Offer incentives – but don’t forget your other objectives

Economies around the world have been devastated due to Corona virus pandemic.  It is said that lots of small businesses in all countries affected by Corona virus may not survive thru the lock down.  As people stay home to remain safe and to avoid spreading of the pandemic, which appears to be the best course of action for now, it grinds the wheel of economy to an almost halt.  Businesses related with nonessential goods and services remain closed, their employees laid off, debt payments are being defaulted.

Each country is trying to cope up with this situation in its own way.  Governments of the countries are trying to find ways in which they can offer some assistance and relief to individuals and incentives and relaxations to businesses to survive.  Size and nature of these assistance/relief packages and incentives/relaxations depend on the overall size and strength of their respective economies. 

Pakistan is no exception, however, considering the potential impact of a complete locked-down on its informal business and service sector and individuals associated with the same and ground realities, Pakistan followed a mixed approach.  Though it encouraged people to remain home and follow safety guidelines against Corona virus, it did not go towards a complete lock-down.  On one front where the government tried to come up to the expected needs of the health care sector to effectively meet this challenge, it also started offering various assistance packages to individuals as well as business to remain above water.  Some of the measures the Pakistani government took are:

• Disbursed Rs. 12,000 rupees ($75) to low-income earners, affecting an estimating 67 million people, as part of a $940m economic stimulus package
• Called the private sector not to lay off laborers
• Increased the prevailing rate of telegraphic transfer (TT) to Saudi Rial 20 on remitting $100-$200
• Announced a relief package for the construction sector. 
  • Temporarily suspended the condition of disclosing source of income for investments in the construction sector within this year
  • Introduced a fixed tax
  • Exemption of 90% tax on investments for the Naya Pakistan Housing Scheme
  • Abolishing the withholding tax on materials and services in the informal sector
  • No capital gain tax from families selling their houses
  • Spending Rs30bn subsidy for the Naya Pakistan Housing Scheme

Sources:              https://thediplomat.com/2020/03/pakistans-fight-against-the-coronavirus-threat/, https://www.aljazeera.com/news/2020/03/pakistan-daily-wagers-struggle-survive-coronavirus-lockdown-200325115143152.html, https://www.dawn.com/news/1549594, https://www.geo.tv/latest/280759-coronavirus-lockdown-pakistan-facing-different-challenges-compared-to-europe-says-pm-imran,

It is good and appreciable that the government is considering the hardships faced by individuals and businesses and making an effort, from within its meagre resource, to help them surviving thru this difficult situation, however, the government should also not ignore the challenges it was working on prior to this pandemic.  These challenges were documentation of the economy and increasing the tax net, which for the long run may be do or die kind of options for a sustainable economy.  These tasks were still a work in progress when government got pulled away to the situation due to the corona virus pandemic and its impact.  Also, the government and Pakistanis should not forget that after the current situation is over the country will need to come out of this deep financial hole, caused by corona virus, and must get back on its journey to improve its economy for which documentation and widening the tax net are a must.

So why not the government kills two birds with one stone?

To deliver its corona assistance to the unemployed daily wagers and labour force the government has established a tiger force that is reaching out to individual households and deliver cash and/or food.  In addition to the delivery of cash/food another task can be assigned to the tiger force, which is of collecting and documenting some basic data of any individual and/or family they contact such as name, address, phone number, profession and family size and composition.  This info will not only help the government determine the needs and size of help needed but will also help creating a database for the undocumented and informal labour force.  And who does not know how valuable this information can be for planning purposes.

Similarly, the government should make it mandatory for businesses to get registered with the tax authority before they can take advantage of any incentives offered by the government.  Requirement, now, should not be about filing the tax returns but registration.  So, for now they just get registered and can enjoy the incentives or relaxations offered by the government and walk away but the tax authorities will approach them when the business comes back up and running and time for taxing comes.

To some it may look inconsiderate or may look as taking advantage of someone in a difficult situation, but governments will be within its rights for doing so and have legitimate reasons for doing so.  The governments need to achieve tougher objectives for which, at times, they need to be or can be little bit creative.

At the end of the day:

• Individual will get help in the form of cash/food at this difficult time
• Families will get support they need
• Lots of informal daily wagers will get documented
• Their data will help government bringing up reforms for their benefits
• Their data will help in planning and development
• Businesses will get the assistance/incentives they need to recover from corona damages
• Businesses will get added to the tax net
• Tax authorities will be better prepared when the time comes

Optics may not be ideal, but objectives are all sincere and good.  Further, it may be getting the best out of your buck and a win-win situation in this difficult time.

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Babar Saeed

bsaeed@yahoo.com

May 15, 2020