Moreover, the government feels that the measures announced to regulate the real estate market, a sector widely used to park and launder untaxed and illegal money, will force diversion of investment in the productive assets, particularly in the manufacturing sector.
At the same time, tax credit of 10pc available to a corporate industrial undertaking investing in purchase of plant and machinery for the purpose of expansion, balancing, modernising and replacement at any time between July 1, 2010 and June 30, 2021 has been halved and time period curtailed to June 30, 2019. This step is likely to affect several investors who had planned these activities in the next two years.
In the face of the challenges facing the economy, argues former Paapam chairman Syed Nabeel Hashmi, the budget is not as bad as was being feared by the industry even though he doesn’t expect any new investment in the manufacturing at least in the next two years.
“The steps like abolition of duty on raw material imports, maintenance of corporate tax rate the present level and tax credit on hiring graduates will help the industry survive through the slow-growth period and consolidate without big losses.” However, he said the government needs to enforce fiscal discipline, reform bureaucracy, document the economy, and bring transparency in its affairs if it wants the industry and citizens burdened by taxes to also contribute to ongoing stabilisation efforts.
Others agree, insisting that the chances of fresh investment in the economy will be hard to attract in the present conditions. “With policy interest rate already at 12.25pc, energy prices billed to spike in the next few months, and the demand in the domestic and international market contracting, who will want to invest in capacity expansion or new projects,?” asked Anjum Nisar, former president of the Lahore Chamber of Commerce and Industry.
He agrees that the government has withdrawn sales tax exemption to exporters under the zero-rated regime because it is being used by some to hide their local sales to avoid payment of tax, but added the exporters are not opposed to the proposal in principle.
“The issue is that no one trusts the government because it delays the payment of export refunds. On top of that the exporters cannot get their tax refunds without greasing the palms of the FBR babus. Everyone will accept the government decision if it introduces an automatic and efficient system of refund payments, reimbursing 75pc of the refunds through banks upon issuance of the attested copy of Bill of Lading and the remaining against the export proceeds after 30 days.”
At the end of the day, the government’s ability to meet its budget target or even getting closer to achieving them will depend on how much trust gap it can close with the business community as well as the citizens.
Published in Dawn, The Business and Finance Weekly, June 17th, 2019