Opinion is divided on the potential impact of the Nawaz Sharif government’s ‘conditional’ tax incentives (or amnesty?) package on the country’s worsening investment climate.

The ‘multi-pronged’ tax incentives primarily offer the non-corporate and informal businesses an opportunity to legalise their untaxed wealth by investing it in the economy.

The ruling PML-N plans to increase investment to 20 per cent of the size of the economy in five years to create jobs, alleviate poverty and revive the economy, which has been rattled by severe energy shortages, high credit cost and deteriorating security conditions. Private investment has already dropped to eight per cent of GDP, and net foreign direct investment has hit the bottom.

“It is basically an attempt by the government to stimulate economic growth by encouraging investments by retailers and small manufacturers, who are operating outside the organised corporate sector, in productive sectors to create jobs. It doesn’t cover the organised corporate sector,” said Gohar Ejaz, a leader of the All Pakistan Textile Mills Association (Aptma).

“The scheme will give businessmen with illegal or untaxed money a chance to legalise their wealth. It, however, is different from previous [money whitening] schemes, because it doesn’t offer the beneficiaries a free lunch. They are now required to invest their untaxed money in the productive sectors and create jobs to benefit from it,” he said. He was hopeful that the incentives would produce positive results.

The government says the tax incentive package aims at promoting investment, creating jobs, enhancing tax collection, increasing the number of income tax return filers and honouring the taxpayers.

The package has apparently been put together on the demand of the FPCCI, which is overwhelmingly dominated by traders, small manufacturers and others working in the non-corporate sector, and who are said to be paying only a fraction of the taxes they owe.The package says no questions will be asked about the source of investment made in an industrial undertaking or expansion project on or after January 1 next year. Earlier, the government had fixed a minimum size of Rs25 million of investment to qualify for the incentive, but it did away with the ceiling on minimum or maximum investment size to allow more people to take advantage of the scheme.

Provinces will take steps to create ‘ease of doing business by consolidating, rationalising and minimising licensing, registration and inspection regimes’. Trade bodies will be facilitated to avail facilities associated with the creation of special economic zones by ensuring acquisition of land through provincial governments.

A Prime Minister’s Business Advisory Council and an Agricultural Advisory Council will also be set up to address emerging investment issues.

Almas Hyder, an auto part maker and exporter, was of the view that the new tax incentives will help re-channel funds from property and other unproductive areas into productive areas. “It is not that people are not investing their [black] money. Most have parked their cash in real estate. The tax incentives will help them re-direct those investments into industry,” he argued.

He, nevertheless, warned that there are other bigger issues — energy crunch, credit cost, smuggling and law and order situation etc. — that are facing the economy and discouraging potential investors.

“You cannot attract enough investment to put the economy back on the road of progress and create jobs [for three million young men and women entering the market every year] without addressing these issues,” he contended.

Yet, not everyone is happy with the scheme or as hopeful of its success as Gohar or Almas.

“This country doesn’t have a place for honest taxpayers. It doesn’t matter which party is ruling the country; all the policies and incentives are for those who steal taxes from the government. They keep stealing for a few years and then force the government through their political clout to forgive their crime,” said a disgruntled businessman, who requested anonymity for personal reasons.

He pointed out that almost the entire tax reform package the PML-N government had introduced in its first budget to widen the tax net and punish tax thieves had been rolled back under pressure from the traders.

“Can you give just one name from amongst major traders from Lahore who would like to invest in manufacturing when they can make easy money by selling smuggled goods at very high margins? Why would anyone want to work hard to pay taxes? Stock brokers have made billions in the last one-and-a-half years. Who has invested in industry or green field projects?”

Another manufacturer, who requested anonymity as well, said the government should also have announced some incentives for the large-scale organised sector, which has been battered by rising cost of doing business because of energy prices and shortages and high interest rates. “Unless the government supports the large-scale industry, it is not going to see private investment rise,” he argued.

According to Gohar, the financial conditions of the government will not allow it for some time to invest heavily in the economy and revive it.

“So, it is trying to implement policies that would encourage private investment in productive sectors; although tax amnesty for tax thieves is not a good policy. But the government’s decision to link it with job creation should be appreciated. You can say that the government is asking the potential beneficiaries to pay a price for availing the incentives by providing jobs to the unemployed and by agreeing to pay taxes in the future. The ultimate objective is revival of the economy and creation of jobs, one way or the other.”