreak and simultaneously incentivising all those individuals or companies, affected by it. There is a need to take right decisions timely, come out of apathy and avoid imprudent decisions to deal with crisis of a magnitude that has jolted even the most powerful and economically resourceful countries of the world. Our survival lies in finding solutions collectively, fighting the outbreak as Chinese did, looking after the needy around us, acting as one unified nation and quit playing politics at this critical juncture.
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The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)