No direct incentives announced, but plenty of structural changes

Govt decides to fix regulatory structure of power.

ISLAMABAD:

The government’s approach to providing incentives to various sectors this year seems to be based on the Hippocratic Oath: ‘first, do no harm’. Instead of providing tax breaks or other incentives to agriculture or industry, the government will instead focus on fixing two of the problems caused by its own bad management: the chronic power shortage and the complex tax structure.

Had Finance Minister Abdul Hafeez Sheikh been able to deliver the full contents of his speech, it would have contained no mentions of any incentives for industry or agriculture (though the financial services sector got some). The minister seemed insistent that everybody in Pakistan pay their fair share of taxes.

The full text of the planned speech was posted on the Finance Ministry website on Friday evening. It spends an extraordinary amount of time talking about the energy sector and the government’s proposals on deregulating the sector. The government’s goal would be to free the sector to produce more energy to meet the needs of an industrial sector crippled by extended power outages every day.

The government seems to be responding to the entreaties by virtually every major business lobby in the country to focus on ending the chronic power shortage, which is the result not of an actual shortage of production capacity but rather a regulatory structure that inserts government intervention in a manner that Islamabad has found impossible to sustain over the last three years.

Sheikh also made it clear that the government plans on simplifying the tax code and also ensuring that the tax authorities become more efficient in disbursing reimbursements.

In addition, the government will be reducing the number of exemptions enjoyed by many sectors and eliminating entire categories such as the special excise duty, in a move designed to make its simpler for businesses to file taxes. Pakistan currently ranks 154th out of more than 180 nations in the World Bank’s Doing Business report’s ranking of ease of paying taxes.

While each of the above proposals is born out of dialogue between the government and business leaders, it is unclear whether the government will get any support from the business community over the coming weeks and months on its budget proposals.

Published in The Express Tribune, June 4^th, 2011.