THE package of tax incentives announced by the prime minister to push industrialisation in the country trumps past efforts to support private capital investment in the manufacturing businesses. It aims to bolster investments in new companies, revive closed factories and help existing industrial units expand their production capacities and upgrade their technology. The incentives will be applicable on capital investments of Rs50m and above in small to large industrial units. All local, foreign and overseas Pakistani investors are eligible to benefit from the tax cuts and exemptions if they start production before the end of FY24. But what is troubling is that, much in the manner of earlier amnesty schemes, no questions will be asked about the source of funds invested in industrial projects, enabling some investors to whitewash illicit money and complicating efforts to document the economy. Resident and non-resident Pakistanis willing to bring back their foreign disclosed and undisclosed assets to the country will get some additional tax benefits. The controversial amnesty scheme notwithstanding, businessmen seem upbeat about the potential of the new strategy to industrialise the country for boosting exports and creating new jobs. Many expect the tax relief to lead to substantial fresh local and foreign capital investment in the months ahead.

While announcing the incentive package in Lahore a day after slashing energy prices, the prime minister rightly pointed out that no country could advance economically, generate jobs and alleviate poverty without boosting and diversifying industrial productivity. Narrow and inadequate industrialisation is one of the major reasons for Pakistan’s low exports and, consequently, the repeated currency crises that the economy has endured over the last several decades after brief periods of ‘economic boom’. Little wonder Pakistan has sought 12 bailout packages from the IMF in the last three decades to cope with its recurring balance-of-payment difficulties. Tax incentives, especially for those with documented funds, are important to attract investors. But these alone will not do the trick. The government should also undertake legal, regulatory and energy reforms, and cut the bureaucratic red tape to make manufacturers and exporters competitive in international markets. Pakistan has grown its overseas sales in the last couple of years but its dependence on low-value-added textiles and lack of market diversification means that its imports have far outpaced its exports. The journey to diversified industrialisation can be tough and long, and requires consistency in policies and perseverance. Piecemeal measures can do only so much.

Published in Dawn, March 3rd, 2022

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